Best candlestick pattern indicator
Candlestick patterns are patterns that occur on the candlestick charts. The candlestick chart is a type of chart that changes color based on whether price closed higher or lower than the open price.
The highs and lows of the session are captured based on the long upper and lower wicks that are formed.
We will not go into the details of what are candlestick patterns.
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There are many different chart types that one can use to analyze the price of a security. Besides the candlestick charts, other commonly used chart types include:
- Bar chart
- Line chart
- Renko charts
- Three line break charts
- Point and figure charts
- Kagi charts
The fact that you are searching for candlestick patterns is enough to prove that you already know what candlestick patterns are.
Candlestick charts are the most commonly used charts in the forex markets.
The candlestick patterns occur not because of something mystic. They are patterns that repeat in the markets. These patterns form because of the market sentiment, the buyers and the sellers behind it.
The candlestick patterns basically depict what is going on in the markets. It tells you whether the buyers or the sellers are in control. The candlestick patterns are repetitive in nature.
Over a period of time, investors have started paying attention to the way price behaves when a certain pattern occurs.
Candlestick patterns, when applied in the context of the market structure can tell you what price is going to do next. Candlestick patterns are reliable in nature as long as you take into account the full market context.
As with any technical indicator or any form of technical analysis, trading with candlestick patterns in isolation can be risky.
When you analyze the candlestick patterns, in the context of support and resistance and other technical signals such as trends and retracements and reversals they are very good indicators of price.
Unlike technical indicators, candlestick patterns are real time. Because price is the only variable that is used, candlestick patterns can potentially signal in real time what price is going to do.
Brief history of the candlestick charts
The candlestick charts were originally developed by the rice traders in Japan in the 1800’s. During this time, the rice traders designed the chart time in order to trade at the Dojima rice exchange.
It was only in the recent past two decades that candlestick charts were being used in the Western world. Until then, traders were using either line charts or bar charts.
The candlestick charts are unique because of the way they can visually depict the market sentiment in the price of security. When you have a good understanding of what is happening in the market by reading the candlestick charts, you can gain immense knowledge about the markets and trade with a fair amount of confidence.
The Japanese have been trading with candlestick charts since ages and this fact alone goes to show that
despite the candlestick chart type being old, it still holds a strong grip in the markets when it comes to technical analysis.
In fact, candlestick charts are the easiest of chart types compared to other methods involved. Still, some traders tend to always look for other chart types in hopes that it can give them the edge.
One of the most common complaints made by traders is that the candlestick charts have too much noise. This is but common when a security is volatile or is trading sideways. The sideways range of course leads to a lot of upper and lower wicks thus creating noise.
So, this is why traders tend to use other chart types thinking that it can give them the edge. But the truth is that regardless of what chart type or use, you will be able to see the same market information.
This is where the candlestick charts can be beneficial for your trading because they can aptly represent the sentiment in the markets visually. You only need to spend time to understand what these candlesticks mean and be prepared to act when you see a candlestick pattern in the charts.
How to install and use the best candlestick pattern indicator?
The best candlestick pattern indicator can be downloaded and installed into your MT4 trading terminal. Once the indicator is installed, you can drag and drop the indicator onto the chart of your choice.
Candlestick pattern indicator configuration MT4
The configuration window allows you to select from the preset list of candlestick patterns that the indicator can recognize. You can set them all to true, which is the default setting or only select a few candlestick patterns from the list.
Once you configure the settings, the candlestick pattern indicator gets to work. It displays the various candlestick patterns that are formed on the chart.
Candlestick patterns plotted on the MT4 chart
The indicator automatically plots the candlestick patterns as and when you change the instrument or the time frame.
You also get an alert for the instrument and the timeframe to which the candlestick pattern indicator has been applied too. Therefore, if you have this indicator enabled on many charts, you can get flooded with a lot of alerts.
One of the drawbacks of using the candlestick pattern indicator is that it only identifies the candlestick patterns. It does not take into account at which point in the trend is the candlestick pattern occurring.
Therefore, some of the candlestick patterns might fail. As mentioned earlier in this article candlestick patterns should not be taken in isolation. You must use these signals alongside other technical indicators and methods such as support and resistance and trend analysis.
If you trade the signals only based on the candlestick alerts that you get by using this indicator, it can be disastrous for your trading. Therefore, it is important that you understand this before you start using the best candlestick pattern indicator for the MT4 trading platform.
