Are candlestick patterns like dojis, harami cross, morning star used in Forex technical analysis?
I know they can be used in the stock market but the forex market seems to be too volatile to use candlestick patterns. Any financial experts or traders care to shed a little light?
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In the 1600s, the Japanese developed a method of technical analysis to analyze the price of rice contracts. This technique is called candlestick charting. Steven Nison is credited with popularizing candlestick charting and has become recognized as the leading expert on their interpretation.
Candlestick charts display the open, high, low, and closing prices in a format similar to a modern-day bar-chart, but in a manner that extenuates the relationship between the opening and closing prices. Candlestick charts are simply a new way of looking at prices, they don’t involve any calculations.
Each candlestick represents one period (e.g., day) of data.
I have met investors who are attracted to candlestick charts by their mystique–maybe they are the "long forgotten Asian secret" to investment analysis. Other investors are turned-off by this mystique–they are only charts, right? Regardless of your feelings about the heritage of candlestick charting, I strongly encourage you to explore their use. Candlestick charts dramatically illustrate changes in the underlying supply/demand lines.
Because candlesticks display the relationship between the open, high, low, and closing prices, they cannot be displayed on securities that only have closing prices, nor were they intended to be displayed on securities that lack opening prices. If you want to display a candlestick chart on a security that does not have opening prices, I suggest that you use the previous day’s closing prices in place of opening prices. This technique can create candlestick lines and patterns that are unusual, but valid.
The interpretation of candlestick charts is based primarily on patterns. The most popular patterns are explained at http://www.forex2u.com/candlesticks-forex-trading.html
yes. it give more information than bar chart. no financial expertise needed here as it is basic information.
hmm, you can use it, and it does work. What i do if i see a doji, i’ll look at history. have the dojis signified reversals? or are they redundant? also, its better to use longer-term charts. so, yes, they’re part of technical analysis and can be used in forex.
Volatility in the foreign exchange is rather a matter of the right timeframe. I wouldn’t use less than the 1hr chart, ideally you’d want to use the daily or 4hr chart.
Candle stick patterns should always be used in conjunction with other indicators since these patterns merely sign a potential reversal from a support/resistance level.
Popular reversal patterns are bearish/bullish engulfing, inside bars, doji spinning top, hammer-reverse hammer, evening/morning star. You could study other patterns but are in my opinion less effective.
They don’t have to be "exact" text book examples on a chart. There’s most of the time a degree of distortion, the more distorted the less valid it becomes. This is something you learn through experience.
Overall, spotting a reversal candle pattern is fairly straight forward and simple, when there’s a good amount of doubt don’t trade it.
Another advantage of candle patterns is that it enables one to set a stop loss, usually inserted a couple of pips away from the other extreme of the pattern….
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