Skip to content

TOP FOREX BROKERS REVIEW

THE INTERNET'S MOST COMPREHENSIVE LIST OF ONLINE FOREX BROKERS AND FOREX REVIEWS. 

Elementary -The Best Free Forex Online Course for Beginners

What is the Japanese Candlestick? Japanese Candlestick Anatomy, Patterns and Cheat Sheet

What is the Japanese Candlestick? Japanese Candlestick Anatomy, Patterns and Cheat Sheet

Japanese Candlestick charts which have been in use for centuries represent the magnitude of the price changes with various colors. It is a charting technique developed by a rice trader in Japan, Munehisa Homma. However, it was Mr. Steve Nison who popularized this technique globally by learning it from one of his fellow Japanese traders.

The Japanese Candlestick charts have combined features of a line chart and a bar chart. These candlestick charts are extensively used in technical analysis to depict the Forex trading patterns over particular time frames like 5 mins, 15 mins, 1 hour, 1 week or a year. When a chart is set to be a 10-min candlestick chart, then each individual candle of the chart that is formed will be of 10 minutes duration. Each candlestick describes the action of the price during a given time frame with Open, Close, Low and High prices. Listed below are the guidelines used in Japanese Candlestick:

  • When the close price is above the open price in the Forex market, a white colored or rather a hollow candlestick is displayed.
  • When the close price is below the open price, a candlestick generally filled with black color is displayed.
  • These wide, hollow and filled parts of candlesticks are called their ‘real bodies’.
  • These real bodies have small lines like wicks connected to their top and bottom called shadows. These lines display the high and low prices respectively of the given time frame.

In any trading market, you can’t escape from risk but you can adopt various types of analysis tools to gain confidence and increase your success rate. Often used along with other types of market charts and graphs, Japanese Candlestick can be used to understand price movements and act accordingly.  

Japanese Candlestick Anatomy

Japanese Candlestick AnatomyJapanese Candlestick is kind of a chart used as a tool for Forex market analysis and represents price change for a specific time frame. These candlesticks are of different sizes and colors which depict the market’s movement.

Main market information is displayed by the real bodies (hollow/filled) and their size lets you know the magnitude of the price change. Long real bodies show strong trading (buying and selling) that is the buyers or sellers are on the stronger side dominating the market. Short real bodies reflect low buying or selling activity. A long ‘filled’ Japanese Candlestick reflects strong buying pressure, while a long ‘hollow’ Japanese Candlestick means strong selling pressure. When it comes to Forex, the term ‘Bearish’ means sellers and ‘Bulls’ means buyers.

When white/hollow Japanese Candlestick gets longer, it means the open prices have increased considerably making the close a lot above the open whereas a longer black Japanese Candlestick means close is below the open.

The wicks or shadows are of two types, upper shadow (high session) and lower shadow (low session). These shadows reveal how long the sessions lasted with respect to open and close. If a candlestick has a long shadow, it means that the last trading session was quite sound past the open or close whereas a short shadow indicates that maximum of the trading session was near open and close.

A trader can easily understand the trading scenario like when a Candlestick has long upper and short lower shadows, it signifies that buyers were stronger and placed high ranged bids, whereas a Candlestick with long lower and short upper shadow means sellers were dominant and gained bids at low rates.

Basic Japanese Candlestick Patterns

Japanese Candlestick is a very popular tool through which FX market traders gauge the trading scenario. The patterns obtained from these Candlesticks often indicate how the prices will behave, whether they will remain same or reverse. Let’s understand the Japanese Candlestick patterns bit more –

Spinning Tops –

A Candlestick with long upper and lower shadows and tiny real body is termed as spinning top. This pattern shows the condition of indecision among buyers and sellers. If a candlestick is in its spinning top pattern, its real body despite being filled or hollow does not make much of an impact because of the tiny price movement between open and close and moreover, neither buyers nor sellers earn any profit.

Marubozu –

 

Under this pattern, the real body of the candlestick does not have any shadows attached to it. There are two kinds of Marubozu. One is White Marubozu which indicates that open price is equal to the low price and close price is equal to the high price. This is a bullish pattern as this indicates the buyers had control of the trading session. The second one is Black Marubozu which indicates that open price is equal to the high price and close price is equal to the low 

price. This is a bearish pattern as the sellers dominated the entire session.

