Identify the Best Entry Points
Using Japanese Candlesticks
In this guide Pips is going to show you how to use Japanese
candlestick charts to identify reversal patterns for better
profit potential
Why Candlesticks?
Today, candlestick charts are widely used amongst investors due to the amount
of information that each candle provides.
They are considered to be more visually appealing and much more easier to interpert.
One single candle can provide so much information that it can sometimes tell a whole story, like.....
what has been happening in the market, the relationship between the open and the close and trading
Remember
sentiment. Even the colors tells us something.
that using
candlesticks
If you look at the following two candles you can probably guess what the colors mean:
to identify
opportunities
Red = Going Down Green = Going Up
doesn't mean
that you will
always be
successful
Did you know?
Candlestick charts are thought to have been developed in the 18th century by Menuhisa Homma,
Japanese rice trader of financial instruments.
The good thing about candlesicks is that apart from their nice attractive colors,
each candle has loads of useful information.
3
High
1
Open price
Close 2
2
Closing price
5
3 Highest price of that particular time period Body
4 Lowest price of that particular time period
1
Open
5 The size of the body
4
Low
 How can you use this information?
While some traders simply follow the candles' prices, other traders focus on their shapes and sizes.
By following the different sizes of the candles and by identifying the trend correctly you can sometimes
see reversals or even the start of new trends - way ahead of time!
In this example, PIPs was making money from the uptrend. He suddenly saw a big red candle, which
was much larger than the previous ones. Pips closed his trade immediately saving him unwanted loses
from the downtrend.
Pips identified a reversal
Big Red Candles - Can indicate selling pressure
Big Green Candles - Can indicate positive sentiment and an interest in the instrument
Popular Shapes and sizes
Over the years the different types of shapes of the candlesticks have received names.
Traders will tend to search for these types of candlestick patterns as they can sometimes point to
reversals.
Hammer
* Great for identifying an upcoming bullish trend
* Has a small body and a long tail
* The body is located towards the upper part of the candle
* A green hammer is more reliable than a red one
Bullish Engulfing
* Has a large candle compared to previous ones
* Must have a large bullish candle (green)
* The engulfing covers the previous candle completely
* A bearish englufing is similar, yet happens after a downtrend
Hanging Man
* Indicates that an uptrend is possibly over
* Appears only after an uptrend
* The tail should be approximately 2/3 of the body
* A red hanging man can indicate to more bearish sentiment
Bullish Morning Doji Star
* Appears only at the end of a downtrend
* Contains one red candle, one doji and a green positive candle
* The doji's open and close are equal
* Can lead to a strong bullish trend
One of PIP's Strategies
One of PIP's Strategies
After a downtrend, Pips noticed that a hammer had formed.
As a cautious trader he decided to wait for a break of the down trendline to enter the trade.
Recognizing the pattern and waiting for the break turned out to be a very successful trade!
Position Closed in Profit
Position Closed in Profit
Position Opened
Position Opened
Conclusion
Conclusion
While candlestick patterns are a handy tool to use - you should never only rely on them and should use
additional tools to make your trading decisions.
For more infomation about Japanese Candlesticks (or anything else you need to know) - contact our
Customer Support Team at [e-mail]
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