How to read trading charts. Trading with a major player
In the previous lesson, we learned how the Forex market arose, and also learned how to buy and sell currencies by orders and directly from the market. Thanks to the Meta Trader4 trading platform, it is very easy to do this. Now it remains to figure out when is the best time to buy and when to sell. And to clarify this most important issue, traders over the centuries of the existence of stock trading have created a special science - "Technical Analysis".
History of technical analysis
Western schools of technical analysis originated in the USA in the 19th century. Parallel to them, the ancient Japanese school of technical analysis arose as a result of concentrated observations of traders on rice exchanges. And, interestingly, these two independent "teachings" have much in common.
We, in turn, will learn how to draw price charts, and then we will try to delve into stock trading. And everything is much easier than it seems. After all, for all its resourcefulness and cunning, the price has a very useful and predictable quality - it goes only forward and only up or down. Here we will try to learn how to catch it.
The simplest way to display price on a chart is a tick chart. On such a chart, each new price change is represented by a new point with a standard step to the right. And this is done without taking into account the time between the previous and the next price change. That is, the more changes in the value of an exchange asset occur, the more steps per 1 minute will be displayed on the tick chart.
Usually, tick charts are most active between 17:00 and 20:00 Moscow time, when exchanges in London, Frankfurt and New York are open at the same time. Over 100 changes can occur in 1 minute at this time. Whereas around 01:00 Moscow time, when the world's main stock exchanges are resting, the tick chart may not move even one step at all for a minute.
Why do we need such a schedule? The tick chart is for reference purposes and is placed on the Meta trader4 trading platform so that the trader can track the current momentary dynamics of price changes in the market.
Now that we have learned about the simplest way to chart quotes, let's move on to a more complex way of displaying the price, which is most often used in technical analysis. This is a bar chart. Translated from English "Bar" means - bar. It is from these blocks that stock charts are built.
We have already said that the foreign exchange market operates around the clock except for weekends. Also, we said that geographically Moscow is located in the time zone where the currency day begins and ends. In this case, all information about the exchange price for 1 day is displayed as a single vertical line. Let's look at the monitor screen immediately after the start of a new trading day and see what the price of the currency pair we are trading on is.
On the quotes chart, you see a bar - a vertical line that displays one time period and two horizontal lines. The line to the left of the bar is the opening price (the price at which a new time interval on the exchange began - open price), and to the right of the bar is the closing price (the price of which the time interval ended on the exchange - close price). The upper point of the bar is the maximum value of the trading instrument, which was reached during the time period of the bar construction – hi price. The bottom point is the minimum price of the asset - low price.
Thus, with the help of bars, it is customary to build charts of quotes with time intervals (time of occurrence of each new bar) from 1 minute to 1 month.
This method of plotting a quote chart, like Japanese candlesticks, arose several centuries ago on distant Japanese islands. And at its core, a Japanese candlestick is the same bar where the distance between the opening and closing prices is shown in the form of a rectangle - a candlestick.
In this case, the rectangle is the body of the candle, and the vertical lines above and below the rectangle are the shadows of the candle. The body of the candle can be of two colors. If the closing price is higher than the opening price, then the color of the candle is white - this is a growing candle.
If the closing price is less than the opening price, then the body of the candle is black, and the candle itself is called falling.
It is believed that Japanese candlesticks are a more informative way of displaying prices than bars, as it makes it possible to more conveniently analyze the trends that prevail on asset price charts.
Bars or candles - West or East
We will return to the trends a little later, but now we will draw the first conclusions about the nature of the dynamics of exchange prices. Until 1862, Japan was in strict isolation and not a single foreigner could enter the shores of Japan, just like the Japanese could leave its shores. therefore, candles and bars were originally created and used independently of each other.
And it is curious that when the civilized world compared the achievements of the West and the East in building exchange charts of quotations, it turned out that they have much in common with each other. Consequently, the dynamics of exchange prices is objective and natural. It is precisely the study of such patterns that technical analysis is engaged in.
Trend plays a key role in the technical approach of market analysis. All trading instruments used by a trader, support/resistance levels, graphic patterns, etc. designed to solve only one super-task: the definition and measurement of trends.
A trend is like a nesting doll. It itself is part of a larger trend and at the same time includes small elements. However, it is necessary to clearly understand the difference between the types of trends, which differ from each other due to the time interval of the market analysis.
If someone asks you what is the current trend on the EURUSD currency pair, then before answering the question, ask what time frame this person is interested in.
Indeed, in the long term, the market may experience a downward trend in quotations.
In the medium term, this can be a horizontal movement.
Whereas in the short term, quotes can grow rapidly.
That is, in its general terms, a trend is the general direction of price movement.
An uptrend is the dynamics of rises and falls in quotations, which has a general growth dynamics, that is, it occurs in an upward direction.
A downtrend is a price movement in which each next peak or decline in price is lower than the previous one.
In the event that the peaks and recessions are located almost at the same level, we have the opportunity to observe a horizontal trend.
A little higher, we deliberately divided the trend into three types: ascending, descending and horizontal. Most beginner traders make the mistake of believing that the market only moves up or down. In reality, about 1/3 of the time, asset quotes are in a horizontal trend. This pattern of price movement is called a trading range.
