Japanese Candlesticks

Filed under: Learn Forex Trading |

As I have not really gone through the basics of Japanese candlesticks, I thought it was about time to do just that. This article is for beginners only, so if you already know the basics of the candlesticks, then you can probably skip this one today.

 

The Japanese have used this method of looking at markets for hundreds of years, but it only really came to the west relatively recently. In the west, we tend to look at the closing prices and create a line graph from them. But this can be misleading as it doesn’t tell you what has happened during a trading day. What the candlesticks do is give you that extra information, including the opening price, the closing price, and the high and low of the day. Bar charts also give you this information, but candles provide it in a much more visual way that is easier to take in and read.

 

Figure 1.

If you look at Figure 1, you will see all the information that Japanese candlesticks give you. When the candle is white (or sometimes other colors depending on your preference), it means that the closing price was higher than the opening price. Conversely, when the candle is black, it means that the closing price was lower than the opening price. The upper shadows and lower shadows also give us valuable information. If there is a long upper or lower shadow, it means that price traveled all the way out and then came back in the same day (or whatever the timeframe is on the chart). And by looking at the shapes of the candles, we can begin to predict what might be more likely to happen next. For example, if there is a long black candle after a series of shorter white candles moving up, we call this a bearish engulfing pattern and it tips us of that the market sentiment might be changing to the down side. I hope this has explained the basics of candles, and now you can look back to some of the more advanced articles.

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