Doji – 

Doji Candlesticks with very small bodies like thin lines reflect the struggle and tension between buyers and sellers. This pattern means the market remains at hold with neither buyers nor sellers with an upper hand. The open and close prices remain almost constant. Four types of Doji are:

  1. Long-legged Doji
  2. Dragonfly Doji
  3. Gravestone Doji
  4. Four Price Doji

These patterns demonstrate a practical and realistic gauge of the Forex market and indicate the upcoming changes.

Single Candlestick Patterns

We recently talked about Japanese Candlestick, a Forex market representation which gives realistic market updates. There are various kinds of Japanese Candlestick patterns and one of them is ‘Single Candlestick Pattern’. Let’s know more about this.

Single Candlestick pattern is also known as Hammer and Hanging Man, these patterns of candlestick look exactly the same but carry an entirely different meaning. Both of them depends upon the past market values and price action. This pattern carries tiny real bodies with long lower shadows attached to them. Both of them have very short or vanished upper shadows. Where Hammer signifies a bullish natured market with the downtrend, Hanging Man is known to represent the bearish reversal pattern where sellers at FX starts gaining strength against buyers.

Recognition criteria –

For Hammer:

  •    Length of shadow is twice or thrice of the main real body.
  •    Absent or very tiny upper shadow
  •    The real body remains near the lower end of trading.
  •    The color of the real body doesn’t matter much.

For Hanging Man:

  •    Long lower shadow with length around twice or thrice of the real body.
  •    Very short or absent upper shadow.
  •    The real body remains at the top end of the trading range.
  •    Color does not matter much, however, a black colored real body signifies more bearish market.

Inverted Hammer and Shooting Star –

Both of them are similar to the above discussed Candlestick patterns. The major difference between these two is whether the trader is in up rend or in a downtrend. Both of these have small real bodies with long upper shadows and short or nil lower shadow. An inverted hammer represents the downfall of price and signifies that buyers have tried bidding at higher prices. The shooting star represents the hike in pricing and is most often shows sellers strength.

Dual Candlestick Patterns

Following the first kind which we discussed, Dual Candlestick Patterns are also one of Japanese Candlestick Pattern through which FX market stats and situations are determined. Here we’ll understand the dual Candlestick Pattern in a bit detail.

These patterns are known as Engulfing Candles and are of two consequent types. A bullish engulfing pattern is composed when a bearish candle is instantly followed by a greater bullish candle. Here, the large candle engulfs the first one. These patterns signify that a strong rising move is about to occur in the market. Talking about the bearish engulfing pattern, it forms when a bullish candle gets engulfed by a greater bearish candle. This bearish engulfing states that sellers have overpowered the buyers and powerful FX market move down is announced.

Tweezer bottoms and Tops –

They are the reversal (dual) patterns of candlesticks. This kind of patterns are usually happening when there has been an extended uptrend or extending downtrend is going n market. Tweezer bottom and Top pattern ensure a reversal. Tweezing can be of various types among which most effective tweezing is the one in which the first candlestick represents the overall trend like when the market rate moves up, the first candle should be bullish. The second candlestick always remains opposed to the trend and if the market price is going up, the second candlestick will be bearish.

Shadows of effective Tweezer bottoms and Tops are always of same or equal length. Tweezer tops represent the similar highs whereas Tweezer bottoms signify the same lows.

Triple Candlestick Patterns

After dual, here is the triple candlestick pattern from famous Japanese Candlestick. This pattern generally happens at the end of a trade. Let’s read more about this.

Triple Candlestick Pattern is known as Evening and Morning Stars, these are the reversal pattern of a trade which usually occurs at the end of a trade. Triple Candlestick pattern is studied through three pattern –

  •    First Candlestick showcases a recent trend and reflects the bullish pattern.
  •    Second Candlestick remains small in size, it reflects the indecision happening at FX market. It could be bearish or bullish.
  •    Third Candlestick confirms that a reversal is going in Forex market, this happens when this candle closes the midpoint of the first candlestick.

Three White Soldiers and Three Crows –

This a kind of Triple Candlestick pattern, Three White Soldiers and Three Crows which forms when all three of its long bullish Candlestick which reflects a downtrend. This pattern confirms that a reversal has occurred. Three Soldiers in Triple Candlestick shows reversal whereas Three Black Crows showcase that the market is in a bearish mood. For a valid and considerable pattern, every second candlestick should be longer than the previous candle’s body.  

Three Inside UP Down –

This pattern is divided into ‘Three Inside Up’ or ‘Three inside Down’ pattern. Talking about ‘Three Inside Up’, it is a trend reversal Pattern which occurs at the end of a downtrend session. On the other hand ‘Three inside Down’ occurs when the market is of its Uptrend and a new downtrend has started.

