Candlestick trading is the most common andthe most easy-to-understand form of trading that there is today.
But are yougetting the most out of what the candlesticks are showing you and are youusing them in the best way? come on let's explore five oaks nowtoday we're going to be looking at the all-important Japanese candlestickcharts and why if you understand what they're showing you can make your life awhole lot easier as a trader now not only do they give you a possible insightinto what prices may be doing next but they can also be used to define theexact rules of entry and exits and I found over the years many aspiringtraders struggle with just that so having some definable victory based oncandlestick patterns can really help the aspiring trader now before I continuelet me first remind you that I now stream live on Facebookevery Monday at 2:00 p.
London time so you can watch me put all my teachingsinto a live trading environment now just follow the link above and you'll begetting straight in there for next Monday also don't forget to subscribe tothe channel here at YouTube if you don't already do so and click that little bellicon and that way you're gonna get an alert at the moment I release my nextvideo ok let's get straight into it okay so before we get into the specifics ofthe candlestick chart and patterns that are thrown up I want to explain to youthe three different chart types that traders use when they're training in themarkets basically you've got the line chart the bar chart and of course thecandlestick chart now as with any chart you normally have the time on thehorizontal axis and price is on the vertical axis same with our tradingcharts here you can see the line chart now the line chart consists of a singleline and the single line is plotted by looking at the closing price in aparticular time period being a five minute time period or an hourly orweekly or so forth so ignores the price extremes the highs and the lows in thatparticular time period it only focuses on the closing price so powerful if youuse these looking for key turning pointsespecially on the high team timeframes like the daily and the weekly thenyou've got the bar chart now the bar chart shows you a bit more informationthan the line chart it shows you where it opened it shows you where it closedyou get to see a picture of where the market is going it doesn't show you asmuch as the candlestick chart but it shows you slightly more than the linechart shows you price extremes highs and lows and so forth I find that a littlebit hard sometimes to actually predict trend by looking at that but of coursethat is a matter of preference then of course you've got the all-importantcandlestick chart this shows us much more information and when you plot thesecandles together against each other they can be quite powerful in predicting thefuture price movements have a look at them now in more detail ok so as we knowmarkets are moved by human behavior buyers move the market up and sellersmove the market down now the candlestick chart shows us basically who is winningthe battle in a particular time period are the buyers more in control or thesellers more in control and the kind of stick charts shows us a goodvisualization of just that now a candlestick chart is typically coloredblue or sometimes green if the buyers have control if the market opens downhere and then moves all the way back up and closes here that basically means thebuyers were in control so if the market closes higher at the mode opened thecandle will be colored blue and the example here if the market opened uphere and then trades down because the sellers had control and closes down heretypically the candle will be colored red so it closes lower than where it openednow also on a candlestick chart you sure you have these what are known as shadowsall wicks it shows you where price went to in that particular time period so forexample here market would have opened traded down to possibly down here andthen right back up buyers took control the buyers are winning this particularcandle up to a high up here and then some sellers come in and it closes backdown here so this is a bullish candle and exactly the same on the other candlehere the reverse market opens here potentially trades up a little bit andthen trades down the sellers have control takes it down to this new lowdown here then some buyers come in and it closes herethe sellers won that particular candle sellers were more prevalent than thebuyers in that particular time period so candlestick chart shows you the open theclose the high and indeed the low so lots of information going on on oneparticular candle now looking at a particular candle on its own isn't thebest way to do it you need to be looking at these candles in conjunction withother candles surrounding it and also at key levels key levels of support andresistance and when you match these together it can give you a very goodindication of where price may go in the future can also give you a good entryand exit levels as I previously discussed let me explore okay so theseare the main patterns that we look at in our trading certainly the ones that welook at in the strategies that we trade live every day in our trading verysimple to understand let me briefly explain exactly what they're showing youso here you've got a bullish engulfing pattern this basically means that thecandle to the right fully engulfs the candle to the left sohere the market opened up here went to this high created back down to this lowclose down here puts in this candle here this bearish candle now the next candleopens it and fully trades down but then fully engulfs the previous candle thisis a bullish candle this indicates that the market is going to go up and move tothe upside now we look for these at key turning points at key levels of supportand resistance if you see one of these coming in at a support zone that is agood high probability that that is going to be leading to a move to the upsideand as I said you can use these candlesticks for entries and exits sotypically your strategy in fact one of the strategies we use we'll look at thisprecisely this way we would look to enter at a break above this particularhigher this candle and our stop could be halfway down the bullish candle orindeed could be a few pips below the base of this so it leaves nothing to theimagination you've got some define rules enter at the break of the high with astop at the break of the low now we've got the bearish engulfing exactly thesame but in the opposite direction here you've got a bullish candle but then thecandle