"The ladder is overcome on a step"One of the most interesting and poetic types of forecasting on Forex are Japanese candles. It at the same time both analysis method, and type of the schedule. Intrigue already names of figures – morning and evening stars, a gleam in clouds, two flown-up crows, or, a little frighteningly, hung up. Thus Japanese candles yield remarkable results at their use in trade and are rather simple in understanding. What it for candles and who lit them?
It is a little history
For the first time Americans and Europeans got acquainted with this type of the analysis in the late eighties, when Steve Neeson in the book "Japanese candles: the analysis of world stock markets" described history of emergence and distribution of a method.
The system was thought up by Munekhis Homm's Japanese, the younger son in a family of hereditary dealers in rice. Thanks to the mind and practical wit he received in management the family capitals though usually business was inherited by the eldest son. Better to understand trade psychology, it analysed the prices of rice for all history of the rice exchange in Osaka, and considered not only the prices, but also how they changed, what psychological moments influenced dealers, what fears and passions overcame them at sales and purchases. It formed a basis of its system of Japanese candles. Besides Homm was thought up by a way quickly to receive information on the changes in price for rice. At distance from the exchange to the estate it placed heralds with flags which signaled about new quotations. Such speed of receiving news allowed it to react to exchange events quickly.
All these innovations allowed to reach Munekhis unknown at that time (and very considerable and presently) results – more than hundred profitable transactions in a row. After Homm became the financial adviser of the emperor, it was granted an honourable title of the Samurai. He died in wealth and content, and traders in heritage still had its interesting and very profitable system of trade.
System of trade
Why this system received the name "Japanese candles"? This schedule looks as if on a table put in a row the candles absolutely different in the size, with matches and without. For creation of candles 4 types of the price are used: opening, closings, maximum and minimum.
If the price of opening was higher, than closings, the tendency descending and a candle will be black color. Still it is called "bear" because in the market bears, sellers got the best. And, on the contrary, with a growth of a course the price of closing will be higher, and the candle will be white color or "bull".
Familiar expressions of "yin" and "янь", similar to designations of male and female energy in China for certain will seem to readers of InfoAdvisor.net. But also call Japanese candles Chinese. "Yin" — the name of a black candle, "янь" — white. In Japan the black candle is called "in-Sep" (the black line, in-sen), and white — "yo-Sep" (the white line, yo-sen).
The distance between the price of opening and closing is called "a candle body", and by tails from above and from below which show to the trader, to what maximum and minimum values the exchange rate changed is "thorn" or "shadow" of a candle. If to take taymfreym hour, each candle will designate the movement of the prices in this hour, if day – that according to a change of course in day.
Analyzing such schedule, the trader considers the sizes of a body of a candle and its thorns, and also sequence of Japanese candles or a figure of the candle analysis, still they are called by patterns.
Candles is, in fact, psychology of the market, they as any other tool, fears and desires of traders reflect. Even speak about them suitably: "Were frightened of thorns, were developed in other party", etc.
As well as any method, at the candle analysis has pluses and minuses. Undoubted advantage is that candles can be used and with other analytical tools, but not instead of them. Also it is a universal method, both the beginner, and the professional can use it. In minus it is possible to write down that the assessment of market conditions at most of traders is subjective. Everyone knows, what candle models are and as they look, but someone will tell, what yes, it is that figure, and another will seem to someone in the same drawing. Respectively, also forecasts will differ. But that candles in combination with other methods of the analysis yield excellent results, is proved by experience of many traders.
In the candle analysis the main objective of the trader is identification of figures. Such models can predict a turn or continuation of a tendency. If the trader notices in time that the situation in the market Forex starts changing in other party, he will be able quickly to react and get big profit than the one who will see a tendency already in its heat.
Usually models consist of several candles. But thus also each candle separately is of great importance. For example, if at a candle a big body and small thorns, it says about tendency force that the market promptly moves to a certain party. As soon as candles with small bodies and long thorns start appearing, it is to the trader will tell that marketing is in an uncertain state, someone sells, someone buys, but the consent is not present, and the tendency is not defined. And if before the exchange rate went up after the market "zashipovat", there can be a turn.
For example, such signals to a turn of a course are candles "a white hammer" and "hung up". The hammer is a candle with a small body of white color and a long lower thorn which is twice longer, than a body. The classical model means lack of the top shadow, but also the candle will reckon with a small top shadow as a hammer, only it will be weaker signal. It has to be in the lower part of price range, after the long descending tendency. The same candle, is only black color hung up. Both candles speak about a possible turn. Japanese describe such candles how "attempt to measure depth, groping a bottom a foot" or "takur".
Emergence of a dodzha or doges (doji) – candles with very long thorns becomes one more important signal of a turn, and the price of opening and closing completely coincides.
To tell about a turn with confidence, it is necessary to wait for the following, confirming candle as it will open and will be closed. In a case with a hammer the strong white candle which confirmed a course turn was following.
Names at patterns absolutely different, but always "speaking", already on them it is possible to judge, whether the change of course is supposed. For example, absorption model, counterattack, capture for a belt. Models of a turn are morning and evening stars. The star is a candle with a small body which forms a price gap with the previous candle, and thorns can be crossed. The evening star – course turn model down, after a big white candle is formed a star of black color, and further and a strong black candle which blocks more than a half of a body of a bull candle. If instead of a star is a part of this model dodzh, it strengthens a signal of change of a tendency.
It is interesting that full names of evening and morning stars in Japanese sound as "an evening star of three rivers" and "a morning star of three rivers". Assumed that it is connected with existence in each model of three candles, but the history of the name was more interesting.
At the end of the XVI century Japanese fought for association of lands, and military leaders won an important victory at capture of rich rice plantations. On these lands 3 rivers flew, and it was very heavy to troops to overcome resistance of owners of rice fields in such conditions. And finally they sealed the win only after passed all three water obstacles. And the name "morning star of three rivers" speaks about difficulties which need to be overcome to develop a tendency in the necessary party.
For an example of InfoAdvisor.net will consider one more model – "The falling star". It is very similar to the turned hammer though the candle with a long thorn can be both white, and black color up.
The big thorn means up that trading session opened near the previous minimum, then the price soared up and again fell, i.e. to bulls did not allow to be fixed above, rise was insolvent. In an ideal the candle No. 2 has to be the star i.e. which is torn off from a body previous, but in this example the price separation is not present. This pattern on graphics of a currency pair of EUR/GBP (euro/pound) in an hour taymfreym was formed on February 11. After emergence of the falling star the following candle opened with a good, strong tendency down. It was possible to open the transaction for sale. Within 2 hours there was a falling of a course on 35 points. Considering that point cost in this currency pair makes about $20, your profit according to this transaction in 2 hours would make $700.
The most important moment here – quickly to reveal the formed candle figure if you work with short, hour transactions to manage to react to change of a tendency. If your transactions last till some days, you will have more time for .
Summing up the results, it is possible to designate highlights of the candle analysis. For the trader color of a candle, length of a body and thorns, their ratio to each other matters. Also important place in forecasting is taken by identification of candle figures which can speak about a turn or continuation of a tendency. And it is worth remembering that candles is a reflection of psychology of dealers before making the decision, think: "And that the market wants?".
At first, of course, the trader will not be able to see at first sight all models and is exact them to interpret. But the more attention to pay to these moments, the big return, and in the material plan, and in moral, waits for you. You should not hurry, haste and passion will only disturb an objective assessment of the market.
Successful trade, also remember: "The ladder is overcome on a step"!