candlestick triangle formation forex
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Candlestick triangle formation forex gdmx forex charts

Candlestick triangle formation forex

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But what is of vital importance is that you can clearly identify the price movements of a chart in line with your own trading strategy. However, by far, the most commonly used display of price used by traders globally is, without doubt, the Japanese candlestick price chart. Within the nature of this chart, and I just want to just draw your attention to the fact that this is a dollar related daily timeframe as you can see up the top left-hand corner there, and along the x-axis you will find the relevant date associated with the price information currently up on the screen.

And, along the y-axis you will find the price movement. Now that gives us some fantastic opportunities for technical traders. We can see that the price is, at this particular time frame, is effectively towards the top left of this particular chart. And, we can see what the price is currently at this particular time frame and we can see therefore what is happening to price between those two timeframes.

And that this is why technical charting is really useful. To just give you a very quick overview, what is clear to see is this market is moving to the downside. However, this is where our understanding of Japanese candlestick formations can come into its own. I just want to draw your attention to a specific part of this particular chart. Just looking at this particular price action we can see what price action has occurred prior to this point.

Meaning prices are moving to the downside. We clearly see that as the market moves lower, it then moves into a period of sideways moving consolidation. And we can actually physically see that play out because of our understanding of Japanese candlesticks, where this market really struggles to break above or to break below these levels. But then something really important and significant occurs. I just want to draw your attention to this particular candlestick here where we get a continuation to the downside.

And we can see that with volume and momentum pushing prices lower. In the early 15th century, the last feudal Japanese military government, which were referred to as the Shogun Tokugawa, unified Japan by pacifying and peacifiying the 60 different ruling Daimyo Feudal Lords. Now, this uniform unification was quite important. What it did was enabled more freedom to be able to trade between the provinces of Japan.

To just sort of give you a bit of an image, you know, these this would be a typical image of a Shogun now. That led to some significant developments. What we then saw in the early 16th century was records actually showed that charts were used for the very first time in Japan.

And the use of those charts was to record the price movements of the Japanese rice exchanges. Rice was not only the primary dietary staple of the Japanese people, but it was also essential to the Japanese economy because it was used as a unit of exchange also.

It all effectively started with rice. At that particular time, there was as many as 1, rice traders working in the Dojima Rice Exchange in Osaka, Japan. And as trade started to develop and volume started to increase, receipts from rice warehouses were accepted as a form of payment, at which particular point the first futures contracts were effectively traded. Munehisa Homma was widely acknowledged as being, and is broadly known as being, the godfather of candlestick charting. Homma himself became such a successful trader that he developed a series of rules which were called the Sakata Constitution.

Now to just touch upon that. When trading the Sakata Constitution, which many, many traders followed, and its Five Methods, traders could now analyse price movements and be able to identify patterns which exist in the financial markets, or in the market of the rice exchange. This would then help them to identify very, very simple trends in the market and therefore increase the chances for increased profits.

This is the beauty about technical charting and our understanding of Japanese candlesticks. That is effectively what it allows us to do. Just to conclude this particular session action, you know, the birth of Japanese candlesticks effectively gave traders the ability to extract some very, very useful information which they could then use to make more informed decisions when trading.

And it all started with the beautiful rice, as you can see up on screen. Now, it has some very, very important characteristics which I do want to elaborate on. And that is really, really significant. And it will effectively mean that the open price is at the bottom edge of the rectangle.

That closing price is quite significant. And that simply means the first one is that each candlestick will have a high price. So, it records the high price. And then the final piece of this jigsaw is that each and every candlestick, especially a bullish Japanese candlestick, will have a low price. This is the lowest price that this market will have achieved over the course of this time period.

And the size of this green body is quite significant, and it will determine how much momentum exists in a market at any particular time period, and point in time. So, the size of this does have an important role to play. Now, this is a bullish Japanese candlestick. In addition, we also have bearish Japanese candlesticks. And this effectively means that prices are moving lower. What we will see now very shortly is the same for price points, however in reverse. Because the open price is, once you get a close price on one particular candle, the next candlestick will open with that same price.

