One of the most popular trading charts is the Japanese candlestick chart. It comes with different types of candlesticks. It's easy to read and know whether the markets are trending or ranging. Each candle in the chart tells a story. Correctly interpreting this story will be important in your trading career. This guide will look at the different types of candles as well as the stories they tell.
- 1 How the Japanese candlestick is formed
- 2 The anatomy of the candlestick as it appears on IQ Option
- 3 The different types of candlesticks you'll find on IQ Option
- 4 You have learned about candlestick types, now it's time to learn about candlestick formations
How the Japanese candlestick is formed
Each candlestick is formed over a specific time frame. In IQ Option, this time frame ranges between 5 seconds and 1 month. For example, a 5-second candlestick develops for only 5 seconds before another 5-second candle stick starts developing. This sequence of candles is what creates the price pattern on your chart.
As the candle develops, you'll notice that its size changes continuously. These changes are a result of price fluctuations occurring during the lifetime of the candle. However, each candle only captures four price points over its time frame, the opening price, the closing price, the highest price and the lowest price of the period covered.
The anatomy of the candlestick as it appears on IQ Option
Each candlestick has a body and two wicks (shadows or tails).
The body is colored either green or orange. In special candles which will be covered later, the body might be gray. The body's edges represent the opening and closing prices of the session.
The wick on the other hand appears on either or both ends of the body. Sometimes, you will come across candles without wicks. The wicks ends represent the highest and lowest prices of the session.
At IQ Option, the green candle is bullish and the orange candle is bearish candle.
The different types of candlesticks you'll find on IQ Option
The Marubozu Twins
The Marubozu Twins are solid body candles. That is, they have no shadows. The open and close of the trading session represent the high and low prices of that session respectively. The bullish Marubozu is green in color while the bearish Marubozu is orange in color. These candles develop when the market is in a period of high volatility.
On the IQ Option platform, look out for these candles. They usually develop after some economic news or event affects the instrument being traded. Trading in their direction can reap good returns.
The spinning top has a small body with small wicks. These types of candlesticks form when there's indecision in the market. They are an indicator that one side is losing to the other. For example, if a spinning top develops in an uptrend, it's an indicator that the bulls are losing their market dominance. As such, spinning top candles can also suggest an imminent trend reversal.
This is also an indecision type candle. They look like a plus sign and in other instances look like a “T” or inverted “T”. When a doji forms, it simply indicates that the buyers and sellers are equally matched.
The doji can be part of a trend continuation pattern or trend reversal pattern. How you interpret it will be based on the previous candles.
Now let's discuss the 4 types of candlesticks that are classified as a doji. You'll easily find them on charts on the IQ Option platform.
The neutral doji
This doji looks like a plus sign. The opening and closing prices are the same. The wicks are also more or less equal in length. This shows that the bulls and bears are equally matched.
Long legged doji
It's also an indecision candle. However, the wicks are longer compared to those of the neutral doji. Here, the opening and closing prices are the same. However, the session's high and low are further apart meaning the battle between bulls and bears was more intense.
This candle looks like the capital letter “T”. It's a rare candle and forms at the top of an uptrend. The opening and closing prices are around the same level. This candle forms when bears have control over most of the trading session but bulls step in driving the prices higher before the session closes. To trade this candle, enter into position when the price breaks the top of the candle. In addition, place your stop at the bottom of the doji.
This is a bearish reversal doji and appears like an inverted capital letter “T”. Here, the bulls controlled much of the trading session before the bears step in and drive prices down. The opening and closing prices are therefore more or less at the same level. This candle formation usually appears at the bottom of a downtrend and indicates an impending reversal.
The hammer twins are bullish reversal candles. The hammer has a small full body with a long wick at the bottom. It forms along with an uptrend and signals that the trend is continuing.
Its opposite is the inverted hammer which has a small body with a long wick at the top. These types of candlesticks usually form at the bottom of a downtrend. When you encounter this type of candle, you can expect the market to reverse to an uptrend.
You have learned about candlestick types, now it's time to learn about candlestick formations
We have been talking about types of candlesticks today. A slightly broader concept are candlestick formations, which can be a single candle or consist of 2 or more candles. Knowing the candlesticks and being able to interpret them accurately is very helpful when trading on IQ Option.
Candles are one of the best patterns to use when trading on IQ Option. Each candle tells a story, especially when used with one or two candles that form before it. If you have a good grasp of reading candles, making money of IQ Option should become easy for you. You have learned today about the most popular and commonly used candlestick types in candlestick analysis.
Although candles can be used alone, you can also use them alongside other trading tools and indicators. Now that you know which candle sticks to look out for on the IQ Option platform, open a demo account today and try out these candle stick strategies at IQ Option.
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