How to use concept of candle formation for price action
Forex candlestick formations and how to use them for price action
If you are tradeing forex, you have heard the concept of candle or candle formation, if you do not believe that sooner or later you will come across this concept. Candles are an elemental element of all trading, for a better idea we can compare them to a part of the cell. The cell then forms sirloin formation, which is simple and complex, much like in nature. To be precise, candlelight is also called Japanese candles, because the Japanese are their inventors. Their use was found when selling rice in the 18th century, and their discoverers are considered Munehisa Homma. In the Western countries and in the general forex audience, the famous technical analyst g. Nison introduced in his book Beyond candlesticks in the 1992.
How does a Japanese candle look like?
The Japanese candle carries some information. First of all, it is necessary to say that each single candle represents one defined time period. This means that, for example, if you are on an hourly chart, then one candle represents the evolution of the market in one hour. Within one day, 24 hour candles will be produced, during the 5 days a week.
The difference between a bear and a bull candle
You have certainly noticed that two candle colors alternate in the market. In our case, it is blue and red, with blue marking the bull’s development (the market has grown over time) and, of course, the red bear (the market has fallen). Color defines technically the relationship between the opening and closing prices. You probably suspect that if the opening is above the closing price, it will be a bear candle. If, on the contrary, the opening price is below the closing price, it is a bull candle.
What we need to know about candle formations
You already understand that the candle is able to tell you what happened in the market for a given period of time, but what you might not know is how to use it for your benefit. This is what the sirloin formations and their study serve. There are plenty of differently shaped candles on the market. Most candles have no meaning, but they are one that can accurately predict further market developments. Such candles are called candle signaling or candle formations, so they are candles with predictive properties. We generally recognize several kinds of candle formation, depending on how many are in the formation. The theory of technical analysis knows three types of formations, classically according to the number of candles. Let’s say, however, that there are also candle-shaped candles with more candles, and that it does not apply that more candles give more relevant information. Often, the formation of one candle gives a more relevant signal that a formation composed of 3 candles.