How to Use Japanese Candlesticks in Forex Trading

How to Use Japanese Candlesticks in Forex Trading

In the 1700s a Japanese man named Homma, a trader in the futures market, developed a method of technical analysis to analyze the price of rice contracts known as candlestick charting. Candlestick charts display the high, low, open, and close for a commodity each day over a specified period of time, in a format similar to a bar chart, but in a manner that maximizes the relationship between the opening and closing prices.

A narrow line shows the day's price range. A wider body marks the area between the open and the close, referred to as real body. If the close is above the open, the body is white or green (not filled); if the close is below the open, the body is black or red (filled). Steve Nison is normally credited with popularizing candlestick charting in the west and is recognized as a leading expert on how a trader might interpret the readings.

Candlesticks provide specific visual cues that make understanding price movement easier. Trading with Japanese Candle Charts allow speculators to better comprehend market feelings. Offering a wider range of information than traditional bar charts candlesticks give emphasis to the relationship between close price and open price.

Traders who use candlesticks are likely to more quickly identify different types of price action that tend to predict reversals or continuations in trends. Furthermore, combined with other technical analysis tools, candlestick pattern analysis can be a very useful way to select entry and exit points.

Candlestick charts are much more appealing and understandable than a standard two-dimensional bar chart. There are four elements necessary to construct a candlestick chart, the OPEN, HIGH, LOW and CLOSING price for a given time period.

There are multiple forms of candlestick chart patterns:

White candlestick - signals uptrend movement

Black candlestick - signals downtrend movement

Long lower shadow - bullish signal

Long upper shadow - bearish signal

Hammer - a bullish pattern during a downtrend; Shaven head - a bullish pattern during a downtrend;

Hanging man - bearish pattern during an uptrend

Inverted hammer - signals bottom reversal, however confirmation must be obtained from next trade;

Shaven bottom - signaling bottom reversal, however confirmation must be obtained from next trade;

Shooting star - a bearish pattern during an uptrend

Spinning top white - neutral pattern, meaningful in combination with other candlestick patterns

Spinning top black - neutral pattern, meaningful in combination with other candlestick patterns

Doji - neutral pattern, meaningful in combination with other candlestick patterns

Long legged doji - signals a top reversal

Dragonfly doji - signals trend reversal

Gravestone doji - signals trend reversal

Marubozu white - dominant bullish trades, continued bullish trend

Marubozu black - dominant bearish trades, continued bearish trend

How to Profit From Falling Stock Prices

Stock Options Trading - How to Profit From Falling Stock Prices

When it comes to making money on the Stock Market you will find everyone has their own view on the best strategy to use.

One of the most common strategies to make money in the short term is to buy shares and sell them at a profit once the share price has risen.

This is called Stock Trading, and can be a very effective way to profit from shares.

However just lately we have been looking at a downward and quite volatile move in our markets.

Right now many traders are sitting back 'waiting for the market to get back to normal' before they begin to profit again, but who knows how long bear markets last?

And what are these traders going to do for CASH in the meantime?

I believe in trading a strategy that suits the direction of the market, not waiting for the market to eventually comply with the criteria of just one particular strategy.

While everyone else has been running the other way in the present market conditions, there are quite a few traders who have been making consistent profits.

How are they making money on falling stock prices?

Well there are several ways to achieve this, some more complicated and costly than others. The most affordable, easy to understand and easy to implement trading vehicle I have found that will help you make money on a falling stock is Put Options.

Put Options began many years ago as a hedging instrument. That is they were designed as an insurance instrument for shares.

Basically a Put Option is a contact that relates to a particular stock and gives you the right to sell that stock at a fixed price within a certain period of time. For this right we pay a premium.

So an example of hedging would be if you owned some shares that you paid $ 20 for and bought a put option for insurance. This would give you the right to sell your shares at any time (during the life of the option) for $ 20, even if the share price fell to just a few dollars.

So how do we Make Money as Income using Put Options?

The most common way is to trade the actual Put Option and NEVER buy or sell the stock. This is called Options Trading.

As the share price drops in value, the value of the Put Option actually INCREASES. So when Options Trading we want to buy puts on falling shares and sell them to another trader at a PROFIT.

Let's imagine that ABC shares are trading at $ 40 and our analysis tells us that the price may fall even lower.

We could buy an ABC $ 40 Put Option and for this we might pay $ 2.

We now have the right to sell those shares at any time before expiry of the option for $ 40. But we don't own the shares, nor are we interested in owning the shares.

Soon after we buy the option, the share price falls to $ 30. So if we wanted to, we could buy the shares now at the market price of $ 30 and sell them with our put option for $ 40 resulting in a $ 10 profit.

That sounds appealing?

To do this however, we would have to come up with the $ 30 each share to be able to buy them before we could get that $ 10 profit in our hot little hands. What if we don't have that kind of money to spare?

Here's the power!

Because the share price has fallen, our Put Option could now be worth $ 12. And because we only paid $ 2 for it initially, we are now looking at a $ 10 profit.

We would then sell the put option on the market for $ 12 and realize our $ 10 profit, and all we had to come up with to do this was the initial $ 2 we paid for the option contract.

This is called leverage and it is a very powerful way to make money from a smaller amount of money.

And the maximum amount we stand to lose if we get it wrong? Just the $ 2 we paid for our option in the first place.

For years now we have been using our successful strategy to place trades day in and day out. We have mastered a system that scalps the market whenever there is any price movement, and its 100% programmed and ready to begin trading for you. It’s true…. The IvyBot is one of the most revolutionary automatic robots to hit the market.