to the right fully engulfed slits and closes lower fully engulfing theprevious candle this is a bearish candle looking for a move to the low side whenyou see a bearish engulfing at a key level of resistance up here for examplethis gives you a high probability that this market is going to trade down andas I say you have two defined rules of entry as well with your strategy youcould enter at the break of this low of the engulfing candle or you could haveand you can have your stop at above the high of the engulfing candle as well youmay have a strategy that uses 50% of that cap but again you've got somedefined rules that you can lock in to them a very powerful turning point thebearish and golfer at key levels of resistance then you've got the hammercandles you've got the inverted hammer and the hammer candle okay basicallythis shows you that this sellers were and controlled markets opened here itmoved up but then closed right the way down so opens here closes here marketmoves up and then the sellers take control and they push price back downfor a lower close than where it opened this is a very bearish candle this is arejection candle it's rejecting a level up here this could indicate a move tothe low side a very simple candlestick pattern that can be very very powerfulin picking turning points you can also use this inverted hammer with the trendas well if the market is trending down and you see one of these hammer candlescome in or ie a break higher but then choices back down again that indicatesthat the buyers basically ran out of steamthe sellers took control and continuing on down with the trend exact reverse forthe hammer candle this is here and the buyers took control to the market Ohhere trades all the way down so the sellers have control then the buyerscome back in take control and push the market higher again this is a bluehammer candle it's a bullish hammer candle it'sshowing you that the buyers are in control and the price down here wasrejected this level of support is now being respected and of course pricestook off in the northerly direction a very bullish candle can be used to pickturning points in a downtrend if you see this at the bottom of a downtrend thenthis could indicate that the move is now going to be up the also is very good inthe in the in the trendy markets if you see a market that's trending up and thenyou see one of these candles came in at break lower maybe the sellers have gotcontrol but then closes up again this indicates that the market wants tocontinue in that northerly direction a very very powerful candlestick patternwhen you take into consideration support and resistance with trend and countertrend then you've got the old famous at doji now the doji represents an area ofindecision who won control of that particular time periodwas it the Bulls was it the buyers was it the sellerswell clearly neither one control is an area of indecision indecision basicallymeans the market is undecided where it's going to go so looking at the doji onits own basically is not really the best way to play a doji it's the best way theplayer doji is looking at the next candle afterwards the next couple ofcandles to see what price is actually doing mark is in undecided mode the nextcouple of candles could be very crucial in terms of where the market might goagain so doji is again a very very powerfulcattle show you something maybe is about to happen if you see a number of thesedoji's and then a break higher and that indicates the market wants to pushhigher if you see a number of these doji's and then a break lower then itindicates a potential roll back the market wants to trace out let's look atthese now in a bit more detail okay so here we see a collection of candles nowclearly this is on the whiteboard and I put these examples out and theyobviously are going to work otherwise I'll be wasting my time or whatshow you the patterns where they are significant and where they work ofcourse what you need to do is go onto the world price chart and look for thesepatterns at key levels of support and resistance to yourself to see them inthe real world and in fact straight off this whiteboard demonstration I'll jumponto the screens and show you an example in the Australian against the US dollaron the 4-hour chart which is actually working quite well as we speak hereright – so we start off here markets trading up I've drawn here as you cansee some resistance and and support levels so we're looking for price actionto expect these levels market here is just meandering what around we're movingup we now breach the level of resistance to the upside indicated by this dottedline market trades up Bulls are in control and then the sellers come in andpush this market down that's showing you that this level of resistance is beingrespected that is a good indication in conjunction with the level of resistancethat this market wants to trade back down and of course as luck would have itit is trading back down who are trading back down and we're coming back in nowto the level of support level of support is broken with this bearish candle Bearsare in control the sellers are in control then it hits a wave of buyingand the buyers now are becoming more prevalent to the market demand is therethey're pushing the prices up and it completely engulfs this previous bearishcandle which took us through in the first place this is a bullish pattern ata level of support so this market now looks as though it wants to trade upindeed that's exactly what happens let me come into these candles remember whatthese are called these are the doji candles these are the areas ofindecision the market doesn't quite know what isgonna what it wants to do just coming into the level of resistance we put in acouple of doji's and then indeed we break lower to the low side of the dojiindicates that potentially the down trend will continue so after an era ofindecision the next candle is crucial that shows us that the market now wantsto potentially move back down and indeed it does okay so now we come back intothis level of support trades through the levelsupport looks as though the payers are in control looks as though the sellershave control but then the wave of buying comes back in and pushes price back upfor a bullish hammer hammer candle they're depicted by the body of thecandle the main body of the candle being in the top third of the whole range ofthat candle that's a bullish hammer at a level of support market now wants tomove back up again has a bit of a wobble here market trades down comes back downengulfs that candle but then trades up again so