This horizontal price movement reflects the balance between supply and demand. Charles Dow, the pioneer of technical analysis, called this type of quotes - LINE.
Buy, sell or wait
Trading on the currency exchange is really very simple. And any trader has three possible options: buy, sell, or do nothing at all - wait (or, as they say, sit on the fence). If the market goes up, it is more profitable to buy, if it goes down, then sell. If the market is flat, then it is better not to do anything.
But where do you get that kind of wisdom? And is it wisdom? The answer is simple: "Learn technical analysis!". Most of the rules of technical analysis are written in the blood of traders in almost the literal sense of the word. Remember that a smart person always learns from the mistakes of others, and a fool always learns from his own.
In addition to movement in three directions, a trend can also exist in three forms: it can be main, short-term and intermediate.
Charles Dow defined a major trend as a unidirectional movement that has been going on for over a year. Such long-term trends are born due to fundamental factors. For example, in the oil market, supply greatly exceeds demand. As a result, over the past few years, we have been able to observe a significant decline in the quotations of "black gold".
Intermediate trend
As for the intermediate trend, according to Dow, it lasts from several weeks to several months.
Short term trend
Small (short-term) trends last no more than 2-3 weeks.
We noted earlier that any kind of trend is a component of another, longer-term trend. During a long-term uptrend, the market often pauses for correction (rollback), in order to correct the situation for some time, and then resume the previous direction of movement again.
Such an intermediate correction is another series of shorter rises, and all this continues again and again.
After we talked about the trends in sufficient detail, probably many people had the thought: "It's good when you talk about it in hindsight." And you're not the first to think about it. And in order to measure the trend without taking into account time intervals, Renko charts were invented, which originated from Japanese technical analysis.
Renko allows clearer up and down directions to emerge from the chaos reigning on the charts of quotes. You will learn more about how Renko charts are built a bit later. In the meantime, evaluate the picture that Renko paints for us. Agree, Renkos make the quotes chart more predictable!!
Having talked enough about the nature of the movement of quotes and their main trends, let's dwell on what are the starting points for a new wave of growth or for braking and reversing prices - support and resistance.
Let's draw a horizontal line through the local price trough. Such a line is called a support level, where the desire of bidders to buy can significantly counter the selling pressure.
Or vice versa - the horizontal line that we draw through the local top of quotes is called the resistance level. At this level, the desire to sell can strongly resist buying pressure.
If quotes cannot rise above the resistance level for a long time, but cannot fall below the support level, such a market is called a horizontal (flat) or flat market. Masters of technical analysis and professional stock players in such cases are advised to refrain from trading.
Although, if we consider the quotes chart on a longer-term scale or vice versa, then while flat is present on one interval, can the price move in an active one-sided trend on the other?
Imagine, the GBP/USD currency pair was in the 1.4-1.72 horizontal range from 1992 to 2003!! Whereas at smaller intervals during this time, the currency pair has repeatedly been in long-term one-sided trends.
In order to more accurately determine the price boundaries of the market, such charts of quotations as “tic-tac-toe” are also often used.
Compare two identical quote charts:
Daily chart of EUR/USD quotes, built in the form of Japanese candlesticks,
Daily chart of EUR/USD quotes, built in the form of tic-tac-toe.
Agree that tic-tac-toe gives us a clearer picture of support and resistance levels. But we will talk about how this type of graphs is built a little later, but for now we move on.
How do trends, tendencies, and support/resistance levels emerge? The main role in this is played by the ratio of supply and demand. And not the last place is occupied by the psychology of the participants in the trading process.
The well-known trader Sean Murphy came up with a psychological model, according to which a friendly team of traders is usually divided into three groups.
- Bulls - market participants who bought the goods.
- Bears are market participants who have sold goods.
- The remaining group of traders are those who abstained from trading.
Why bears and bulls? Such names came to us from the stock exchanges of America. Remember how a bull beats at a bullfight, trying to throw his opponent up?! Traders who buy a commodity, creating increased demand that pushes the price chart up, are called bulls.
As for the bears, let's remember that the grizzly bear's signature blow is a powerful blow with its paw from top to bottom. That is why traders who sell an asset, increasing demand and thereby bringing down quotes, are called bears.
Trader Mistakes
Now that we have talked about animals, let's go back to the market and analyze the most basic mistakes of traders that prevent them from earning.
This type of trading does not imply insurance of open positions with a Stop-Loss safety order in the hope that the quotes will either go in the direction of the open position or the trader will have time to close the deal on his own in an emergency. What causes such an error? Consider an example - when at the beginning of 2015 the Swiss National Bank removed the peg of the Swiss franc to the single currency Euro. Such an event instantly inflated the CHF quotes in pairs with all other currencies of the market by several thousand points.
EUR/CHF currency pair quotes
Now imagine if at that time you had an open trading position to buy without a safety stop-loss set on it?!? Within a few minutes, your profit, with the most conservative estimates, would be at least a few hundred dollars!!!
