If you are looking for tools that are going to let you know how the Forex market is going to respond, you need to be able to identify Japanese Candlestick patterns. Keep in mind that these candlesticks cannot be interpreted in isolation. You always need to consider the price and the market environment. Remember that these are just indicators. They do not necessarily guarantee that something is going to happen. In the Forex market, nothing is ever guaranteed, so you should always do your own research.
Candlesticks with Support and Resistance
If you are looking for the simplest way to use candlesticks, you can use them with levels of support and resistance. They usually indicate certain locations where sellers and buyers have put up their defenses.
For example, you might look at a certain pair and realize that there is a cycle happening. The trade never seems to reach a hypothetical “resistance level,” such as 1.50.
Therefore, you decide to trade on the “bearish” candlestick pattern of three inside downs.
But you also set a stop-loss shortly over this level just in case the indicator is wrong. Even though you feel like you might be able to make money without using these stop loss protectors, you need to make sure you protect yourself.
Nothing is Guaranteed
Now, you might be wondering why you need to pair support and resistance levels. The answer is that nothing is ever guaranteed. Remember that these indicators are simply predictors. They do not guarantee that something is going to happen. If you look at an example chart, you may identify other signals in history that did not necessarily lead to the predicted results. Not every candlestick pattern is a guarantee of how the market is going to respond. Therefore, you always need to protect yourself against potential losses. That way, you can limit the damage if the pattern does not come true.
Your Gains Are Unrealized Until You Get Out
Finally, remember that your gains are unrealized until you get out. Even though it is easy to get greedy, you need to know when to collect your profits. Use support and resistance levels to help you determine when this should be.