Incorporating Candlestick Techniques in Forex Trading Strategies
There are no forex trading strategies that can serve as a ‘cure all’ solution to forex trading losses. However, there are strategies that can minimize losses and at the same time help you pick the more profitable trading opportunities so that by the end of the day you will end up with money in your pockets. You need to understand that forex trading strategies are not magic formulas or money churning systems or profit mills. They are just guidelines to follow, and steps to take for you to be able to pick the more profitable trades and that varies from one trader to another. Also, a trading strategy may work for some but may disappoint others.
The reason for this is simple. A trading strategy must take into account the amount of capital a trader is willing to put on the line. It should also take into account the risk appetite or temperament of the individual trader and his objective as well. In short, strategies may vary from trader to trader because of these factors.
However, there are elements that are common to all forex trading strategies; without any of which, they will be ineffective. A profit objective for every position taken must always be set prior to trading. Entry and exit points should be established. A stop loss point must be determined for each position taken. Finally, the most important thing is to have charting software that can track the price movement on real time.
The most effective chart to use to track price movements is the Japanese candlestick chart. The Japanese Candlestick chart tells the trader exactly when and where a trading opportunity becomes available. The trader can determine when to get in and out of the market with ease. The best use of candlesticks is in pointing out where possible reversal points are; and showing you graphically if and when a trend has indeed reversed. Used with other technical indicators, the candlestick can be an effective trading strategy.
Here are some ways to make good use of the candlestick in your forex trading strategies:
- Determine the current trend as well as the supports and resistances using the candlestick chart.
- Look for reversal patterns like Dojis or Hangmans on the candlestick charts. If they occur at or near a significant support or resistance line, then make the trade in the direction of the reversal – immediately after a confirmation of the reversal is made.
- A strong move that reverses the trend immediately following the reversal pattern constitutes a confirmation of the reversal.
- The confirmation move must be accompanied by an increase in trading volume with the
- Put a trading stop slightly below or on top of the nearest most significant support and resistances. Make it a trailing stop once the price moves favorably in your direction by adjusting higher or lower (depending on your established position) every time the price continues in the reversal direction it has taken.
In using the candlesticks, you must remember to pay attention only to candlestick reversal patterns that occur at or near significant support or resistance lines.