this is now a British hammerwith the trend this is against the trend you see here trend is down up this iswith the trend so these hammer candles inverted and hammer candles can work inboth directions with and counter trend machi moves back up again through thelevel of resistance looks as though it wants to go higher and then this nextcandle completely engulfs this candle at the level of resistance indicating thatthis uptrend has now come to an end and looking to move back down again as Isaid you can use these candles for levels of entry so for example if you uphere and you want to take this advantage take this tray to the downside you mayhave a stop say at 50% of the hammer cans the inverted hammer count all youmight want you stop above the high of the hammer candle same back down here ifyou take this long trade here you might want to stop below here again definedreasons why to exit and enter the trade again if you're trading these doji's youmay wish to enter the break of the doji's with a stop the other side of thedoji saying back down here the hammer you may wish to enter as the break ofthe hammer candle or indeed if it pulls back to 50% with the stop below so youcan use these hammer candles as I say all these candlestick patterns as anchorpoints to enter and exit and so forth what we're now going to jump on to thescreen so I'm going to show you a live chart as of today the day of recording Ijust looked before I came into the studio here and it's the Aussie againstthe US dollar just show it in real time but I encourage you to go and do yourown analysis look at a price chart to see if indeed you can spot thesepatterns and how powerful they are come on let's go okay so that was a quickdemonstration on the white Lord showing you the patterns that welook for in our trading now they're very simple to spot once you know what you'relooking for I talked about these throughout my trading in the livetraining room we've got a number of strategies that are based around thesecandlestick patterns so do go and check that out when you can for now I justwant to jump onto a price chart to show you how these candlestick patterns giveus early warning signs at key levels of support and resistance come on okay sowhat I've done here is drawn in some key levels of support and resistance and Ihave simply highlighted the areas in green where price has respected theselevels putting in one of our patterns that we've discussed so if you look hereto the left market is moving up nicely it breaks through this level ofresistance now acting as support and indeed it comes back down into thatlevel of support puts in this bullish engulfing pattern that's indicating thatthis level of previous resistance or support is going to be respected andindeed prices move back up again and here we see now back up to this nextlevel of resistance it holds it for one two three four five candles and thenputs in this bearish engulfing there's big bearish engulfing which is the fifthrejection of that level of resistance and we roll back again and back into thelevel of support know your price action there up again and then back down intothis level of resistance is the market going to continue with the trend to thedownside it looks like it then it has this pull back in and then it has arejection of this old level of support now acting as resistance puts in thisbearish engulfing indicating this wants to roll back and then T there's quite afew pips to be had there finally does turn back and then back up again intothis level of resistance puts in this really powerful inverted hammer candlethere that shows you a rejection going on there doesn't reject it too much itdoes indeed have a second attempt at that level but then puts in theconfirmation this is the bearing golfer engulfing the previous two candlesfollowing on from this candle hit that is a good indication and indeed theirlast candle there that last inverted hammer canin the case this really does one of our backs that's a very powerful set upthere I think we took that in the room as well actually and then that one rollsback down into the level of support puts in this hammer candle again and off wego again to the upside back down again to the level of support here you'll seethis little doji in here this is a four-hour doji indecisionare we going to continue through is it going to bounce back up next candleconfirmation that we're looking to trade back up and then it puts in this hammercandle in the direction of the previous bar indicates that this wants to rollindeed back up to the highs of the resistance level and then we have thisagain really powerful inverted hammer candle reaches through the level ofresistance and closes low off we go to the downside until we finally put inthis bullish in golfer at the bottom takes us up again to the resistancelevel so the resistance levels and support levels have been respected youenter when you see these candlestick patterns confirming here again we've gotwe've got this pinball rejection and then the bearish par follows on and offB roll back into support puts in this bullish pin bar confirmation that wewant to roll back again and indeed where we are now this is only a few hours agowe've got this pin bar coming in so this is the rejection candle of thisresistant zone this is live now as we speak I'm not sure if it's going to rollback down and and confirm that this is a rejection but certainly this is abearish little pattern in here at the moment so as I say you can use thesepens and with trend with Calla trend you can use them for entries you can usethem for exit strategy now we have a number of strategies that use this typeof candlestick pattern formation we look for these all day long and ourlivestreams we've also got some tools that actually find these patterns foryou and you can download those for your charge from the trading roomoccasionally to attend the trading room seven day free trials do click the linkabove should you wish to try us out I'm sure you won't regret it when you cansee the power of these wouldn't be amazing if you can accurately predictthe key turning points in a market and Ishowcase this every day in our live streams okay so I hope you found thatuseful hopefully now you can see the power behind these very simple Japanesecandlestick charts if you like my video give me a thumbs up if you didn't giveme a thumbs down don't forget to leave a comment and don't forget to subscribe tothe channel if you haven't already done so don't forget that little belly iconyou're gonna get notified the moment 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