What Is A Japanese Candlestick?
The Japanese developed their traditional version of technical analysis for trading rice and kept it a secret.
Steve Nison, a Westerner, “discovered” this “secret” technique known as Japanese Candlesticks after learning about it from his Japanese broker friend.
Following his research and study of candlesticks, Steve began writing about them, and the Japanese’s top-secret technique slowly became popular in the 1990s.
Maybe without Steve Nison, candlestick charts might still be a secret today.
You can read more about the history of the Japanese candlestick here.
I will explain the Japanese candlestick in this article using images for easy understanding.
Japanese Candlestick Explained
Japanese candlesticks are made from the open, high, low, and close prices of a particular time frame.
- A candlestick is bullish (moving upward) when the closing price is higher than the opening price in a specified time frame.
- Even though most trading platforms use white, the bullish candlestick is either white or green. But it doesn’t matter what color the candlestick is; the information it contains is what defines it.
- A candlestick is bearish (moving downward) when the closing price is lower than its opening price in a selected time frame.
- The candlestick in either black or red represents bearish candlesticks. It’s not a rule, though. It can be distinguished using different colors.
- The real body of the candlestick is its filled portion.
- The shadows are the thin lines that extend above and below the body.
- The high is at the top of the upper shadow.
- The low is at the bottom of the lower shadow.
Sizes Of Candlesticks:
There are different body sizes for candlesticks;
- A candlestick with a long body and closing price above the opening price indicates that the buyers are influencing the market during the time frame.
- Candlesticks with long bodies are a sign of dominating buying or selling pressure.
- A candlestick with a long body and an opening price above the closing price indicates that the market is under buying or selling pressure within the selected time frame.
- Candlesticks with short bodies signify that there has been less buying or selling.
Candlestick Shadows (Wicks)
The upper and lower shadows of the trading session provide crucial information in interpreting market sentiment.
- The highest point of the session is the upper shadow.
- The lowest point of the session is the lower shadow.
- Candlesticks with long shadows show that trading activities lasted after the session’s opening and closing prices.
- Japanese candlestick with a short shadow indicates that trading occurred between the opening and closing prices of the session.
- A candlestick with long upper and short lower shadows indicates that the buyers increased their bid and made a competitive offer. For some reason, sellers entered the market and pushed the price down to close the session around the opening price.
- Japanese candlesticks with a long lower shadow and a short upper shadow imply that the sellers were dominating to reduce the price. For some reason, buyers re-entered the market to increase the price and close the session near the opening.
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