Introduction to the Japanese Candlesticks Patterns Indicator
Trading is often a balance between trading based on accurate trade signals while making sure that you are not entering trades too late because of lagging indicators. Japanese reversal candlestick patterns tend to have a good balance between accurate signals and minimizing lag.
The Japanese Candlesticks Patterns indicator may be a tool that could help traders enter trades efficiently and objectively using the concept of reversal candlestick patterns as entry signals.
What is the Japanese Candlesticks Patterns Indicator?
The Japanese Candlesticks Patterns Indicator is a custom technical indicator which automatically identifies various reversal candlestick patterns. It could identify bearish candlestick patterns such as the Shooting Star, Evening Star, Evening Doji Star, Dark Cloud Pattern, and Bearish Engulfing Pattern. It could also identify bullish candlestick patterns such as the Bullish Hammer, Morning Star, Morning Doji Star, Piercing Line Pattern, and Bearish Engulfing Pattern.
How the Japanese Candlesticks Patterns Indicator Works?
Different patterns have different characteristics and definitions. These definitions can be developed into a formula merely by using specific points on a candlestick, which includes the highs, lows, open, and close. This would allow the program to compute and decide based on algorithms certain descriptive rules. For example, using a formula and an algorithm the indicator could identify if a candle has closed above the body of a prior candle, which is what describes a bullish engulfing pattern.
The indicator then labels the patterns it identifies with the following abbreviation:
- Shooting Star – SS 2, 3, 4
- Evening Star – E_Star
- Evening Doji Star – E_Doji
- Dark Cloud Pattern – DCC
- Bearish Engulfing Pattern – S_E
- Bullish Hammer – HMR 2, 3, 4
- Morning Star – M_Star
- Moring Doji Star – M_Doji
- Piercing Line – P_L
- Bullish Engulfing Pattern – L_E
The indicator allows traders to modify which type of pattern would be identified by the indicator and which patterns would be included in the alerts. This can be modified under the Inputs tab of the indicator settings.
How to use the Japanese Candlesticks Patterns Indicator for MT5
Japanese Candlesticks are excellent reversal signal patterns. As such, the Japanese Candlesticks Patterns indicator is best used as an entry trigger based on a reversal pattern.
Reversal candlestick patterns can work as a standalone trade signal. However, these signals alone would not be very reliable as it only focuses on the short-term signals. The signals this indicator identifies tend to work best when in confluence with other trade setups and merely used as an entry trigger.
Buy Trade Setup
When to Enter?
Identify a key support area or level. Open a buy order as soon as the indicator identifies a bullish reversal candlestick pattern as price touches the support area. Set the stop loss below the bullish reversal pattern.
When to Exit?
Set the take profit target on the next resistance level.
Sell Trade Setup
When to Enter?
Identify a key resistance area or level. Open a sell order as soon as the indicator identifies a bearish reversal candlestick pattern as price touches the resistance area. Set the stop loss above the bearish reversal pattern.
When to Exit?
Set the take profit target on the next support level.
Conclusion
Japanese candlestick patterns are excellent trade entry signals because such signals are some of the most responsive signals a trader can get with the least amount of lag as possible. However, it should be used in confluence with other trade rationales in order to be more accurate.
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