Introduction to the Candlestick Combinations (Japanese Candlesticks) Indicator
Most momentum or trend reversal signal indicators have a degree of lag. This is because indicators use formulas that follow price action. As such, the signals produced can sometimes be too late.
One type of reversal signal that has the least lag is that which is identified based on price itself. These are reversal patterns and the Candlestick Combinations Indicator is a tool which traders can use to easily identify such reversal patterns.
What is the Candlestick Combinations (Japanese Candlesticks) Indicator?
The Candlestick Combinations or Japanese Candlesticks Indicator is a momentum reversal signal indicator which uses Japanese Candlesticks patterns as a basis for identifying potential price action reversals. This indicator plots symbols to represent a potential reversal. It typically plots the symbols at the top portion of a candle to indicate a bearish reversal and below at the bottom portion of the candle to indicate a bullish reversal.
How the Candlestick Combinations (Japanese Candlesticks) Indicator Works?
Candlestick patterns have descriptive characteristics that can be programmed into an algorithm.
For example, a bullish engulfing pattern is one which has a bearish candle followed by a bullish candle in which the body of the bullish candle completely engulfs the bearish candle. This would simply be programmed as a bullish candle with a close that is higher than the open of its preceding bearish candle. The indicator would then identify this and plot its corresponding symbol.
Various patterns are programmed to be identified based on their respective descriptive characteristics. The indicator simply plots the symbols once a pattern is identified.
How to use the Candlestick Combinations (Japanese Candlesticks) Indicator for MT4
This indicator has just one variable which can be modified within its indicator settings.
The “barsToProcess” field refers to the number of bars in which the indicator would try to detect potential candlestick patterns.
This indicator can be used as a trade entry signal using reversal candlestick patterns as a basis for trade entries. However, these signals should not be traded blindly. Users should still visually confirm if the patterns identified do match with the characteristics of a reversal pattern. Trade signals should also be traded in confluence with other technical indications such as trend direction or support and resistance reversals.
Buy Trade Setup
When to Enter?
Identify a bullish trending market. Wait for price to pullback. Open a buy order as soon as a bullish reversal pattern is identified on a trend continuation setup. Set the stop loss below the pattern.
When to Exit?
Close the trade as soon as price action shows signs of a possible bearish reversal.
Sell Trade Setup
When to Enter?
Identify a bearish trending market. Wait for price to pullback. Open a sell order as soon as a bearish reversal pattern is identified on a trend continuation setup. Set the stop loss above the pattern.
When to Exit?
Close the trade as soon as price action shows signs of a possible bullish reversal.
Conclusion
This indicator can be an excellent reversal signal indicator. However, since patterns are technically subjective descriptions of a candlestick formation and algorithms do not have the capacity to visually observe and identify such patterns, it is still best that traders visually confirm if they see a reversal candlestick pattern on the candle identified by the indicator.
These signals also work best when traded in confluence with other technical indications. Using it as a standalone signal might work but would not have a high win probability.
Recommended MT4/MT5 Brokers
XM Broker
- Free $50 To Start Trading Instantly! (Withdraw-able Profit)
- Deposit Bonus up to $5,000
- Unlimited Loyalty Program
- Award Winning Forex Broker
- Additional Exclusive Bonuses Throughout The Year
>> Sign Up for XM Broker Account here <<
FBS Broker
- Trade 100 Bonus: Free $100 to kickstart your trading journey!
- 100% Deposit Bonus: Double your deposit up to $10,000 and trade with enhanced capital.
- Leverage up to 1:3000: Maximizing potential profits with one of the highest leverage options available.
- ‘Best Customer Service Broker Asia’ Award: Recognized excellence in customer support and service.
- Seasonal Promotions: Enjoy a variety of exclusive bonuses and promotional offers all year round.
>> Sign Up for FBS Broker Account here <<
(Free MT4 Indicators Download)
Click here below to download:
Candlestick Combinations (Japanese Candlesticks) Indicator for MT4