Introduction to Japanese Candlesticks

 

In Forex trading, Japanese Candlesticks are used for describing the action of currency price. Whether you want to know about the currency trade of one day, one hour or even thirty minutes- the candlestick can be used for describing the action of any time frame according to your preference. When it comes to anatomy, the Japanese Candlestick can be classified as long bodies, short bodies, upper shadows and lower shadows. Here’s a quick scoop on the anatomy of this trading method.

 

Bodies

 

Long Body – In terms of Japanese Candlestick, long bodies refer to strong buying or selling activities. If the Japanese candlestick has long body, then it is likely to have a really intense purchasing or selling pressure. Here, it should be noted that the longer the white candlestick is, more far is the close right above the open. However, if the black Japanese candlestick is longer, then it will indicate that the close is far below under the open.

Short bodies – This term, on the other hand, indicates relatively lesser buying or selling activity.

 

Shadows

 

While working with Japanese candlesticks, shadows are of utmost importance as they provide really good clues about the trading shadow.

Upper shadow – This implies that the trading session is high.

Lower shadow – This implies that the trading session low.

 

Basic patterns of Japanese Candlestick

 

Spinning tops – The Japanese Candlesticks that have really small bodies along with a long upper and lower shadow are known as the spinning tops. When there’s a spinning top at the time of an uptrend, it implies the lack of buyers and reversal in direction. However, if there’s a spinning top at the time of a downtrend, it indicates that the lack of sellers and the possibility of reversal in the direction.

Marubozu – Classified as white and black, a white marubozu comes with a really long body without any shadows. Here, the open price will be the same as the low price, while the close price will be the same as the high price. This candle is bullish in nature as it indicates that the buyers had the control of the entire session. A black marubozu, on the other hand, comes with a long black body and is devoid of shadows. Here the open will be equal to the high and the close will be equal to the low.

Doji candlesticks – hey have the same price for opening and closing and their bodies are really short. They almost appear like a thin line. Doji candles imply indecision or the struggle with regard to the turf

 

Single candle stick patterns

 

Single candlesticks are usually classified as hammer and handleman and inverted hammer and shooting star.

Hammer and Handleman – The hammer is a relatively bullish pattern of reversal that is observed during the downtrends. The hanging man, on the other hand, is a reversal pattern that indicates strong resistance level. When the price rises, the hanging man implies that more sellers are likely to outnumber the buyers.

Inverted hammer and shooting star – The inverted hammer takes place when the price is likely to fall. It implies the possibilities of reversal. The shooting star, on the other hand looks almost identical to the inverted hammer, but it takes place only when there’s a rise in the price.

 

Dual candlestick patterns

 

Usually classified as engulfing candles and tweezing bottoms and tops- the dual candlestick patterns are as follows.

Engulfing candles – This is a two candlestick pattern that indicates a strong upmove that is likely to happen. It occurs when a bearish candle is corresponded by a relatively larger bullish candle, almost right away.

Tweezer bottom and tops – These are the reversal patterns of dual candlestick and can be spotted after an extensive period of uptrend or downtrend. It indicates a quick reversal.

 

Triple candlestick patterns

 

The triple candlestick patterns can be classified into evening and morning stars, three white soldiers and black crows and finally three inside up and down.

Evening and morning stars – This pattern is observed at the end of trend and it is classified with the first candle as the bullish one (suggesting an uptrend) , the second candle with a small body (implying indecision in the market) and the third candle closing at the midpoint of the first candle (confirming the reversal).

Three white soldiers and black crows – The three white soldiers is a pattern which is formed when three relatively long bullish candles work by a downtrend (implying a reversal in the market). The three black crows is the reverse of the soldier pattern and they suggest a strong uptrend which further indicates of a reversal.

Three inside up and down – The three inside up can be termed as a pattern of trend reversal. It is right below the downtrend and it indicates the end of a downtrend and the commencement of a new uptrend. The inside down pattern suggests exactly the converse and it indicates the beginning of a downtrend and the end of an old uptrend.

 

Cheat sheets for Japanese Candle

 

Spinning top  Neutral Bearish Engulfing  Bearish
Doji  Neutral Tweezer tops  Bearish
White Marubozu  Bullish Tweezer bottoms  Bullish
Black Marubozu  Bearish Morning star  Bullish
Hammer  Bullish Evening star  Bearish
Hanging man  Bearish Three white soldiers  Bullish
Inverted hammer  Bullish Three black crows  Bearish
Shooting star  Bearish Three inside up  Bullish
Bullish Engulfing  Bullish Three inside down  Bearish

 

 

Summary

 

Now that you have a basic insight on Japanese Candlesticks, here’s a quick recapitulation of the things you learned. If the open is below the close, then a white, hollow candlestick will be drawn. If the open is above the close then a fuller, black candlestick will be drawn. The filled part of the candlestick is its real body.
The thin lines that are right above or below the body indicate the high or low range and are known as shadows.
The upper portion of an upper shadow is usually high. The bottom portion of lower shadow is low.