candles

I have a method based on the analysis of candle patterns and support and resistance lines. The most important thing about my method is that it adapts to changing markets. A huge part of my trading is analyzing current market conditions and trading accordingly.

Pairs:GBP/JPY, if you have not discovered this amazing pair yet you are missing out.

Time frame:I use 4 hour charts, and only 4 hour charts.

I use a combination of candlestick patterns, support and resistance lines, and price action.

Targets: My targets are on average 80 pips.
Stops: My stops are on average 40 pips. 

 

Bullish candle

A bullish candle is what traders call any candle that has a bullish body. After the baby candle grows up and dies (closes) with a bullish body, it is a bullish candle. If it has a strong bullish body, it is a strong bullish candle. If it has a small bullish body, it is a weak bullish candle. Simple, right? But, think about it. The candle does not only tell you the price, it tells you the bulls are winning and they have power. There are more buyers than sellers!
This is critical information in this market. If your system tells you to go short but the candle is clearly bullish, it might be a good idea to hold off on the short. Why would anybody go short when there are more buyers in the market?
There is currently more buying pressure in the market. As long as buyers maintain enough buying pressure the candles will be bullish. If buying pressure eases and selling pressure increases bullish candles will become smaller, representing decreased bull strength.

Bearish candle
A bearish candle is any candle that has a bearish body. So what does the bearish candle tell you? It tells you there are more sellers in the market than there are buyers. It tells you that the sellers are currently in control, so a long position would not be a great idea.
There is currently more selling pressure in the market. As long as sellers maintain enough selling pressure the candles will be bearish. If selling pressure eases and buying pressure increases, bearish candles will become smaller, representing decreased bear strength.

Small lower wick, small bearish body and larger upper wick: This candle suggests that at some point while this candle was open the bulls tried to push the price up. This is what the long upper wick tells us. However, before this candle closed the bears took over and pushed the price back down. This is shown by the bearish body close.
Large lower wick, small bullish body and small upper wick: This candle suggests that at some point while this candle was open the bears tried to push the price down. This is what the long lower wick tells us. However, before this candle closed the bulls took over and pushed the price back up. This is shown by the bullish body close.

Simply put a Marubozu is a candle with no wicks. So if it's a bullish Marubozu its open is its low and its close is its high. If you see a bearish Marubozu, it's open is its high and its close is its low. A Marubozu is a strong continuation pattern. It suggests that the bulls/bears are in total control of the market.
A white (bullish) Marubozu suggests that the bulls are in total control. Think about it in terms of the battle between the bulls and the bears mentioned in the last section. When the candle opened the bears did not manage to make a new low. The bulls pushed up almost consistently closing at the high. The candle suggests that the bulls have total control.
A red (bearish) Marubozu suggests that the bears are in total control. Again, think about it in terms of the battle between the bulls and the bears. From when the candle opened the bulls could not gain a foothold. The candle moved down pretty much consistently without the bulls being able to hold the fall back. The candle closed at its low.
Marubozu candles are a very strong indication of a continuation. Since the bulls/bears had so much power when forming the Marubozu that power can be expected to carry through to the next candle.

 A Spinning Top indicates a strong fight going on between the bears and the bulls. The bulls are giving it their all, as are the bears. Nobody has won the fight yet, so the candle closes near to its open price. Take a look at the spinning top below for a clearer explanation.

The spinning tops body can be either bullish or bearish, but that isn't overly important. What's important is that there are two wicks to either side, that are much larger than the body. This indicates that there was a struggle between the bulls and the bears but neither had a decisive victory. So in a trend, a spinning top indicates indecision.
Spinning tops are very important in predicting reversals, as they often occur when a trend is dying out.

If a Spinning Top appears during a bullish trend it suggests that the bulls could be losing control, and the trend could be ending. This is because until the spinning top formed the bulls had a very strong bullish trend. The spinning top suggests to traders that the bears are fighting back and the bulls are struggling to continue the bullish trend.
You will often hear spinning tops being called reversal candles. The Forex4Noobs team tends to call them indecision candles instead. The term reversal candle is a bit of a misnomer. A spinning top does not indicate a definite reversal only the possibility of a reversal.
The colour of the body of a Spinning Top is not extremely important. However, it can suggest which side had more power. So if the spinning top has a white body it suggests that the bulls are slightly stronger than the bears, and vice versa.

Dojis

Strength: Medium
Dojis come in different shapes and forms but they are all characterized with having no body. So this means that the price opened at the same price as it closed. Many traders subscribe to the 'close enough is good enough' philosophy with Dojis. So if the candle has a body but it is very small they will still consider the candle a Doji.
A Doji is also an indecision pattern and it is similar to a spinning top. When you see a Doji on your chart, it means there is a strong fight going on between the bears and the bulls. The bulls are giving it their all, as are the bears. Nobody has won the fight yet, so it closes at open or very close to it.
Looking at the picture above a Doji tells us the same story as a spinning top does. In fact pretty much all indecision (reversal) candles tell you the same thing. This will be discussed in greater detail in the next section.
All Dojis indicate indecision and possible reversals, if they form in a trend. If a Doji forms in a bullish/bearish trend it suggests that the bulls/bears have become exhausted and the bears/bulls are fighting back.
Don't get too excited newbie, candles are not perfect! If you take a trade every time you see a Doji form in a trend you will end up losing big. Always remember these candles only indicate indecision not a definite reversal. To use indecision (reversal) candles effectively you need to look for confirmation candles and ideally use them with other forms of analysis.

If this were any other site right now you would probably get a very long (or sometimes short) list of generic candlestick patterns with names like 'hanging man', 'shooting star' and 'hammer'. However, this is not any other site. There are a few flaws with how candlestick patterns are taught on other Forex websites:

1. Candle patterns are taught as they work in the stock market and that differs from how they work in Forex.
2. Traders are taught to view candles as generic patterns but it is much more efficient to learn to read candles.

All Reversal Candlestick Patterns Are The Same

Essentially all reversal patterns are the same. When they form in a trend they always mean the same thing. They mean that a transition of power has occurred. This is not the easiest concept to understand. It will be explained here but bookmark this page and come back to it after you finished the entire education section.
Reading candles is all about thinking about the candles you see on your chart in terms of the battle between the bulls and the bears. In the first section on candles, you learned the difference between a bullish and bearish candle. Now it's time to look a little deeper into what a bullish or bearish candle means, in relation to the battle between the bulls and the bears.
So this is a bearish candle, it forms when the bears have more power than the bulls. When the bears have more power than the bulls you get bearish candlestick patterns If the bears have more power for a long period of time you get a bearish trend.
Now imagine a spinning top type pattern forms in the trend. That would indicate that the pair has reached a period of indecision.
This is clearly an indecision pattern. The sliders have numbers from 0 to 10. When the bulls are at 10 it means they have a lot of power when they are at 0 it means they have no power. The same goes for the bears. So what happens when they are closely matched in terms of power? That's right, an indecision candlestick forms. So when the bulls and bears have equal amounts of power you will get indecision. As soon as one side gains power the candle will show who has gained power.
Learning a bunch of different patterns is not as useful as understanding what reversal patterns actually mean.