Mistake #2 – Trading Against the Trend
Now consider another situation. With the same Swiss franc. Macroeconomic news came out, which had such a strong impact on CHF quotes. At the same time, the bears of the market began to sell positions, which brought them a significant profit on such an intensive decline in quotations. What were the bears doing at that time? Watching how the quotes of an asset, for example, EURCHF, continue to break records of decline and approach historical support points, they start buying, in the hope that the price is about to turn around and begin to correct upwards. However, quotes continue to decline, which brings bears, and in this situation, traders who trade against the trend, losses. Therefore, if you make a deal, always remember the saying that exists on the stock exchanges - "The trend is our friend."
Mistake #3 – Mindlessly Following the Crowd (Belated Entry)
And now a few words about the timeliness of each of your trading operations. After all, the fact that you made a deal in the direction of the main market movements does not mean that you are doing everything right. After all, the price moves in waves, and at the moment when you determined the direction of the trend up and made a deal to buy, a correction may just begin, which means that instead of rising, quotes will begin to decline. That is why they always say - buy low and sell low.
And now it's time to expand our arsenal of graphics tools. If we draw a line through the main local bottoms, we will visually display an uptrend, namely: we will draw a trend support line - this is an uptrend (bullish).
If the quotes chart has a downward direction, and we draw a line through its main peaks, then in this case we will get a resistance line and visually determine a falling (bearish) trend.
If the quotes move horizontally, and we can draw horizontal (or almost horizontal lines) through the main tops and bottoms of the chart, then in this case we get a horizontal trading corridor.
So, after we mentioned the trend line, it's time to consider how such lines can be drawn on their own.
An uptrend is seen as a series of rising peaks and declines. Whereas a downtrend is a series of recessions and peaks that occur with a downtrend.
At the same time, in order to draw a trend support line, we need at least two points (two troughs on a growing quotes chart).
By drawing a line between these troughs, we get a trend support line, which allows us not only to determine the direction for further trading, but also to determine future points of rebounds of quotes from support, which means making deals in the most favorable places for this.
Most often, trend lines are drawn through candle shadows:
Whereas many traders prefer to draw trend support lines through the bottoms of candle bodies. Which method would be more correct? Both are correct, and it all depends on your future trading style and money management flexibility. But we'll talk about this a little later!
Of course, the fact that the trend has support does not guarantee that the asset quotes will bounce off it indefinitely. However, according to the basic principles of technical analysis, asset quotes are more likely to continue their previous direction than to change it. Therefore, the role and importance of trend support lines is undeniable, and the more asset quotes touch such a trend line, the stronger it is considered. Usually professional traders trust those support lines from which quotes bounced three times.
Also, an important role is played by the period of existence of the trend support line. A line that has proven its strength over the past eight months is considered to be significantly stronger than one that has only been around for a few weeks.
The older the trend, the more likely it is to continue!
Another important numerical characteristic of a trend is its width and height. To measure them, you need to find a peak that is farthest from the other peaks from the trend support line (if we consider this situation in a bull market). Now we draw a line parallel to the trend support through the specified peak point. In this case, we get a channel line, the height and width of which can be easily measured in points.
Where to buy and where to take profits?
After we have determined the boundaries of the price channel, the question arises: "How to use these lines in our own selfish interests?". It's simple - in a growing channel in the area of the support line, you need to buy, and in the area of \u200b\u200bthe upper border of this channel, we fix profits. And, vice versa, for descending price channels.
When opening a long position to buy an asset, stop loss must be set slightly below the support line, which, as you remember, passes through the local bottoms of the trend. For this, 10% of the channel height is usually taken, which is a fairly acceptable risk. By the way, stop loss in its direct translation sounds like “loss stop”. But in reality, it fully corresponds to its translation, allowing the trader to close a losing trading position in time, protecting himself from significant financial losses.
trend reversal
How else can you use trendlines and channels to your advantage? This is to trade on the breakdown of the trend line!
Breakdown of the trend line is the first sign of a trend reversal, or a signal of a slowdown in the current trend. It remains for us to learn to recognize the signals given to us and learn how to use them in trading.
Of course, this is not an easy task, which is associated with some subjectivity. The most common criterion for determining the truth of a breakout is an assessment of the position of the asset price after the market closes. If the market closed below the broken support line, then this indicates the beginning of a downward reversal. However, for greater reinsurance before entering, the trader waits until two days have passed since the breakdown. And, if the quotes of the asset did not return above the broken support line, then this is considered a signal to conclude deals to sell. This criterion is called the "two-day rule" and it serves as a kind of time filter.
Fibonacci retracement levels
Now, when we roughly understand what a breakdown of a trend line and the beginning of a trend reversal are, let's consider such a trend associated with this phenomenon as a correction.
Fibo levels or correction levels by Ralph Eliot
Probably everyone has heard about the “golden ratio” and the mathematical trend that was identified by a mathematician like Fibonacci!? These magical and time-tested numbers are used by professional traders in technical analysis as well. Half a century later, after the start of using Fibonacci numbers in the analysis of quotes charts, the famous analyst Ralph Eliot suggested using two main correction levels: 0.382, 0.5 and 0.618. Most modern traders use these levels, which are now called fibo levels. Why? We will talk about this in the wave theory section!
It is at the fibo levels that the correction most often ends its way down, resuming the previous trend movement. Therefore, such levels on the Forex exchange most often play the role of the tool that allows you to determine the degree of falseness of the breakdown of trend support and resistance lines.
