Although there are dozens of strategies and market analysis tools out there, Japanese candlesticks are arguably the most important ones out there. It’s basically impossible to trade on Binomo without understanding them properly, so if you’re interested in possibly trading real money using this platform, you better start learning about them now.
That’s why, in today’s guide, I’ll teach you all about developing and using the 4-step candlestick strategy.
How to use the 4-step candlestick strategy
Candlesticks are the most-used type of chart out there. It doesn’t matter what kind of asset you’re planning to trade, you’re definitely going to need some knowledge on candlesticks.
On the Binomo trading platform, candlesticks are also the default type of chart. After all, they can display how bears and bulls are going in a simple, easy-to-understand way. Through these candlesticks, you’ll be able to make the right trading decisions and form your own speculations.
However, just knowing what candlesticks are isn’t enough. You should also know how to use them to your advantage. This is where the candlestick strategy steps in.
Identify the different candles
The first step to using the candlestick strategy is to practice identifying different candles.
Did you know that there are actually different types of candles that symbolize different things? You need to have a vast knowledge of these candles in order to make the correct decisions. What times in the market are they formed? What does it mean when this candle appears? How do they differ from one another?
Each market is unique, and all candlesticks, charts, and of course, markets, are different from one another. That’s why you should always familiarize yourself with different candlesticks that you might work with on your trades.
For instance, a doji candlestick may be a normal occurrence in one market, but it could mean all the difference in another market. A long candlestick may be a great signal in Market A, when it’s actually just an average one in Market B.
Learn how to determine signals
After identifying different candlesticks, you should now learn how to determine signals. Remember, don’t enter positions if the signals aren’t strong enough. Only do something when you’re completely sure of the signal.
A candlestick that gives off a strong signal has two characteristics. One, it’s larger than all the other candlesticks on the chart. Two, it has a much longer shadow than other candles.
Do take note that sometimes, even just one of these is enough to mean a strong signal. It really depends on the specific circumstances.
Understand how candlesticks and signals work together
I already mentioned this before, but it’s important to remember that candlesticks can form literally anywhere on a trading chart. Sometimes, the signals are significant enough, while other times, they’re quite insignificant. If a candlestick was formed at the support or resistance level, it typically gives off a strong signal. That’s because these are points where traders tend to enter the buy or sell position, due to the fact that prices at these levels are prone to drastic changes all the time.
However, also keep in mind that if you want to make a profit, you also need to know which direction the change is going to take. Will it continue the current trend? Or will it reverse? To answer this question confidently, you need to know how to analyze all the elements together, including the trends, the signals, and the candlesticks themselves. Doing this can help you come to the right conclusion.
Allow the candlesticks to close
Once you’re done with your informed analysis, the 4th and last step would be to simply wait for the candlesticks to close. This is a very important part of the candlestick strategy because it’s only when the candles close that they are able to give off signals.
Let’s say that a long-legged Doji candlestick that started out as a long bullish candle closed when it was short. What do you think happened next? Did it continue the trend or did it trigger a trend reversal? In most cases, a trend reversal would happen if the candle that followed the last one turns out to be smaller.
Just like what many professional traders are saying, you should develop a specific plan and strategy if you really want to earn some money from trading. And of course, this 4-step candlestick strategy is a great and easy way to do just that.
Did you enjoy this guide? Let us know your thoughts in the comments below! Be sure to sign up for a free demo account on Binomo to start practicing this candle strategy now.
Good luck on your trading journey with Binomo!