The candlestick pattern indicator also does not plot single candlestick patterns such as the doji. Therefore, you should bear this in mind. In the true sense, the candlestick pattern uses at least a combination of two candlesticks or more in order to plot a signal.
Some candlestick patterns take up to four candlesticks for the patterns to emerge. The debate still continues on whether they are effective or not. At the end of the day, it is up to the trader to use these patterns and then decide which of the candlestick patterns they are most comfortable trading with.
Which candlestick pattern is the most reliable?
There are many different types of candlestick patterns. Sometimes, it takes a lot of time to thoroughly understand and to be able to recognize these patterns.
The reliability of a candlestick pattern is not based on some math or mystic. Rather, it is to do with the market context and the structure falling in together to give the perfect setting. Sometimes, even the most “reliable” candlestick patterns can fail simply because they did not occur at the highly probable areas in the price charts.
Therefore, when trading with candlestick patterns it is important that you have the patience and take time to understand the market structure before you start to dismiss the pattern immediately after it fails a few times.
When it comes to candlestick patterns, you can find patterns that are based off two candlesticks or three and sometimes even more. The more number of candlestick patterns are formed, the more complex they can get. You do not need to learn all of them. As you practice, you will start to automatically recognize these patterns in the price chart.
Therefore, the more practice you have with candlestick patterns, the better you can get at spotting the patterns. You can then focus on just a few patterns that you like to trade with.
It is said that there are over forty different types of candlestick patterns. However, you do not need to memorize all of them. It is important that you understand only a few of these patterns.
The doji candlestick pattern
This is the most important candlestick pattern of all the doji is represented by long upper and lower wicks and a small body. The body, which represents the open and close prices is often the same.
A doji candlestick pattern represents, indecision in the market. When the doji appears after a strong trend, you can expect price to potentially start to post a correction. But do not mistake a doji pattern to be a reversal pattern all the time.
Sometimes, after a doji pattern occurs, you can expect price to continue to move in the previous direction as well. Therefore, pay attention to the market context such as where the doji pattern occurs.
The engulfing pattern
The bullish and the bearish engulfing patterns are two reversal patterns in the markets. These are formed when the candlestick on the right closes bullish or bearish. It typically engulfs the candlestick on the left.
Depending on the close, the markets tend to continue to move in this direction. The engulfing pattern is a fairly reliable indicator. When it occurs within the direction of the trend, these engulfing patterns are continuation patterns.
When the engulfing patterns appear near the end of a rally, they can signal a possible reversal to the trend.
Morning and evening star
Another famous candlestick pattern is the morning star and the evening star. These patterns require prices to gap higher or lower to form the pattern. In the forex markets, where gaps do not occur that frequently, you might not get see such patterns that easily.
However, such patterns are fairly common in the stock price charts. They occur after a prolonged decline or gain in the price of a security. They are highly reliable in signaling a change of direction.
Hammer and the hanging man
Another set of reversal patterns which are common in the forex markets is the hammer pattern and the hanging man patterns.
These patterns occur with fair amount of frequency and they signal a reversal to the trends. The patterns get their names depending on whether they occur at the bottom of a downtrend or at the top of an uptrend.
The patterns are also dependent on the way they close when they occur.
What are the benefits of trading with candlestick patterns?
The candlestick patterns are ideally used in any analysis of the markets.
Regardless of whether you are trading with price action or with indicators, candlestick patterns can be easily implemented into your trading strategy.
They are robust and therefore can complement your trading strategy. It can also help you to identify potential loopholes in your trading system and is widely used in timing the entry and exit of your trading system.
As a result, the candlestick pattern indicator can be a great way to incorporate into your trading strategy without having to make any changes.
For example, when you see that the trend is reversing, you can notice candlesticks posting reversal patterns such as the doji or the engulfing candlesticks. The probability of these patterns takes higher precedence, if they occur near key levels of support and resistance.
If you are able to read the markets by simply looking at the candlestick patterns, you will be able to gain a great deal of information about the markets.
The candlestick pattern indicator mentioned in this article is therefore a free and an easy to use indicator. You can simply follow the instructions mentioned earlier in this article and you can begin using this indicator right away.
Candlestick pattern indicator is clean and does not clutter your charts too much. Thus, you will still be able to focus on the most important variable on the price chart, which is price itself.
If you are looking for some way to read the markets in real time and one which give you information as it happens and can tell you what price is going to do next, then the candlestick pattern indicator is a must have tool for you.