Correction or trend reversal
What kind of movement of quotes can be called a correction, and what is not? It is believed that as long as the price moves in the shadow of the previous trend (that is, it has not broken through the previous local peak or trough), this movement is a correction. If such a breakdown has occurred, then you can say goodbye to the old direction of price movement, since the trend, most likely, has begun its reversal.
When high frequency ( HFT) trading is gaining an increasing segment of exchange transactions, it may seem that a person and standard strategies no longer have a place in the market. In fact, this is not so - even the most advanced mathematical algorithms cannot do without time-tested techniques, such as candlestick analysis of the Forex market.
The method of analyzing price movements using "candlesticks" was developed by a Japanese rice trader. Honmoy Munehisa in 1755 and for 2.6 centuries has not undergone significant changes and additions. He also described the main combinations of Japanese candlesticks, which can be used to determine when the market will reverse or continue the current movement.
From the point of view of Western techniques, candles confirm two basic principles:
- price(in our case, a candlestick) includes all the factors influencing its formation, so no additional analysis is required (one of the principles Dow theories).
- history repeats itself and with the help of graphic patterns, it is possible to predict the actions of the bulk of stock market players ( Elder Chaos Theory, elliott wave pattern).
The scope of the article does not allow us to describe in detail all the models of graphical analysis, we will focus only on the simplest and at the same time strong combinations of Japanese candlesticks, which can be immediately used in trading even for novice traders.
Reversal candles
The main task of graphical analysis is enter the market and, more importantly, close current positions as close as possible to the end of the current trend, so the reversal candle requires special attention.
The phrase "reversal pattern (candlestick)" is not entirely accurate. It seems that the direction changes instantly, but this behavior is rare. A reversal is primarily a change in the mood of the market crowd, for example, to rise after a fall. It occurs gradually, and on the chart it can be seen as a period of consolidation in a narrow range. Therefore, it is better to consider such candles only as the first signal of a trend change and open opposite trades only when the new trend receives final confirmation.
"Hammer" and "hanged man"
These candles can be bullish, and bearish, depending on the current end phase – vertex for ascending or base for downward movement. There is no contradiction here, technical analysis also contains similar “mirror” patterns, such as “ Triple top/bottom».
The lower shadow of the candle should be twice the size of the body, a short upper shadow or no shadow at all. White " the hammer» indicates an uptrend more strongly, while black « hanged» respectively downward.
When a “hanging man” appears, we always wait for an additional bearish signal, as this means that the price could not go above the local maximum, but the potential of buyers is still high. Therefore, the candle cannot be the final top reversal signal.
Absorption, Cloud Cover, and Cloud Gap
The previous putters were single price bars, but most charting signals are a combination of Japanese candlesticks such as " Absorption»:
- there is a strong uptrend or downtrend;
- the body of the second candle is larger than the first and "absorbs" her. Shadows may not be absorbed;
- second candle of the opposite color. An exception can only be for very small first bodies similar to "doji".
In the process of analysis, one should take into account the factors that increase the likelihood of a trend reversal after absorption formation:
- the big difference between the bodies of the first and second candles is confirms the end of the trend;
- The reliability of a reversal candle increases on long or very fast trends. If the trend lasts for a long time, then large players calmly increase pending opposite transactions and reverse the price. In the case of sharp movements, as in fundamental events, a quick profit-taking begins and an engulfing candle appears.
- several bodies are engulfed.
"Veil of Dark Clouds" can be considered an incomplete version of the bearish engulfing, but candlestick analysis believes that this does not reduce its reliability. We look at the position of the black candle - the more it "closes" the white candle, the more reliable the signal.
If the curtain appears at the vertices, then "Light in the Clouds" foundation model. The opposite condition applies: the higher the white candle is relative to the first black one, the closer the reversal is.
If the second candles cannot break through a significant level of support/resistance, this means that the market is not yet ready for a reversal and it is necessary to wait for the development of the situation.
"Harami" and "Cross Harami"
This candlestick is the complete opposite of engulfing - the body of the second candlestick must be completely (including shadows) inside the first candlestick. If the candlestick analysis of the Forex market considers absorption as a “lever” for a price reversal, then in this case, we are dealing rather with a “brake” that temporarily stops the movement. But, it is still a reversal signal, especially if it appears at the top.
The smaller the body, the more significant the harami candle and it is logical to assume that when the open / close prices are the same, this means a maximum of market uncertainty or a “harami cross”. What is the maximum size of the body is considered a "cross" candlestick analysis of the Forex market does not say, leaving it to the discretion of the trader, depending on the specific asset. But it is recommended not to go beyond 2-3 points and look at the shadows - it is better if they are as similar as possible.
Harami crosses cannot be ignored! According to statistics, candles at the tops often lead to a change in trend than at the bottoms. Therefore, it is recommended to close long positions regardless of current profit/loss.
"Tweezers"
One of the few combinations of Japanese candlesticks used for analysis of the shadow, not the body. Visually, it looks like several highs/lows of candles that are approximately at the same level. If at the same time the candles formed a pattern, as shown in the figure, the “tweezers” will be an additional confirmation.
