In this article, we can find information on how Japanese candlesticks work and how to learn to differentiate them from the other candlesticks that may exist in the world of trading.
What are Japanese candlesticks in trading?
Trading with Japanese candles can be used to interpret the financial prices that the market will handle at the time you are trading. This type of candles will help you predict the direction of the trend and that you can carry out a transaction with greater precision and being able to obtain more accurate and satisfactory results. Steve Nison was the one who oversaw introducing the Japanese candlesticks in the western part of the world, candlestick charts offer more information than traditional bar charts or even line charts could give you.
Differences between the line chart and Japanese candlestick charts
Now, you will learn how to distinguish between line charts and Japanese candlestick charts more easily.
- Line charts: The method used by this type of chart is simple to show the movement of the price at the time you want to trade. It shows your information in a line using a series of data points, this type of graphs you can find mostly in magazines or newspapers.
- Japanese candles: This type of candlestick represents the movement of prices, but it is not enclosed in a line, it shows more information within each candlestick that is displayed. I recommend that you use the Japanese candlesticks because you will be able to find more information and they are more useful when making decisions for your transactions and you will be able to use them for all types of markets that you want to operate.
How are Japanese candles made?
Now, you will find how Japanese candles are composed and the parts that you can find in each of them.
- Body: The body of the Japanese candlestick is the thickest part, with the color that you decide to put on it to distinguish it from the rest of the chart and indicate the variation between the opening price and the exact closing price of the pair that you are trading.
- Tail: In Japanese candlesticks it is the upper and lower line of the body of the candlestick, this shows all the price movement that the candlestick had during it decided in which direction it should end. Depending on the size of the candle, we can determine if the trend is strong or if the market is unstable.
-A Japanese candlestick with a long tail indicates a possible reversal in the market trend.
-A Japanese candlestick with a short tail indicates the strength of the trend.
- Color: The color of the Japanese candle allows you to identify if the trend is bullish or bearish, that means, if the price has increased or decreased at the time you are operating. Red and green are usually used, but if you want to change them, you can do it without any problem.
- Fundamental data: With the Japanese candlesticks it provides 4 fundamental data in that chosen time, so now you can find each of them in a more detailed way.
- Opening price: After the closing of the previous candlestick, a new candlestick starts to form, this point becomes the beginning of the closing level of the previous candlestick. In this way, the price of a Japanese candle is open, but there are exceptions if there is a gap in the market.
- Closing price: It is the highest level of the body of the Japanese candle if it is in the upward direction. But if it heads in a bearish direction, it will be found at the lowest point of the body and from this level, the next candle starts.
- Maximum price: This refers to the highest point that can be reached for the price and time interval in question. The price oscillates and makes a maximum at the end of the wick, it can be less visible when the closing price is at the upper end of the candle.
- Minimum price: It is the lowest level that the price can reach in the time interval. The price can also be calculated oscillates and a minimum is marked at the end of the wick.
The 8 Japanese candlestick patterns
There are different types of Japanese candlesticks, so below you can find the 8 most relevant patterns and their usefulness in technical analysis in the world of trading.
- Inverted hammer.
- Hanging man.
- Piercing line.
- Dark cloud cover.
How to know a Japanese candlestick pattern?
To confirm a Japanese candlestick pattern, you must follow these 3 simple steps.
- You must wait for the last candlestick to close to confirm this pattern.
- You should also confirm the interpretation of the Japanese candlestick figure with the support and resistance levels you use.
- You must integrate Japanese candlesticks with the trading strategy that suits your needs.
Japanese candlesticks are simple to identify, as many of the experienced traders use them to predict the market no matter more accurately, it is Binary Options or Forex, as it works perfectly for any type of trading you want to use. As my own experience I can recommend these candles 100% because if you are a beginner trader these candles will allow you to do a better analysis while you learn how the world of trading works.