Now in the meantime, it does also print a high price in this market. These are the important things to note and just identify as well. Whereas on a bearish candlestick you will see the open prices at the top edge of the rectangle. And the same for the closing prices. The closing prices can be located on a bullish candlestick at the top edge.

And the closing prices can be identified at the bottom edge of the rectangle if this is a bearish Japanese candlestick. Hopefully, that makes sense. And the same for a price action to the downside. The open price is much higher, the lower price is lower, and the difference between those two is the real body in this situation.

Okay, moving on then. The closing is often the most important piece of information. The close of a particular candlestick is very, very important for us. It concludes the trading session. It is of significant importance not just to technical traders who read charts, but also to technical indicators as well.

Now the size and the color of the real body can provide useful clues regarding potential price moves. If we get a green candlestick followed by a red candlestick it can mean that potentially we might experience a correction in this market.

Or, perhaps even, a reversal depending on the information that we get. That is just touching upon the real body of a particular Japanese candlestick, or, in Japanese is referred to as Jittai. That is effectively the real body of any given candlestick. In addition to the real body we also, as you can see, we can have a shadow. Which is, in Japanese, is Uwakage. And to the downside we would be looking for the lower shadow or wick, and excuse me if my pronunciation is a little bit off, but, Shitakage.

What we need to do and identify as traders is, the information that we can glean from upper and lower shadows could be quite significant. They are important. The upper shadow represents the area above the real body, and the lower shadow represents the area below the real body. For example, we can certainly see a small wick like this on a lovely green candlestick would signify continuation to the upside.

Whereas if this closed, so we open at this price here, if the market pulled right back and we saw a close at this market, more around this level down here just for example. The information that can be gleaned from our knowledge and understanding of Japanese candlesticks can be really, really important. It can give you as a trader some real significant edge trading these markets. In terms of the four price points — the highs, the lows, the open, and the close prices.

And also, the real body, and of course the shadow to the upside and the shadow to the downside as well. Bearing that information in mind, we shall now look at some of the different types of candlestick formations. There are three categories of candlestick formations for you to embrace. The first one is Bullish Candlestick Formation. These can be broken down into three different categories we could have Single Bullish Candlestick Formations.

And of course, Three Plus Candlestick Formations. And that just refers to the number of candlesticks that are involved in that piece of analysis. Without confusing you too much, we also have the same when it comes to Bearish Candlestick Formations.

In addition to price action moving to the upside and price action potentially moving to the downside, we also have neutral candlestick formations. Now these can be interpreted as giving neutral price information. But they can gain also significance when these form part of other candlestick formations. In their own right, they can remain somewhat neutral. However, when we start seeing that the price action, which has come before it, and after that particular neutral candlestick formation, then it can then give us some very, very useful information.

Often when we see these, we as traders, we look to pause and to just consider what might occur next and allow the market to determine that decision-making process. All we need to do as traders is be prepared for all eventual outcomes and we can do that in a very consistent way. We have bullish candlesticks, bearish, and neutral candlestick formations to consider.

And all of these have implications for bullish price action. And then lo and behold the candle gives us, it prints this particular candlestick. It means we see the low price. We can see the high price in this market. It just so happens to be the open as well. And we can see the close of this market. When we see price action like this, traders consider this fairly bullish in a downtrend. You know, it is important to know the names of these different candlesticks.

Some, you know, a lot, of these major candlesticks can have real profound impacts on the markets. The market puts in this candlestick and this gives fantastic opportunities for traders to start pushing this price higher. Therein lies the potential for us as traders to see this kind of price action and then act accordingly. If you decided to buy above the high of this, it has the potential to give you a significant risk reward potential to the upside if you see this kind of price action.

Moving along then to an Inverted Hammer. We can clearly see that price action is moving lower and what we see then is an Inverted Hammer. And what the signal that that sends to traders when they trade is that is potentially considered bullish in a particular downtrend. But as you can see, we get a bit of a reversal on price action and what this is telling us is the open and the close of this market is exactly the same however, and the high should I say.