When several shadows are at the same level, most often this is the result of several unsuccessful retests of strong support / resistance, breaking through which is unprofitable for large players who are going to go “against” the trend. It is possible that the stops of their pending positions are behind it, and the potential for a reversal is still not enough. Keeping candles at one max/min can also be done by those who fix profits before the final change in the trend or who are trying to continue moving. To understand who is behind the “tweezers”, in addition to graphical analysis, we look at the situation as a whole, especially at the fundamental background.
All reversal patterns must be accompanied by a sharp increase or decrease in market volumes. Sometimes they give a signal before a reversal candle appears, and it can cancel even a clear pattern.
Trend continuation candles
In Japan, they say "there is a time to sell, a time to buy and a time to rest." Combinations of Japanese candlesticks related to the continuation of the trend indicate precisely a break in the price movement, after which the resumption of the trend is more likely than a reversal. Visually, this looks like the appearance of a gap in the price chart or, as the “window” candlestick analysis says.
Such areas, in which there is visually no activity, are well known to traders. In technical analysis, they are called "gap" (gap) and usually they appear at the opening of new trading sessions. Candlestick analysis of the Forex market states that you need to open positions in the direction of the window.
Before the trend continues, there is always a rollback period, completely or partially “closing” the window, with a sufficiently wide range, you can try to open short-term countertrend trades. You can also add technical analysis indicators and trade from the window borders, which work like support/resistance levels.
"Tasuki Gap" represents a more dynamic version of the "window" - already the second candle can completely close it and resume movement. If the next 2-3 candles remain inside the tasuki, then the signal is cancelled.
“Adjacent White Candles Gap” and “Price High/Low Gap”
Both combinations of Japanese candlesticks are quite rare, especially the breakaway of adjacent candlesticks in a downtrend. If on an uptrend it can be considered as a stronger version of the “tasuki gap”, then on a downtrend it is not a bullish model at all, just the buyers decided to cover some of the short positions.
By price high/low, candlestick analysis does not mean a local extremum, but a period of brief consolidation on a strong trend, followed by a window. Candles at the same time can form a "tweezer" and a gap in the opposite direction confirms the continuation of the main movement.
"Three Methods" and "Three Advancing White Soldiers"
The number three plays an important role not only in combinations of Japanese candlesticks, but also in Western technical analysis: “Triple tops”, three phases of the market (accumulation, distribution, climax) and so on. The reliability of triple structures is confirmed by practice - double ones are too unstable, and quarter ones appear when the movement is almost over and it is no longer possible to get big profits.
In the "Three Methods", after a large candle in the direction of the trend, at least three pullbacks follow, which should not go beyond her body . A small exit, of course, is allowed, and if the next candle again goes in the direction of the main movement, we can say that it was not possible to reverse the market.
Three consecutive white candles (soldiers) can appear both at the top and at the bottom, they are a signal of a steady price increase. If at the top the second and third candles are too stretched in relation to the previous 5-7, then the market is most likely close to being overbought. It is better to stay out of the market until the reversal combination of Japanese candles appears!
In the opposite situation, when 2-3 candles are less than the first one, we can talk about sellers' resistance (repulsed offensive) and “harami” may well appear.
Doji candles
This reversal signal is so strong that it is separated into a separate section. The principle applies here - the less often a doji candle appears, the more important it is and the most stable results are observed on timeframes from M30 and higher. At shorter intervals, there are too many doges and they are practically useless for analysis.
For a classic doji, the closing price is equal to the closing price +/- a few ticks. But if the body of the candlestick, albeit small, is still clearly visible, does the classic candlestick analysis work or not? There are no strict criteria here, everything depends on the average volatility of the asset. Sometimes even 2-3 points can be a normal situation. We also look for additional signs, such as overbought/overbought or moving average crossovers.
In any case, the appearance of such a candle (even if it is false) requires detailed consideration, otherwise significant losses from a sharp change in trend are possible!
After a long white candle (at the top)
This means that the potential of buyers is almost exhausted, and it is important to understand here that this candle does not mean that the balance of power is really starting to shift in favor of buyers. Rather, the market is in a stage of indecision and hesitation. For an adequate analysis, at least the next three bars confirming a reversal or the beginning of consolidation are required.
On a downtrend, the accuracy of doji signals decreases sharply, as well as almost the milestone variants of Japanese candlesticks. Paradoxical as it may seem, it takes more effort to move the price down than to move it up. The point is in psychology: it is easier for most small and medium-sized players to wait for the beginning of a correction or a reversal than to continue to open for sale; market makers are pushing the price down, mainly. Even if a candle appears , indicating the end of the movement, the asset may well still “fail” to the levels of pending large Take Profit.
Therefore, doji at the bottom require more careful confirmation than at the top!
"Long-legged", "rickshaw" and "gravestone"
Both candlesticks also point to a “tired” or, as Japanese analysts say, “strayed” trend, but the situation here is somewhat different. If the previous pattern indicated weakening buyers, then a large upper shadow on a “long-legged” or “gravestone” doji indicates a purposeful effort by sellers to stop the upward movement: the price goes up, but encounters significant resistance, which returns it to the opening level. This candlestick is especially strong on the H1-H4 timeframes.
