Japanese Candlesticks Part 2
[00:11] – Video 6 – Reading Japanese Candlesticks Part 2. In the previous video I gave an introduction of Japanese Candlesticks, and I told that Japanese Candlesticks consists of candlesticks bodies and candlestick wicks. And I also mentioned that there are specific candlesticks that act as signals to open and close positions in the forex markets and other financial markets.
In this video, and the following tow videos, I would teach those specific candlesticks and how they act as signals to open long and short positions. The specific candlesticks we will be looking at are Pin Bars, Engulfing Candles, and Doji Candles.
[01:02] – In this video – Video Number 6 – I will teach about Pin Bars. Pin Bars have a small body, and they have either a long upper wick or a long lower wick. If you look at this Pin Bar illustrations, you will notice each pin bar has a small body and either a long upper weak or a long lower wick. Pin Bars don’t have a long upper and lower wick, it has to be either or.
Bullish pin bars have long lower wicks and bearish pin bars have long upper wicks. Bullish pin bars are a signal to go long at price could move higher and bearish pin bars are signals to go short that price could move on the downside. So, why are pin bars signals to go long or go short? There are two reason that are given in this video.
The first is they are self-fulfilling. So many traders use pin bars as a signal to go long or go short that it moves price and they are self-fulfilling. And the second reason why pin bars work is they show great buying or selling pressure in the forex markets.
If you take your mind back to the previous video where I taught that candlestick wicks are the footprints of where price was. If we take this bullish pin bars; let us take this center one – the largest of the three pin bars – price was all the way down here at some point during the duration of the candle. But the buying power that has come in to the market has push price backup here. So the pin bar is this blank rate buying pressure that buys a really coming to the market and pushing price. And the same can be said for this candles either side. You will notice that some of these candles have wicks on top. It does not matter if there is a wick on top, or the bearish pin bars if there is wick below as almost the wick is relatively small.
Let us look at the bearish pin bars; once again they are self-fulfilling. They show great selling pressure coming in the market. If we take this first pin bar, price was all the way up here but because of the share power of the sellers, price moved to up here all the way down to here. And that is why they act as a signal to go short.
[04:20] – It does not matter if the bodies are bullish or bearish. The characteristics of the pin bar of small bodies with long wicks. So here is an illustration of how a pin bar reversal can work, price will come downside. We have a bullish pin bar; the long wick is below the body, it’s a lower wick; that is a signal to go long, and price then reverses and goes on the upside. Obviously we could have price coming on the upside; a bearish pin bar could act as a signal and the price could move to the downside. Let me show you the power of these pin bars on the daily charts of Pound against the Dollar.
[05:16] – As mentioned, this is a daily chart of the Pound against the Dollar. And let us look for pin bar signals and see how price reacts after the pin bar signal is given. Let us start to the left of the chart, we have price coming down with two bearish candles, and then we have a bullish pin bar, we have a small body with a long wick. That is our signal to go long and price goes on the upside. Price soon comes to the downside once again. We have the other bullish pin bar, small body with a long narrow wick and price moves heavily on the upside. For a third time, price comes down. We have a bullish pin bar. There is our body, here is our wick; this is followed by second bullish pin bar. And then price moves very strongly on the upside.
Price comes back down, starts to move up. We have two more bullish pin bars. And price pushes higher, price comes down, goes for another push and we have a bearish pin bar. Here is our body, and here is our long wick. And price moves on the downside. Now what is interesting about this chart is: this pin bar has just closed, this is a very strong and clear bearish pin bar. We have a strong body and a very long upper wick. So if we were trading daily charts, this candle has just closed, so we could place short position and price could move strongly on the downside.
[07:40] – Pin Bars consists of small bodies who have long upper or lower wicks and they can act as signals of price reversals. Not every pin bar is going to be profitable and there are some pin bars that are a lot stronger than others. As this course progresses, I will show you how to identify the pin bars you want to trade, and the pin bars you don’t want to trade and how to optimized your profitability of trading pin bars.
Our next video is Japanese Candlesticks Part 3. Please like, please subscribe and please check out our website ForexMinute.com