Forex Notes, Candlestick Bible
Candlesticks are flexible, they can be used alone or in combination with technical analysis
tools such as the moving averages, and momentum oscillators, they can be used also
with methods such the Dow Theory or the Eliot wave theory.
(I personally use candlesticks with support and resistance, trend lines, and other
technical tools that you will discover in the next chapters.)
The human behavior in relation to money is always dominated by fear; greed, and hope.
Candlestick analysis will help us understand these changing psychological factors by
showing us how buyers and sellers interact with each other.
Using candlestick patterns will help you understand what the big boys are doing,
and will show you when to enter, when to exit, and when to stay away from the market.
Candlestick body sizes:
Candlesticks have different body sizes: (long vs. short)
Long bodies refer to strong buying or selling pressure, if there is a candlestick in which
the close is above the open with a long body, this indicates that buyers are stronger and
they are taking control of the market during this period of time. (And vice versa.)
Short and small bodies indicate little buying or selling activity.
Candlestick shadows (wicks):
Japanese candlesticks with short shadows indicate that most of the trading action was
confined to near the open and close.
If a candlestick has a longer upper shadow, and short lower shadow, this means that
buyers flexed their muscles and pushed the price higher. But for one reason or another,
sellers came in and drove price back down to end the session back near its open price.
(And vice versa.)
Candlestick Patterns
If you know how to read candlestick patterns the right way, you will be able to understand
what these patterns tell you about the market dynamics and the traders’ behaviors.
This skill will help you better enter and exit the market in the right time. In other words, this
will help you act differently in the market and make money following in the smart guys’
footsteps.
First, focus on the anatomy of the pattern and the psychology behind its formation,
because this will help you get the skill of easily identifying any pattern you find in the
market and understanding what it tells you to do next.
If you can get this skill, you will be ready to understand and master the trading strategies
and tactics explained later.
Technical analysts believe that all known information about the stock is reflected in the
price, which is to say the price is efficient. Still, past price performance has nothing to do
with future price performance, and the actual price of a stock may have nothing to with its
real or intrinsic value. Therefore, technical analysts use tools to help sift through the noise
to find the highest probability trades.
One tool was developed by a Japanese rice trader named Honma from the town of Sakata
in the 18th century, and it was introduced to the West in the 1990s by Steve Nison: the
candlestick chart.1
Every candlestick pattern has four sets of data that help to define its shape. Based on this
shape, analysts are able to make assumptions about price behavior. Each candlestick is
based on an open, high, low, and close. The time period or tick interval used does not
matter. The filled or hollow bar created by the candlestick pattern is called the body. The
lines that extend out of the body are called shadows. A stock that closes higher than its
opening will have a hollow candlestick. If the stock closes lower, the body will have a filled
candlestick.
The morning star
The morning star pattern is considered as a bullish reversal pattern. It often occurs at
the bottom of a downtrend and it consists of three candlesticks:
①bearish → ②bullish or bearish → ③bullish
1st candlestick: Indicates that sellers are still in charge of the market.
2nd candlestick: Smaller in size which represents that sellers are in control, but they don’t
push the market much lower; this candle can be bullish or bearish; it can be a Doji, or any
other candle.
3rd candlestick: A bullish candlestick that gapped up on the open and closed above the
midpoint of the body of the first day. This candlestick holds a significant trend reversal signal.
The morning star pattern shows us how buyers took control of the market from sellers.
When this pattern occurs at the bottom of downtrend near a support level, it is
interpreted as a powerful trend reversal signal.
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How To Use Meta-trader 4
https://www.youtube.com/watch?v=SZFHVgr2x5E
Fromm 4:20 – “How To View A Different Market’
-------------------------------TradingView –
Fixed range volume profile tool (only Pro Accts):
 It analyzes the price levels at which there was significant volume traded and plots them
on the chart.
 It allows us to see what the important price levels are based upon the amount of volume
that was traded at those prices.
 In other words, it shows the price levels that the big institutional traders consider
significant levels