Importance Of Candlestick Closes
Welcome back, today I have a simple topic but something that can help struggling traders turn their trading around. I’m talking about candlestick closes and their importance in your trading. Let’s get into it.
What are candlestick closes?
Well, first we would have to break down the structure of a Japanese candlestick. I won’t go into the history of candlesticks and all the different patterns (for that read our full candlestick guide) but we will be talking about how you can read candlesticks effectively.
Let’s examine the example above. The green candle represents an increase in price and the red candle represents a decrease in price. The HIGH, OPEN, CLOSE, and LOW are all points of information.
The HIGH will tell you exactly where price stopped in its tracks and went lower, The LOW lets you know where price hit a floor and buying started taking place, these are called shadows or wicks.
Some people discard this information and just deal with the bodies. But… why would you even use Japanese candlesticks if you weren’t going to take the wicks into account? You might as well trade a line chart.
These wicks can be very important in identifying significant levels, but that can be another article.
Why the Close Matters So Much?
Everything in a Japanese candlestick except the OPEN of the candlestick is not confirmed until the candlestick actually closes on whatever timeframe you are trading. EVERYTHING!
We do not know where the High, Low or Close will be when all is said and done. While the candle is still forming that information is incomplete.
Imagine reading only half a book and having to write a test or a summary of it. Yet, this is what a lot of traders do in their own trading, they see a big green candle and feel a sudden onset of fear of missing out on a trade or comprising their R:R (Risk Reward).
You need the information to be complete, trading without that information can leave you chasing trades and holding the bag fam, don’t put yourself through that.
It’s easier said than done but you are way better off letting price come to you. That does not mean being stubborn and only setting limit orders and refusing to trade unless your limit order is hit, this has a discretionary element.
If price is only 5 pips from your order and turns around and starts going in your favor and you refuse to take the trade, you will be missing out on a lot of trades!
And for what? Because you think you know the market so well that you know exactly where and when it’s gonna turn? Self-destructive behavior buddy, don’t put yourself through that.
- Japanese Candlestick wicks or shadows give you extra information about the period you’re analyzing.
- Japanese Candlesticks are comprised of a HIGH, LOW, OPEN, and a CLOSE. And all these points give you information
- Avoid trading just because a candle appears to have momentum behind it because that same momentum could end up being a wick by the time the candle closes, and you would be left holding the bag
- When setting limit orders to get in your trade do not be too rigid with your entries, candles will show you when it is time to enter the trade by continuing to close in your favor OR by printing a reversal candlestick pattern which you would be smart to leave alone.
- Candlesticks communicate information to you. Learn to read that information and you will know what to do. Also, check out the Price Action Article.
Don’t bet the farm.
Don’t lose your shirt.
Cut the L.
Keep the W.