The market opens, it moves to the downside. When this appears at the bottom it is considered to be a fairly strong reversal signal. Looking for Dragonfly Dojis can give traders a real advantage and as a trader you can make that decision to look to drive that price back to the upside. However, the market at some point sort of reverses to make a considerable low and it struggles to get back up to those previous highs. Again, we shall go through these one at a time.

And what information does this kind of price action give us? But on the very next period or the next day, if this is a daily timeframe, what we can see with the next candlestick is that we close down here, however we open significantly higher. In fact, we open above the previous candlestick. If this is the open of the previous day, we can see the open is just above it, however the closed price is quite significantly lower than that particular level. We see the close of this candlestick, we see the open.

But we also, most importantly, see the open of the new candlestick. Those that look to buy markets like this will look to aggressively push higher. Again, not every single case. But certainly, the odds would be stacked in your favour if that is the case more often than not. Moving on then to a personal favourite of mine which would be Bullish Engulfing.

Here what we can see is again we can see quite consistently a series of markets. What we can see is this market open lower and we can see that the close of this price is significantly higher. And what it does is it completely engulfs all of these candlesticks. When you see a print of a candlestick like this, it effectively blows all these candlesticks out of the water and we get to see some real dominance in this market. What this means is quite bullish if we see a bullish engulfing two candlestick formation which exists.

Moving on then to Bullish Harami. You can see its kind of an inverted Bullish Engulfing. What this does, as far as sellers is concerned, is put a question mark in their mind. That creates a bit of doubt in the minds of sellers.

And it gives bullies a fantastic opportunity to look to capitalise on this price action, look to get into this market, and look to drive this price higher. This is stacking the odds in your favour again to the upside if you identify a Bullish Harami in this way. And the fourth candlestick here is what is of interest to us. And the fourth candlestick actually gaps down lower. As you can see, we have a green body which is actually bullish in nature.

This is effectively the gap in this market. When we see these gaps, you know, what price action do we see next? And we see the fact that, in fact the open of this market is even lower than that. This is the gap which is quite considerable and what we see price action do next is make a new low, and then all of a sudden, it actually becomes quite bullish where we actually close higher.

It might be more prudent for you to get into a Morning Star after the third candlestick which is actually closed. And that can give you the very important information to be able take this market higher. It can close much, much lower and that might mitigate the potential for such a strong reversal signal.

So, we need to see some bullish price action off the back of the gap, lower. This price action is considered a major reversal signal in a downtrend. When we go to the first candlestick we can see, we see a normal sort of consistent move lower.

We are in a downtrend and what we see is an Abandoned Baby. All of these names are weird and wonderful. But what you do need to understand and comprehend is that you know when you see price action like this it can look and it can become very, very bullish. We get a little bit of a reversal pushing to the upside and then the very next day, if this is a daily timeframe, the market actually gaps again to the upside.

Without confusing you too much, we get two gaps in this market and this is very, very bullish indeed if we get this kind of price action. That is a Bullish Abandoned Baby. Moving on then to Three Soldiers. And this is considered a very, very, not a significant, reversal signal in this market.

But then this particular market fails to make a new low and we actually start printing three consecutively higher you know long green candlesticks. This is, as you can see, sort of fairly similar to a Bullish Engulfing if you see this in a downtrend. You can clearly see that opportunities to buy perhaps above the high would constitute continuation to the upside in price action like this.

Okay, so that concludes an overview of the different types of Bullish Candlestick Formations. When you identify opportunities like this in the market, you should be looking for opportunities for these markets to be moving lower, in this case. Again, what we can see is a little bit of a reversal in this situation.

The lower shadow should be at least twice as big as the body. Meaning you want to see a long lower shadow, at least twice as long as the body, otherwise it means something slightly different. So, in addition, moving on to a Shooting Star.

