Before the bar and point-and-figure were discovered, the Japanese used candlestick techniques in order to help them trade rice. One Japanese mathematician noticed that there is a strong connection between price and supply and demand of rice, but he also noticed that people’s emotions have a strong influence on the market’s movement. The principles that were founded at that time are basic rules of the Japanese candlestick charts analysis, whose aim is to reveal market emotions that surround a stock or a currency. This technique is very popular, so we advise you to read the article, if you’re not familiar with it, and learn all you need to know!
Japanese Candlestick Charts | Elements
Let’s start our analysis of Japanese candlestick charts by saying a few words about their components. Although it can seem confusing at first sight, a typical candlestick chart is actually very simple to interpret. The most notable element is the “real body”: it’s the wide part that tells us the position of the closing price in comparison to the opening price (it tells us if it’s higher or lower). If the body is white or green, the stock closed higher; if it is black or red, the stock closed lower. Besides the opening and closing prices, its sticks (“shadows”) also tell us the lowest and highest prices for the day. Long white or green candlesticks suggest that the price is bullish, while long black (red) candlesticks tell us that the price is bearish. However, you should always keep in mind the context of the market. In the next paragraph of our Japanese candlestick charts article we will talk about the most important chart types, so stay with us!
Japanese Candlestick Charts | Most Important Types
The first one among the types of Japanese candlestick charts we have to mention is called Spinning Tops. It has long shadows (both upper and lower), but the real bodies are small. It tells us that there is indecision between buy and sell sections. Next, we have a pattern called Marabozu. You will easily recognize this pattern by the absence of shadows. Marabozu comes in two variations – white and black. The open price at White Marabozu is the same as the low price and the close price is the same as the high one. At Black Marabozu, on the other hand, the open equals the high, while the close equals the low. The last pattern to be mentioned here in our Japanese candlestick charts analysis is Doji. Doji has extremely short bodies, meaning the open and close price are same.
Japanese Candlestick Charts | Conclusion
As you can see from our Japanese candlestick charts article, this ancient technique is a very important analytical method even today. Although they don’t look like other charts you’re used to, Japanese candlesticks charts aren’t very difficult to understand. If you interpret them well, they can tell you what the trends are like and whether you should sell or buy. We definitely advise you to learn how to use them!