Using the Japanese Candlestick Charts with Forex Indicators

Jul 12 • Forex Indicators, Forex Trading Articles • 2184 Views • 3 Comments on Using the Japanese Candlestick Charts with Forex Indicators

Forex indicators are mere attempts to capture the underlying sentiment of the market to help traders to easily decide whether to buy or sell. Unfortunately, many of these indicators have been in use for quite a while now but none of them is able to come up with any semblance of success.

Capturing the underlying sentiment of the market simply means trying to know which direction (up or down) the majority of the traders in a particular trading session wish to take the prices. Of course, this is a task that is easier said than done. It is actually difficult to measure the collective sentiment of the majority of traders trading in a particular session even with the use of the vast array of forex indicators around.

One thing is clear though. The prices move as a result of the buying and selling activity of the traders. Prices move up if there are more buyers getting into the market. Conversely, prices move down if there are more sellers than buyers entering the market. None of the current forex indicators is able to achieve this feat. They may succeed every now and then but over-all, they lead to more losing trades than profitable ones.  If you can just capture the sentiment of the majority of these traders, then you have a better chance to make money trading the currencies.

This is really not an impossible task. The Japanese Candlestick Charting Technique is actually able to do this. The Japanese Candle Charts can actually capture the prevailing sentiment of the majority of traders in every session. Candlesticks effectively portray whether there is conviction or hesitation on every market movement. It can vividly display the hesitation or strong resolve of the majority of traders trading in a particular session. It can tell you who is more dominant at the moment in the tug of war between the bulls and the bears.
 

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The Japanese Candlestick Charting Technique had its origins from the writings of a highly successful Japanese rice trader named Munehisa Homma (1704 – 1803). The value of this charting technique is in instantaneous pattern recognition that vividly portrays the exact sentiment of the majority of traders. The charts amazing ability to capture the collective sentiments of the traders and portray market strengths and weaknesses makes it an effective forex indicator by itself.

People often squirm at the thought of using this seemingly primitive method of analyzing price movements but there is nothing that can compare to its highly vivid visual presentation of the underlying sentiments of the majority of traders in every trading session. Take for example, a candlestick pattern called the ‘hangman’ which usually appears at the top of a rising market. As the name denotes, the trend is hanged. The market has stalled at a significant high point indicating there is some hesitation on the part of the traders in pushing the prices further up. A possible reversal may be in the offing.

While many experienced pundits may smirk at the terms used to call the various candlestick patterns, their effectiveness in capturing the underlying sentiment of the market is unmatched by other charting techniques.

The Japanese candlestick charting technique can stand alone by itself and can be used as a raw trading strategy but the best way is always to use it in conjunction with other forex indicators.

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