Japanese candlesticks are graphical representations of price movements in financial markets. These charts provide a visual snapshot of an asset’s trading activity over a specific time frame, giving traders a quick and intuitive way to gauge market sentiment.
Japanese candlesticks provide traders with deep insights into potential trend reversals, market psychology and decision making support.
Japanese candlesticks enable traders to identify patterns and signals that may not be apparent in traditional line charts, enhancing their ability to make informed trading decisions.
The most important thing that distinguishes Japanese candlesticks from other charts is that they provide accurate information about the opening and closing prices and the highest and lowest prices in one candlestick, which makes the process of reading the pattern and identifying price movement easy and quick for traders.
This type of Japanese candlestick is widely used to determine the best entry and exit points for positions, which gives the trader the opportunity to achieve success and manage risks well.
Japanese candlesticks, when used in conjunction with other technical analysis tools and indicators, can greatly improve a trader's ability to identify market direction.
How do Japanese candlesticks work?
Japanese candlesticks provide detailed and accurate information about price movements, compared to other types of charts such as line. They also show in a simplified form the supply and demand for an asset over a certain period of time, showing the price movement during that period.
Why use Japanese candlesticks?
Candlestick charts display the same information as bar charts but in a graphical format that provides a more detailed and accurate representation of price action.
Japanese candlesticks visually display the state of supply and demand by showing who will win in a battle between bulls and bears. They also reveal another dimension of price action over a given period by visually displaying the force behind each price bar’s movement.
Candlestick formations make all single and multiple bar patterns much easier to spot in real time, increasing your chances of getting high probability trade setups. Additionally, since candlestick charts use the same data as bar charts, all technical signals used in a bar chart can be easily applied to a candlestick chart.
How to read Japanese candlesticks?
To read Japanese candlesticks, you need to understand the components of each candlestick and what it represents. Here are the basic elements of a candle:
Body: The thick part of the candle represents the opening and closing prices of the asset over a specified period of time.
Wick/Shadow of the Candle: The thin lines above and below the body are called wicks, shadows or tails, and they represent the highest and lowest prices of the asset during the time period.
Color: The color of the body indicates whether the closing price of an asset, such as stock prices, currency prices, index prices, cryptocurrency prices, and commodity prices, was higher (green or white) or lower (red or black) than the opening price during the time period.
candle body
The body of a candlestick shows the range between the opening and closing prices over a specific period of time. This period can be a minute, an hour, a day, etc.
If the closing price is higher than the opening price, the body is colored either green or white. This means that the asset is rising and buyers are in control.
If the closing price is lower than the opening price, the body is colored either red or black, which means that the asset is falling and that sellers are in control.
wick/candle shadow
The wick, or what is known as the candle shadow, represents the price range outside the opening or closing prices, i.e. the fluctuations that the asset has experienced over a certain period of time.
The wick often appears as thin lines extending from the top and bottom of the candle body itself. The wick extending from the top of the body shows the high prices that the asset reached above the opening or closing price. The wick extending below the body shows the low prices that the asset recorded during the same time period.
The wicks represent the price fluctuations and the buying and selling movements between traders during the time period. Long wicks indicate a high level of conflict between buyers and sellers, while short wicks show that the fluctuations were not strong.
candle color
The color of the candle reveals the relationship between the opening and closing prices over a specified period of time, giving you quick technical analysis through color.
Green or white: The presence of green or white color on the candle means that this period is bullish and that prices are high, which means an increase in demand to buy the asset, which is known as a bullish candlestick.
Red or Black: The presence of red or black on the candle means that this period is bearish and that prices are declining, which means that sellers control the market, which is known as a bearish candlestick.