Common Mistakes That New Traders Make With Japanese Candlesticks

 

Japanese candlesticks are a popular charting technique used in technical analysis to analyze price action and predict future price movements.

While they can be a powerful tool for traders, new traders often make common mistakes when using Japanese candlesticks.

Here are some common mistakes that new traders often make when using Japanese candlesticks.

 

1. You try to find meaning in EVERY candlestick that appears on the chart.

A lot of the time, markets are “noisy.” Not every candlestick is useful when thinking about future price movements.

Instead of looking at every candlestick, focus on the ones where the price is currently trading near important support and resistance levels.

So first identify where you think these levels are, and then start looking out for candlestick patterns.

 

2. Your imagination is too strong.

If you have to zoom in 500% or squint at the  Japanese candlestick chart because you think “You see something”, there’s probably nothing there.

You don’t have to try and assign a textbook label to candlestick formations you see.

Focus on finding evidence of strong buying pressure when you expect to buy, and evidence of strong selling pressure when you expect selling.

 

3. Your imagination is too weak.

Japanese candlestick patterns that are supposed to form after three candles based on textbook examples may actually end up forming over five candles.

 

Just because a three-candlestick pattern takes four candlesticks to form doesn’t invalidate the pattern.

 

The meaning is still the same. It’s more important to understand the price action behind the candlestick pattern than to simply memorize its standard form.

 

4. You forget the forest from the trees.

If you constantly just focus on shorter time frames like 5-minute charts without stepping back and trying to look at the “bigger picture”, your trades will tend to get blindsided.

Try not to make your focus too narrow.

 

5. You don’t wait for confirmation.

There are some candlestick patterns that are considered “self-confirming”, but many are not.

 

Make sure to wait until the candlestick closes and is fully formed before acting on a pattern.

 

Always wait for the right confirmation that the price is moving in the direction you’re expecting.

For example, if you see a Tweezer Bottom, it’s more prudent to wait and make sure that the candlestick after the dual candlestick pattern closes higher before going long.

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We’ve covered a lot about Japanese candlesticks.

 

Hopefully, you’re not at wick’s end but are actually now fired up about candlestick charts.

 

Maybe we’ve even ignited a flame that becomes a lifelong passion for Japanese candlesticks.

 

 

Let’s summarize what you’ve learned about Japanese candlesticks:

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• If the close is above the open, then a hollow candlestick (usually displayed as white) is drawn.

• If the close is below the open, then a filled candlestick (usually displayed as black) is drawn.

• The hollow or filled section of the candlestick is called the “real body” or body.

• The thin lines poking above and below the body display the high/low range and are called shadows.

• The top of the upper shadow is the “high”.

• The bottom of the lower shadow is the “low”.

 

Long bodies indicate strong buying or selling. The longer the body is, the more intense the buying or selling pressure.

 

Short bodies imply very little buying or selling activity. In street forex lingo, bulls mean buyers and bears mean sellers.

 

Upper shadows signify the session high.

Lower shadows signify the session low.

 

There are many types of Japanese candlestick patterns, but they can be categorized into how many bars make up the candlestick pattern.

 

There are single, dual, and triple candlestick formations.

The most common types of Japanese candlestick patterns are the following:

 

 

 

 

 

 

 

 

 

 

 

 

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Just refer to the Japanese Candlesticks Cheat Sheet for a quick reference on what these candlestick patterns mean.

 

Combine candlestick analysis with support and resistance levels for the best results.

 

And finally, here are some words of wisdom:

 

Just because Japanese candlesticks hint at a reversal or continuation, it doesn’t mean it will happen for sure! You must always consider market conditions and what price action is telling you.

 

This is the forex market and nothing is set in stone!