Candlestick analysis

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Binance Coin (BNB) has come a long way since its introduction in 2017. Due to the constant development and expansion of the fields of application, BNB has strengthened its position as a leading one. Considering the forecasting methods that exist in candle analysis, it is important to understand that:

  1. Candle analysis is a section of technical analysis, which means it inherits all its laws.
  2. Candle analysis has its roots in the history of Japan, which means it contains elements of the mentality, culture and philosophy of a country with more than a thousand years of history.
  3. Applying these methods, it is necessary to combine all the strict pragmatics of technical analysis and the logic of Japanese history and philosophy.

Before proceeding to the consideration of the technical component, you should get a little closer to the history of this method.

Homma Munehisa (Jap. 本間宗久,1724-1803) is recognized as the founder of candle analysis. A wonderful man from a rich family. Homma lived in an era when Japan was constantly in a state of internal and external war.

It is this circumstance that underlies the understanding of the market, viewed through the prism of candle analysis methods: the confrontation of “bulls” and “bears” – two irreconcilable opponents with opposite goals and objectives. In order to better understand Japanese philosophy and effectively apply it in market situations, almost all well-known traders carefully studied the work of another outstanding Japanese Sun Tzu – “The Art of War”.

This book is rightfully considered to be in some way the bible of the commander. The postulates set forth in this work, despite its antiquity (VI-V centuries BC), remain relevant to this day. It is said that Friedrich Hegel himself could not do without his methods in his dialectics, especially in the section “unity and struggle of opposites”.

To more clearly present what has been described, let’s look at a couple of examples, but first we should focus on the order of formation of the Japanese candle itself, as the basis of the entire complex of candle analysis.

It should be noted that there are bullish and bearish candles. Actually, these two symbols of stock trading – bulls and bears, were also chosen not by chance. Both of these animals are vivid representatives of the manifestation of power in any confrontation. However, if you look at their movements when attacking the enemy, it becomes obvious that the bull throws its victim with its horns from the bottom up, and the bear, on the contrary, brings down its powerful paw from top to bottom, trying to disassemble the unfortunate for spare parts on the ground. Thus, two types of trend have firmly entered the stock slang – bullish (ascending) and bearish (descending).

A bullish candle is formed on the timeframe you have chosen:

Its main difference is that the closing price is higher than the opening price, which indicates that the preponderance of forces at the moment is on the side of the bulls.

With a bearish candle, everything happens in reverse order:

The closing price of the timeframe, being lower than the opening price, indicates the unstoppable power of the “bears” in the market.

Even a beginner, looking at the candlestick chart, will see that the candlesticks are very different, but their appearance, as well as combinations, are repeated:

And now is the time to recall another feature of candle analysis. This feature makes it popular all over the world. This feature lies in the perception by a person of those very visual images in combination with names that describe the continuous war of the two opposing sides:

“Tombstone” opens and closes at the minimum price of the period. If prices show a new maximum in the next period (candle), drawing a long upper shadow, then this should set the bulls up in a particularly pessimistic way and only strengthen the signal for a trend reversal. This can also be interpreted as follows: it does not matter that the bulls worked out the entire volume of the offer, the bears still dropped prices to a minimum, and the auction closed at this price.

And here is a model confirming the development of the formed trend:

“Three attacking white soldiers.”

It was said above that the philosophy of market perception in candle analysis is inextricably linked with the war. This is reflected in the names of both individual candlesticks and entire patterns.

Studying candle analysis, one cannot avoid some deformation (in a good sense) of one’s perception of candle charts. On the contrary, having had enough of the philosophy of Japanese candlesticks describing the continuous struggle of bulls and bears, you will gradually be able to rethink the whole surrounding reality and, of course, learn how to apply these positions more effectively in conflict situations.

Describing candle patterns, admiring their laconic poetry, is a pleasure! But calculating the profit from the application of this knowledge in practice is quite another matter!

A huge mass of books has been written and demanded by outstanding authors on the topic of candle analysis, which you have yet to get acquainted with.

Another beauty of candle analysis is that everyone can choose the combinations closest in perception only to him and build their own trading system based on them.

Of course, in a trading strategy based on candle analysis, it would be very appropriate to combine the signals of candle models with the confirming signals of other methods and sections of both technical and fundamental analysis. How to do it correctly, which signals to combine with which, how to build your trading strategy – it is better to learn about this from a teacher during training.

In conclusion, I would like to once again focus your attention on the fact that in stock trading, the main thing is profit, which means that what forecasting methods you will use for this is secondary. The main indicator of a successful trader is a stable profit, which is what the Wealthy Traders team wishes you!

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