Japanese Candlestick Cheat Sheet

Japanese Candlestick Cheat SheetOnce a trader has studied all the Japanese Candlesticks Patterns including Single, Double and Triple Candlesticks, this cheat sheet helps him in recalling certain patterns and tells how to act at the market. Actually, this cheat sheet informs about the type of Candlestick pattern, a trader is looking at while trading. The sheet has been developed with proper rows and columns, making it quite easy for a new trader to know which Japanese Pattern is showing on the chart and what does it mean in terms of Forex trading.

Whether it is a Single Candlestick, Triple Candlestick or a Double one, the cheat sheet carries all the patterns from orthodox Japanese Patterns to its variations. Talking about the main Japanese Candlesticks, the sheet informs about Doji, Spinning Top, Marubuzo patterns. Similarly, quick and reliable information is given for all three types as well like Bullish Engulfing, Bearish Engulfing and Tweezer Tops and so on.

We know that Forex Market is a dynamic market in terms of sudden changing and getting upside down within minutes. It becomes very important for every trader to use a sheet which gives quick bullet tips and tells which pattern is there at the trend. Also, the list becomes very crucial when the trader is a new bee. With this cheat sheet, the exact scenario and sudden changing momentum of the Forex market become easy to understand. At FX, a trader has to keep a sharp eye on every aspect, whether the market is getting bearish or is running like a bull. This Japanese Cheat Sheet is very important.

Candlesticks with Support and Resistance

There is no second opinion on the fact that the Forex market is a volatile financial world where scenarios change within seconds. What seems like a bearish scenario can convert totally into a bullish one, during your coffee break. Candlesticks alone will be of no use in predicting the market direction. Candlestick study should be combined with an eye on the market environment and the indications the prices are presenting. Similar to other technical analysis tools, a continuation or reversal prediction from a candlestick may not take place at all.

There is no hard and fast rule for anything in the Forex market. A trader can improve profit chances by using the candlesticks patterns in accordance with the resistance and support levels. Support along with the resistance levels gives an exact insight into where sellers and buyers have set their trades.

Resistance Level

When the buyers enter the market at some major prices and wait for the prices to take a reverse movement, then it’s a resistance level. It can be seen on the candlestick chart when you see horizontal lines indicating a pause in price at the same level repeatedly.

Support Level

When the sellers with adequate quantity have already made an entry into the market at some major prices and wait for the prices to take a reverse movement, then it’s a support level. It can be seen on the candlestick chart when you see horizontal lines indicating a pause in price at the same level repeatedly. The resistance level is used by the FX traders to predict when the buyers can make a reentry into the market whereas the support level is used to predict the reentry of the sellers into the market.

Conclusion : Japanese Candlesticks

As you have been explained in detail about Japanese Candlesticks, it’s time to summarize what you have known about this Japanese way of analyzing forex market movements.

Definition –

Japanese Candlestick, an ancient Japanese rice traders’ tool, is a method used to determine price movements through patterns. Each candlestick is formed by open- close and high-low in a given time period.

Key Points –

• If the close of a given time period is above its open, a hollow candlestick is drawn. Sometimes, a hollow candlestick is referred to as white candlestick.
• If the close of a given time period is below its open, a filled candlestick is drawn. Usually, such candlesticks are filled with black color.
• The black or white/hollow filled parts of candlesticks are known as ‘Real Bodies’.
• Vertical thin lines situated above and below the real bodies are called shadows or wicks. They represent the highs and lows during a timeframe.
• The top of the upper shadow is called ‘High’ and the bottom of the lower shadow is called ‘Low’.
• The length of the body helps in determining the intensity of the buying or selling. The longer the body, the more intense is the selling or buying at Forex and smaller bodies represent the low frequency of buying or selling.
• In Japanese Candlesticks, lower shadows represent low sessions and upper shadows signify high sessions at FX.
• In terms of Forex vocabulary, bears mean sellers while bulls represent the buyers. Japanese Candlesticks have three kinds of patterns – Single, Double and Triple candlesticks. These candlestick patterns get drawn depending upon the ongoing market scenarios. One important thing for all traders and especially for the newbies at FX – never follow the Japanese candlesticks solely. FX scenarios change very quickly and a trader should consider these patterns along with other market tools.

Leave a Comment





Top Forex Brokers Review
Top Forex Brokers Review
Scroll To Top