Japanese Candlesticks
Japanese candlestick charts have been used in various forms for analysis since before the Seventeenth Century. Today this form of displaying technical information is a very popular tool among traders. This is because Japanese candlesticks make it easy to identify price action. Candlestick charts are also incredibly easy on the eyes.
How do Japanese Candlesticks charts work?
Japanese candlestick charts display price movement verses time in a very simple and easy to read form. Each candle represents a specific amount of time. In other words, if you were looking at a 30 minute chart, each candle on the chart would represent what price did during each 30 minutes. There are 4 major parts of the candlestick.
- The Opening
- The body
- The wick
- The Close
The
Opening
The opening, or price opening, part of a japanese candle stick indicates the exact price of the currency pair at the exact start of the time frame that your Japanese candlestick chart is set up to display. For example, if your chart were set up to show 30 minute candles, the opening of a candlestick at 7:30 am would show the price of that currency pair at that exact moment.
The Body
The body of a candle stick then is dictated by the direction the price moves in after it opens. If the price goes up, a body will be created to indicate the difference between current price and the price at opening. A body that demonstrates that price has moved above where it opened is called a "bullish" candle, meaning the price is moving upwards.
The Wick
A wick is created when a price opens and moves in one direction, only to reverse and move in the opposite direction. For example if the price opened at 10, moved up to 15, and closed out at 5, a wick would represent the path the price took before creating a bearish body and closing a bear candle.
The Close
At the end of the specified time for a candlestick, a second horizontal line appears to indicate the last price that currency reached before starting a new candle.
Japanese Candlestick Formations
A Japanese candlestick chart is then made up of several of these price vrs time candlesticks that together created different patterns and signals. All of this creates a sort of story board that tell the trader what the market has been doing. As the market can only do 1 of 3 things, move up, move down, or move sideways, there are many different looking candlsticks that fit into those 3 catagories. We will focus on a few of the most usefull formations.
The Bearish Engulfing Candle
The Bullish Engulfing Candle
Double Tops
Double Bottoms
Morning Stars
Evening Stars