How to use candlestick in forex

Last closed candle is the most accurate information on current market state. We can read multiple information that can increase success rate for any entry.

 

Candle in itself is insufficient as an entry signal. However combine it with trend, range and volume and you get provably increased accuracy for your entry.

 

Candle signal must always be considered together with general market situation. What is a strong signal to enter the range is a terrible entry point in trend.

 

Candlesticks in forex

 

  • Candle high: Highest price that was reached during the trading timeframe of a candle.

  • Candle open: Open price for current candle.

  • Candle close: Close price for current candle.

  • Candle low: Lowest price that was reached during the trading timeframe of a candle.

 

Candle body is created between candle open and close.

 

If candle close is greater than open,we look at bullish candle.

If candle close is lower than open, we look at bearish candle.

 

How to judge candlestick in forex

 

Trend following entry

 

Strong and large candle body closed in the direction of trend confirms current trend momentum. Momentum signal is stronger when the candle lacks the wick in the direction of closing (trend). This signalizes that candle has most likely not encountered Support/resistance. Candle body size that can be considered a threshold for entry varies from instrument to instrument. However it can be easily tested by expert advisor looking at historical data with high accuracy (as it considers only candle, not tick data within). Strength and accuracy of the signal depends on multiple nuances. Trend is the largest factor.

 

Range entry

 

In range, we will be looking to sell high and buy low. We will be searching for candle with wick larger than candle body. Ultra wide wick must occur against the direction of our intended trade. This signalizes lack of momentum (narrow candle body) and price encountering support or resistance (therefore the wide wick, price bounced). Soemtiímes it is more beneficial to wait for confirmation of the signal. Candle closing with wide, full body in the direction of our intended entry (doji breakout type of entry, confirmed by MT4 EA).

 

Considering the volumes on candlesticks

 

Candle volume in forex in quite inaccurate. However it can still add value and increase accuracy of our entry. When looking at strong momentum candle (wide body, narrow wick) the candle volume should be high, surpassing the volumes of previous candles. This signalizes a lot of general interest in the market move. It will be more likely to continue. Lack of volume (lot of movement on the quiet market) signalizes lack of interest. Only few participant are interested in the move. Big players are not interested and could easily reverse the move.

 

Summary on how to use candlestick to trade forex

 

Last closed candle is one of the most valuable pieces of information you can get about the price. When used correctly it can increase accuracy of any trading system. We have verified it by using it in 100+ MT4 expert advisors. We were always able to add value to the system by employing the candle signal (compared to the same system not utilizing the candle filter).

 

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