A rickshaw appears when an attempt to reverse a trend ends in a temporary truce between bulls and bears, as evidenced by nearly identical shadows and a small body. Professional traders practicing candlestick analysis of the Forex market even believe that “rickshaws” can be considered as a sign of a reversal only if there is at least one classic doji next to it, otherwise it is better to stay out of the market!
"Three stars"
The strongest reversal pattern in this group. It almost never occurs in its classical form, usually there are 2-3 differently directed candles between the extreme doji. Equally well worked out both at the tops and at the bottoms.
- Candlestick analysis of the Forex market is not suitable for everyone. Unfortunately it is so. A trader should be able to recognize the classic combinations of Japanese candlesticks at a glance, and since they are almost never found in their classic form, the load on visual memory increases, especially at short intervals with limited time for analysis.
But, you should not immediately fall into pessimism: many methods have been developed for memorizing visual information, among which you can choose the one that is right for you. Even if you choose a “non-graphical” strategy based on indicators, market volumes or fundamental news, you cannot do without analyzing the position of the candles.
- Candles cannot be the only factor in decision making. Perhaps 200 years ago this was not the case, and you could only trade successfully with candle combinations. , in the current conditions, many external technical and fundamental factors have to be taken into account. Therefore, the figures only indicate the likelihood that the market will reverse or continue the current trend.
Beginners to study candlestick analysis often act too stereotyped, forgetting that the situation never repeats itself with 100% accuracy on any trading asset. Candles that worked well a year ago may start to give losses in the current market, so constant monitoring of the correctness of working out is required.
- Expand the set of trading instruments. The article contains only the most basic and fairly simple combinations of Japanese candlesticks, but there is a downside to their popularity. Yes, they attract the attention of most traders, and it is not uncommon for a figure to be “stretched” to a classic look, although there are no external prerequisites for this. At the same time, they are followed by big players who can play against the crowd. For example, seeing the formation of a “doji” candlestick at the top or bottom, enter with a large opposite volume and instead of a reversal, we have a continuation of the trend with knocking out Stop Loss's.
You can choose a cautious strategy, gradually increasing the position as the signal is confirmed, or choose an equally reliable option - trade rarer, but also profitable patterns, such as Three Black Crows (reversal) or Split (continued). Since they are unknown or uninteresting to most traders, their stability is higher (especially on higher timeframes).
- Control the "life" of the figure. The probability of the breakdown of a combination of Japanese candlesticks increases in proportion to the time of its existence on the chart. Especially if there are no strong events, then large players can begin to "shake" the situation, since during periods of "silence" good profits cannot be obtained. And candles of an apparently reliable pattern quickly turn into meaningless combinations. It is necessary to develop clear criteria for the "deterioration" of the figure, when you need to close transactions, regardless of current profit / loss.
- Have patience. If it was not possible to enter at the beginning or from the key point of the figure, you should not look for an entry point where it actually does not exist. It is better to wait for the correction and look for an opportunity to open a reversal trade there. But always remember that candlestick analysis most often involves only one correction or pullback. . But the final choice must be made based on the current situation and data from other tools.
Look for additional confirmation. Candlestick analysis should always be supported by technical instruments, especially support/resistance levels. See the price movement on multiple timeframes, especially the presence of divergences and sudden changes in volumes.
Summing up, we can say that the candlestick analysis of the Forex market, despite the penetration of artificial intelligence into trading, will be relevant for at least another 10-20 years. Most of the participants in exchange trading are still people, which means that its principles will continue to work and make a profit.
Hello! I really wanted to learn how to understand and analyze the movement of certain securities using charts.
What is the difference between different types of charts? What are Japanese candlesticks? What about a line chart? The asset is the same, but the charts are very different.
In trading on the stock exchange, charts are needed in order to display the main price parameters in a convenient visual format. Charts are often used by traders who make many deals within one day: with active trading, a decision on a deal needs to be made at lightning speed, it is simply inconvenient to analyze data from tables.
Dmitry Semin
adept of Japanese candles
But it is also useful for conservative investors to be able to read charts: with their help, an investor can assess the profitability and behavior of an asset in the past.
Let's look at graphs with examples. Let's take the data from the table and present it on graphs of different types.
![](https://i1.wp.com/img-cdn.tinkoffjournal.ru/grafiki-bumag_table.0pxaofq4hacm.png)
Everything is clear with the table: all important data on the price movement are indicated. We see how the price changed during the day: at what value the trading session started and at what it closed, what minimum and maximum thresholds the price reached for the whole day.
Tables are convenient to use when you need to get information on trading for a specific day: on Monday, the asset closed at a price of 55, and on Wednesday - at a price of 65. Minus: it is difficult to see the trend - how much the asset price rises or falls. It is possible to perceive the direction and change in the price of a security according to the table, but it is more difficult to do this than according to the chart.
line graph
This format of displaying changes is perceived by the eye as simpler than numerical data and can visually show what happened to the price and how quickly it changed during the week.
Using a line graph, it is convenient to track the change in time of any one parameter. There are four parameters in our table - of course, you can show them all on one graph with curves of different colors, but visibility will suffer from this. It is more convenient when the graph shows a change in one or two parameters.
