Naked Chart Trading
Naked Forex trading or naked chart trading can also be known as ‘price action trading’. Chart trading is based on candlestick and price chart patterns. Entry decisions are based on the analysis of candlesticks and charts without any indicators. Learning to read charts and candlestick patterns is a crucial part of learning how to become a successful forex trader. Experience traders would recommend learning how to trade naked chart before learning how to use indicators.
It can be hard to learn how to trade without enough expertise in identifying and analyzing price patterns. Knowing how to identify naked charts and candlestick patterns should be one of the traders’ first things to learn. Before you attempt naked forex trading, make sure you have a good understanding of the different types of candlestick patterns and chart patterns and what they mean.
Candlestick patterns are the basics of every trade. This pattern is the most used trade pattern in the trading industry. The candlestick pattern has been in existence since 1900. The challenge faced by most traders is the ability to recognize the various chart patterns and what it indicates. In this article, introduction to candlestick patterns, we will explain in detail the types of candlestick patterns used by most traders for naked Forex trading.
What is a Candlestick Pattern?
A candlestick pattern is a technical technique used by various traders to understand the price chart of a trade. However, there are different methods used by traders to interpret a price chart, like bar charts, and the line chart. The candlestick pattern is the most used chart pattern because it provides more information about the price action of the trade.
The History of the Candlestick Pattern
The candlestick was first discovered in Japan by a Japanese rice trader called Munehisa Homma. The Japanese traders started using technical analysis in the 17th century, they used it in trading rice. However, the previous edition of technical analysis was different from the Western edition developed by Charles Dow in 1900. Notwithstanding it had a lot of similarities such as
- The Price action of trade is more significant than the news, or earnings report.
- All the information about the trade reflects in the price.
- Buyers and Sellers are the main influencers of the market based on objectives and emotions such as greed and fear.
- The major price of a commodity may not estimate the underlying value.
The candlestick pattern was brought to Western works by Steve Nison, who implied that the candlestick pattern first originated in 1850. However, the old version of the candlestick has been reformed and modified over the years. The trading system has changed so much from the inception of candlestick patterns to now. The trading world has advanced which has resulted in the candlestick system being used by many traders today.
Formation of Candlestick Pattern
For a candlestick pattern to be formed, some variables have to be present; they include the open, high, low, and closing price of a trade at a given time frame. The Filled part of the candlestick is the body, while the thin line that extends below and above the body is known as the wick or shadows.
The high is located at the top of the wick, while the low is located at the lowest part of the wick. When a trade closes above its opening price that indicates a bullish trend, which means a bullish bar appears. The opposite applies to a trade that closes below Its opening price, a bearish bar is formed.
Naked Chart Candlestick Patterns
Candlestick patterns are one of the most powerful trading concepts, they are simple, easy to identify, and can indicate very profitable setups. Research has confirmed that candlestick patterns have a high predictive value and can produce positive results. Learn and practice candlestick patterns to gain a skill that will help You to enter and exit the market the right way.
Limitations of Using Candlestick Patterns in a Trade
A candlestick pattern does not show how prices moved during the day. This means that a candlestick chart only shows the opening, closing, high and low price of a trade during a particular time frame. This is why it is advised to use candlestick patterns together with other technical tools. The incorporation of other technical tools helps a trader to see the picture in a trade and also see how price moved.
To explain further, the price of a trade can go up and down, and even consolidate within a given time frame, but the candlestick pattern doesn’t show all of the price movement.
Naked Chart Price Patterns
Forex chart patterns are price action patterns with a higher probability of moving in a particular direction. Trading patterns give great insight to price action traders that use technical chart analysis in their Forex trading decision process. Forex traders take advantage of upcoming price moves by identifying chart patterns. Forex trading patterns are part of groups based on the potential price direction of the pattern. In Forex technical charting there are three classified groups of patterns :
Continuation Chart Patterns
The trend continuation chart pattern appears in trending price. If a continuation chart pattern appears during a trend, the price correction indicates that a new move in the same direction is likely to occur. Some of the most popular continuation chart formations are pennants, flags, and corrective wedges.
Reversal Chart Patterns
The trend reversal chart patterns appear at the end of a trend. The trend reversal chart patterns indicate the end of a current trend and possible reversal with the confirmation of the formation. The most popular reversal chart patterns are: double (or triple) top/bottom, head and shoulders, reversal wedges, and expanding triangle.
Neutral Chart Patterns
Neutral Chart patterns formations indicate the price to push into the new move but in an unknown direction. Neutral chart patterns appear during trends or non-trending periods. Neutral Chart Patterns are difficult to spot but are quite valuable.
Naked Chart Trading Summary
So Naked Chart Trading gives amazing opportunities with market moves prediction. Knowing where the price is heading but also when to enter and exit the market is vital for all naked chart traders. Naked Chart Trading is important for all types of traders. It may be best to start trading with indicators first and then move on to naked forex trading.
Candlestick and price patterns are an essential part of trading and price action. However, it is advisable to not use any candlestick pattern in isolation. It should be used together with other trade signals or technical tools. Additionally, traders can incorporate two patterns in a price chart, as it helps traders to give a more detailed price trend indication
Use indicators, trend lines, and support and resistance levels to be completely sure it is safe to trade. practice in a demo account or simply watch the market and see if you can predict what movements will occur based on your candlestick knowledge and chart patterns. It takes a lot of time to recognize the way the market will likely move and You also need to rely on your intuition which can take a long time to develop.