We make a brand-new high which is obviously great at the time, however we start to reverse this price action and actually we open at this level and we close much lower. Again, this middle one just in there. And again, the Gravestone Doji candlestick means that this market pushes higher. Now, the Gravestone Doji is actually quite bearish. When this bit of price action appears at market tops it is considered to be a reversal signal and quite a significant one at that.

So, moving on then to Bearish Spinning Top. We get a bit of indecision in this market; it has the potential to reverse. A break above these highs could potentially mean that we could be reversing to the upside. However, what we actually see is the market continued pushing lower. That is actually quite important where we can see continued sort of bearish price action. What should be taken note of is the previous price action which has been quite bearish, and also the size of the shadow itself to the upside or the downside can vary somewhat.

And under the circumstances like this, this is quite a Bearish Spinning Top. Okay, those are the Bearish Single Candlestick Formations. Which is the opposite of a Bullish Kicker. The candlestick we are looking at is this candlestick in here, and also this second candlestick here. We actually open considerably lower than the close of the previous candle and it actually gaps lower.

It actually opens beneath the open of the previous candlestick. That is quite significant and quite bearish in its own right. Okay, moving on now to a Bearish Engulfing. This is considered a major bearish signal in an uptrend.

This is also a high probability way to look at the symmetrical triangle for potential trade setups. You could look to make trades when price breaks out of the wind up phase, or look for quick break and intraday retest trades. Ascending Triangle Chart Pattern The ascending triangle pattern is formed when there is a clear resistance level and price begins making a series of higher lows to form the triangle.

Whilst there is a clear resistance in place that buyers are unable yet to break through, the selling by the bears from the resistance is becoming weaker and weaker each time. This creates the higher lows and indicates the bulls may be finally ready to take control and break-through. You will often find this pattern in a trend higher where price pauses and begins to accumulate.

Price is pausing, gathering more buyers and looking to then potentially continue the trend higher. Descending Triangle Chart Pattern The descending triangle is the same formation as the ascending triangle, but inverse. The descending triangle chart pattern can be a bearish continuation pattern that will normally form in a downtrend. To identify this pattern you will need to spot a clear support level followed by a series of lower highs.

This shows that whilst there is a clear support price is being held at thus far, each time buyers attempt to push price back higher the rejection is getting weaker and weaker. Pennant Chart Pattern A pennant chart pattern is a continuation pattern. This pattern is created when price makes a large move either higher or lower and then begins to move sideways and consolidate. During this sideways movement price begins to squeeze with converging trend lines creating a pennant that will often be form as a triangle.

Bullish Pennant Pattern Because pennants are continuation patterns, price is looking to move in the same direction that it was trading in before moving into the consolidation period. Bearish Pennant Pattern A bearish pennant is the same pattern as a bullish pennant, but inverse. In the example below you can see price was making a solid move lower. Trading a Pennant Breakout The simplest way to trade pennants is using them to find breakout trade setups inline with the trend.

This can be done in two ways. If you are an aggressive trader you can take an entry when price breaks either the high or low of the pennant and look for price to continue. If you are more conservative, you can look for price to breakout and then retest the old trend line high or low and wait for it to act as a new support or resistance level to find a trade.

Wedge Chart Pattern There are two types of wedge patterns. The rising wedge and falling wedge. Both wedge patterns are created when price begins forming converging trend lines. The wedge chart pattern can be used for both continuations and reversals depending on the market trend. Whereas a triangle does not have a bias and is not moving higher or lower, wedge patterns are either sloping higher or lower. Rising Wedge Pattern To identify a rising wedge chart pattern you will need to spot price forming upward sloping support and resistance levels.

Because price is moving sideways it eventually has to breakout. This is where identifying the market trend and the price action before price moved into the wedge is important. This pattern is normally used as a continuation if it is formed during a downtrend. If however; it is formed during an uptrend, you could watch for a potential reversal and change in the trend direction. Falling Wedge Pattern In the example below the falling wedge chart pattern is indicating a continuation.

You will notice that before moving into the wedge, price action had been moving in an uptrend. Price then breaks out higher and continues on with the move.

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