![](https://i1.wp.com/img-cdn.tinkoffjournal.ru/grafiki-bumag_linear.ou0x2djgukmu.png)
Candlestick chart
Candlestick chart- type of chart with additional data on the price movement for the time period. If on the line chart we have shown only the closing price, then on the candlestick chart you can see all the data from the table: the opening and closing prices of trading, the maximum and minimum price values for the trading session.
There are two main types of candles:
- Growing - if the price has increased during the formation of the candle.
- Falling - if the price has decreased during the formation of the candle.
A candle, in which the opening and closing prices coincide, is sometimes distinguished into the third type - doji, this candle is also on our chart - on Wednesday.
By default, candles and bars are painted in two colors depending on the rise or fall of the price over a period of time. A green body means an increase in price, and a red body means a fall. But the convenient color of candles or bars can always be customized individually.
![](https://i0.wp.com/img-cdn.tinkoffjournal.ru/grafiki-bumag_yaponskie-svechi_stroenie.7czi8ylp6mlc.png)
![](https://i0.wp.com/img-cdn.tinkoffjournal.ru/grafiki-bumag_yaponskie-svechi.k7cfi6suykne.png)
Shows the same parameters as Japanese candlesticks. The difference is only in the display.
Japanese candlesticks look easier to read, but the bar chart is still popular with traders in the West.
You can determine the price movement inside the bar by its "ears" - horizontal lines on its body. The left ear indicates the opening price, and the right ear - the closing price of the bar. If the left ear is higher than the right, the price has fallen and the bar will be red. If the left one is lower, the price has risen, the bar will be green.
![](https://i1.wp.com/img-cdn.tinkoffjournal.ru/grafiki-bumag_bary_stroenie.1azrfyg6obe7.png)
![](https://i1.wp.com/img-cdn.tinkoffjournal.ru/grafiki-bumag_bary.rw5bguus2zk6.png)
Why an investor needs charts
Analysis of the past price action on the charts can be used to make sure that the company is doing well and the market has confirmed this before. Or as an additional confirmation that you did not make a mistake in the analysis of fundamental indicators.
But it is hardly worth using chart analysis as the only factor for making a decision on investing your funds. For a comprehensive analysis, you can pay attention to other indicators of the instrument: risks, profitability, practice and nuances of investing in a particular type of asset. Read our selections about investments to understand more deeply.
Hello!
Today we'll talk a little about major players, how to find them on the chart using price and volume. And most importantly, how it can help us in trade. I want to note right away that it is important here to understand the basic essence and mechanics of the market, this will help you build certain models and a trading system. Since, I believe, in order to build a trading system, refine it and find working models, you must understand the logic of pricing. And at the same time, we do not need to know with 100% probability what will happen to the price. Any logic and model, it gives only a probability shift, but this is already enough to earn. In this case, in most cases, we will not understand what is happening with many tools. The main task of a trader is not to try to analyze an asset on which there is nothing interesting, but to make the right selection and find a really understandable situation.
So, let's move on to examples on the charts. Let's analyze a few recent interesting situations that occurred on the market. Before the analysis, I want to note that it is important to assess the situation as a whole. If an increased volume passes, sideways, and we do not understand the overall picture, then it is difficult to draw any conclusions. A set of positions occurs in one case or another or unloading. Therefore, you need to understand the overall picture, the presence of a trend, levels, and so on.
How to read stock charts? VSA and PRICE ACTION
As I noted in previous articles, here is a link, a position can be taken by a large player sideways or from the boundaries of strong levels. He can gain a position with limit orders, hidden iceberg orders or through various manipulations. For example, due to a false breakdown.
For example, if the price is in a range, other participants trade on a rebound from the limits of the range and set stops outside the limits (example above). At the same time, the higher the quality level and the longer the price was held, the stronger the impulse will be on the breakdown, due to the triggering of stops. If there were many false breakouts or punctures at this level, the subsequent impulse in most cases will be weaker, due to the fact that the stops were removed. This moment can be used in scalping, when we catch not all the movement, but a sharp impulse. Therefore, if you correctly find a strong level and it will be confirmed by a large density, you can earn money on this. Yes, such situations will be rare, but my personal task is to find the highest quality signals and models. It happens that I sit for 3 days without transactions. If you try to always be in the market, you will most likely merge.
Not always a false breakdown or a strong puncture will weaken the level. Yes, in most cases there will not be a strong impulse to breakout at this level. But at this level, you can find a good trend point. Not always dynamics and activity on the part of buyers is enough to move the price right away. Sometimes the price breaks through the level, stops are removed, but at the same time the price rolls back under the level. And with a second breakdown, an upward movement begins. If the instrument was redeemed again, and it was able to gain a foothold above the level, then in this case, you can also look for a buy entry point. Especially if there was a drop below the level, then a buyback on high volumes, which again may indicate the interest of a major player.
Let's take the Russian grids as an example. In one of the articles I have already described this situation. Here's the link . Here, a major player gained a position by shaking out other participants (screen above). After this false breakdown, a strong upward movement began.
Then we see a rollback on declining volumes (which indicates a decrease in interest in this instrument), then a repurchase with an increase in volumes (resumption of interest) and a breakdown of the level. It is the breakdown that confirms that there is still interest in the instrument. On this breakdown, you can look for an entry point to buy. Next, we see a rollback and retest of this level. At the same time, there were volumes during the retest and there was a puncture with a sharp buyback. This also indicates that interest in this asset remains. This level gives a good entry point to buy with a short stop.
