Today we will see what Japanese candlesticks are in technical analysis. You will also learn how to understand and interpret them! And thus, be able to make predictions for the future.
What is a Japanese candle?
A Japanese candlestick in trading is a graphical representation of what the price of an asset has done over a period. Depending on the frequency of the chart being analyzed, there may be 5-minute, one-hour, one-day candlesticks, a week etc. So, it is very important to check what type of graph we are looking at. For example, we will use the frequency of one day. That means that each candle will mark what an asset has done during a day on the stock market.
Parts of a Japanese candle
Regarding the structure of a candle, it has four main data. Let’s start with the minimum, which is the lowest price that the asset has had on that day. The opening, which is the price at which the asset has started trading. Then we have the closing, which is the price at which the asset has finished trading.
We also have the maximum. That would be the highest price that an asset has had on that day. There are 2 other names that are very important and that will always be present. The body of the candle, that is the part of the candle between the opening and the closing. So, if the opening is lower than the closing, it will be represented in green. And otherwise, in red.
We also have the wick, also called shadow. That is the part of above comprised between the minimum and the beginning of the body, and the part between the maximum and the end of the body.
Three figures with Japanese candles
Now we will see 3 figures that can be produced with Japanese candles. These will make us predict what the price could do in the next sessions.
Hanging Man candle
This Japanese candle must occur within an uptrend when it is the same. A candle appears with a very long lower wick, a small body, and a practically non-existent upper wick. There we will be visualizing a hanging man that will most likely indicate the end of the bullish trend and begin a lateral or bearish trend.
Hammer Japanese candle
It is the same figure of the hanging man, but in reverse. It means that it is framed within a bearish rise. When we see a candle with a very long lower wick and a small body and a non-existent upper wick within this trend, it makes us see that the end of the downtrend has come. And also, the beginning of a lateral or bullish one.
Cushion Japanese candle
This candle is characterized by having a practically non-existent body and long wicks. So, the figure will demonstrate a clear scenario of indecision for investors. This, since during the session it has fluctuated a lot. But it has ended up closing at the same price. If this figure is found at the end of a trend, it gives clear symptoms of trend exhaustion and its change.
As always, these candles only help to predict the trend. But you have to combine the study with the rest of the indicators that we have shown you. We hope that the meaning and use given to these candles in trading have become clear to you. This, is so you can continue to train yourself in the right way!