Introduction to Japanese Candlestick

Japanese Candlestick is a popular charting technique formed by candle-like shapes in a variety of sizes. It is a tool to represent price action in a specific time frame. These charts are popular in Forex and Stock as a tool for future analysis. Similar to other financial instruments in forex charts, a candlestick represents a price of one currency in terms of other currency in a required time frame.  Munehisa Homma developed candlestick charts. He was Japanese rice trader of a financial instrument in the 18th century. Later on introduced by Steve Nison to the western world in his popular book, Japanese Candlestick Charting Techniques.

Contents

Japanese Candlestick

Candlestick Formation

Types of Japanese Candlestick

Interpretation of Bullish and Bearish Candle

Advantages

Candlestick Formation

The formation of Japanese candlestick for any financial instrument such as currency pair or stock price occurs by a combination of opening, closing, highest and lowest prices within a specific time frame.

Japanese candlestick formation

Candlestick Formation by letsforex

Time Frame / Session

Time is a major component of candlestick charting technique. There are nine standard time frames: One Minute (M1), Five Minutes (M5), Fifteen Minutes (M15), Thirty Minutes (M30), One Hour (H1), Four Hours (H4), Daily (D1), Weekly (W1) and Monthly (MN).

Opening Price

Price at the very beginning moment of the market session in any time frame is called Opening Price, and this is the first contributor to the formation of a candlestick.

Closing Price

Price at the very last moment of the market session of any time frame is called Closing Price, this is the second contributor in the formation of a candlestick.

Tail / Wick / Shadow

The price highest reached price level above the real body makes the upper Tail / Wick / Shadow.

The price lowest fallen price level below the real body makes the lower Tail / Wick / Shadow.

Real Body

The area or range of price between the opening session`s price and closing session`s price makes a real body.

Types of Japanese Candlesticks

Bullish Candle

Bullish is symbolic of the fighting characteristics of bulls. They counteract or defend against its opponent by thrusting its horns up in the air. Bullish is a symbol for buyers in the market and standard color to represent a bullish candle is green or white. A bullish candle is formed when the closing price is greater than the opening price of the specific financial instrument i.e. currency pair.

Bearish Candle

Bearish is symbolic of the fighting characteristic of bears. They counteract or defend against its opponent by thrusting its paws power in a downward direction. Bear is a symbol for sellers in the market and standard color to represent bearish candle is red or black, a bearish candle is formed when the closing price is less than the opening price of the specific financial instrument i.e. currency pair.

Size of Candle

Difference between an opening and closing prices varies as a result of which candles of various sizes appear with specific and precise messages within every candlestick.

Interpretation of Bullish and Bearish Candle

A bullish candle represents dominancy of buyers while bearish candle represents sellers’ dominance.

Advantages

  • Candlesticks are easy to understand and analyzing charts for beginners.
  • Candlesticks are easy to understand the market`s direction and price action.
  • Candlestick size gives a precise insight into potential future price action.

More related resources:

Most Popular Single Candlestick Patterns.

Top Six Most Popular Double Candlestick Patterns

More helpful resources:

        Ichimoku Kinko Hyo and Trading Signals

What is Forex?

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4 Responses

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