For a more detailed analysis of charts with additional examples and entry points, see the video below from 2 minutes. All pleasant viewing.
Sincerely, Stanislav Stanishevsky.
How to read charts? This question worries many novice forex traders who have realized that many of the technical analysis indicators are late or simply do not work. In this tutorial, we will look at two examples of real trading in different markets to help beginner traders understand:
- How to learn to read the forex market. To do this, we will analyze the Japanese candlesticks of the dollar / ruble currency pair, USDRUB.
- How to read stock charts. To this end, let's study the bar chart of the Gazprom stock, GAZP.
But first you need to learn two basic principles that shed light on the ability to read a chart.
- Graphs should be read from left to right. Why? Imagine you turned on a channel that broadcasts football. The commands are unknown to you. You cannot immediately make a reasonable bet on the victory of one of them. Otherwise, it will be pure excitement, while reading the chart is a method of reasonable judgment about the market, in order to make a profit. A thinking player needs to know how the teams (bulls and bears) played in previous matches, what events took place during today's game. This is the first principle to learn in order to learn how to understand and read stock charts - to study chart bars and candlesticks as a story that develops in time from left to right and analyze the current situation in the context of the past.
- Charts should be read by analyzing the interaction of three independent parameters: volume, time and price. Because the analysis of trader charts comes down to calculating the balance of supply and demand. And the forces of supply and demand, according to the law of the same name, are expressed through price (vertical axis in the figure above) and volume (number of transactions, horizontal). By being able to read volume and price charts over time, a trader can see the change in the balance of buyers and sellers (cause), and take an advantageous position in advance before the price starts to change (effect). Currency traders ask how to read forex charts if the broker does not provide data on real volumes? There are two answers:
– replace real volume data with tick volumes. Gavin Holmes, like other VSA experts, argues that tick volume rightfully shows activity. Namely, the activity of the players is the meaning that is displayed in the value of the volume, tick or real.
– take volume values from derivative instruments. For example, from the futures market. Which we will do. Let's start learning to read forex charts right now!
An example with the dollar and the ruble, or tohow to read forex charts
This is the minute chart of the ruble futures on January 27, 2016. The principles of reading a chart to determine a scalping trade entry signal, shown below, work in all markets (oil, stocks, gold) and on any time frame. The type of chart is at the discretion of the trader. A forex bar chart does not differ from a candle chart from the point of view of a trader reading it. This is a matter of taste, but most experts, starting with Richard Wyckoff, namely: Tom Williams, David Weiss, Gavin Holmes and others, prefer to display bars on charts.
1. After the market opened, the price made a spring (a deceptive downward maneuver, knocking down the stops of yesterday's bulls, and dragging the bears into unprofitable sales).
2. A wave of buying, locking sellers in the red. The green color on the volume histogram exceeds the red one – purchases are made at the market price, a bullish sign.
3. Above the level of 80300 there is sot - shortening of the thrust - reduction of the breakthrough. Each new high shows a smaller increase in price on the chart. A sign that the bears are resisting. The subsequent descending wave at 9:45 is an additional confirmation of this.
4. The blue arrow at 10:16 shows a candle on the chart when buying efforts have not brought growth. And most likely, they displayed sellers meeting ask-and above 80250 (also, by the way, sot)
5. Red arrow - a signal to enter a short position. In the background, we have several bearish signs that justify shorts. And this sell-dominant candlestick could represent the start of a down wave. A short opens in the next 2-3 minutes, for example at 80100, with a stop at 80250, and a target at 79500, the level where the buyers showed their advantage, starting the morning up wave. Trade Potential: Potential Loss 150, Potential Profit 600. Ratio: 1:4 is a good ratio for a trade with a high probability of success.
Note that when reading the Japanese candlestick chart, no indicators are used, only pure volume and price charts, only important levels are additionally marked.
Example with Gazprom shares, orhow to learn to read charts on quick finance.
Unlike traders who think about what volumes to add to the Forex bar chart - ticks or futures, stock market traders receive official MICEX data on the volumes of transactions in their terminal (in this example, a quick from Finam).
Chart 2. Stock chart study of supply and demand. GAZP, 60m.
Pay attention to the behavior of the stock on the day indicated by the red square. After a price spike on the up bar on November 12, 2015, the price of Gazprom shares showed comparative strength against the general market (thin bars on the chart) the next day on November 13, 2015 – a bullish change in behavior. On Monday morning, an attentive trader could go long on the spring signal when the price fell below the previous day's low. Another version of the entry technique is on a breakdown of resistance with a growing volume.
If you are a currency trader and you are more interested in how to read a forex bar chart, take a look at the articles tagged . For stock market traders - a free video tutorial on how to read charts from professional investor Philip Friston.
Helpful Hint: To improve your market reading skills, use the training method suggested by Richard Wyckoff. Cover the right side of the chart with thick paper, and open it by sliding the paper to the right bar by bar. Fix your conclusions with each open bar. Learn to read a chart, train your skill, and you will never regret it.
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