Japanese Candlestick Analysis



Japanese Candlestick Analysis

Basic Candlestick Patterns And Body Sizes

In the chart below of GBP/USD, you can see there are lots of different body sizes of the candlesticks. The body of the candlestick represents the range between the opening price and the closing price of the currency at that particular period of time. Long body candlesticks means there are strong buying (bullish) or selling (bearish) interests of the currencies in the marketplace. Short body candlesticks means less buying or selling activities being done.

The long red candlestick in the middle of the chart shows that there was a strong selling pressure on the currency in that particular week. It was very bearish as the closing price was far below the opening price thus stretching the red candlestick long. In this scenario, a trader would say in forex lingo – ‘the bulls got pounded relentlessly by the bears.’

However, not referring to the chart, if the color of the long candlestick is green then it means the opposite. There would then be a strong buying pressure on the currency in that week and it would be very bullish as the opening price is far above the closing price.

Beside being bearish, you can easily visualize without drawing any trend lines on the chart that this long red candlestick also broke out of the sideways range and pushed the currency price further down to created a new trend – the downtrend.

Japanese Candlestick Chart Patterns

Japanese Candlestick Chart Patterns

Shadows or wicks of a candle

The thin verticle lines attached to the body of a Japanese candlestick on the top side and bottom side is also known as shadows or wicks of a candle. Both the top and the bottom shadows provide valuable information concerning the trading period. The top shadows mean high trading period and bottom shadows mean low trading period.

A candlestick with a long shadow means that the trading activity happens well past the open and close. A short shadow means that most of the trading activity was restricted around the open and close.

If the top shadow of the Japanese candlestick is long and the bottom shadow is short, it means that the buyers were bidding the currency prices higher but were pushed back down close to the opening price by the sellers towards the end of the period.

If the bottom shadow of the Japanese candlestick is long and the top shadow is short, it means that the sellers were forcing the currency prices lower but were pushed back up close to the opening price by the buyers towards the end of the period.

All experience traders by now, should know the Japanese candlestick charting pattern. Since 300 years ago, the Japanese rice traders had already discovered that the emotions of the investors surrounding the trading of an asset can greatly affect the movement of that asset. Candlesticks assist them to monitor the emotions surrounding an asset and pin point the directions of where the asset might be heading.