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Japanese candlestick chart technique

Japanese candlesticks in technical analysis

Japanese candlesticks are used in trading to display price information. For the successful trading in securities, stocks or commodities, it is necessary to constantly analyze the price movement in the market. The most convenient and informative type of chart is the Japanese candlestick chart.

What is Japanese candlesticks?

Japanese candlesticks give information not only about the price changing for a certain period but also about the market mood. The candlestick chart is the most popular type of chart because it gives the full understanding of key factors - opening and closing prices, the maximum and minimum value of the price.

Candlesticks are formed over a certain period of time, which is called time frame. For example, a 5-minute candlesticks display a price change in a 5-minute period of time, a 15-minute candlesticks display a price change over a 15-minute period of time and so on. The longer the candlesticks formation period, the more accurate the price analysis will be.

What do the size of the body and the length of the shadows of the Japanese candlesticks say?

Let’s review the candlestick components. The wide part of the candle called the body. Body displays opening price and closing price, candlesticks shadows illustrate the maximum and minimum prices for a certain period.

The size of the candlestick’s body speaks about the advantages of buyers or sellers. The more the body of a bull candle in attitude to its shadows, the stronger the advantages of buyers, the more the body of a bear candle - the stronger the advantage of sellers. If the body of the candlestick is much smaller than the shadows, then it signals about market uncertainty and the equality of forces between the buyer and the seller at the same time. 

This should be considered in more detail.

Doji candlestick

So the equality between buyers and sellers reflects the candlestick of the Doji. Doji is characterized by a very small body in compare to its shadows. The small body talks about the equality of forces between bulls and bears: this means that when bulls manage to push the price upwards, bears come on the market and push the price downwards, and vice versa - when bears manage to reduce the price, bulls come on the market and push the price upwards. Since neither bulls nor bears receive benefits, the candlestick forms a small body and long shadows - this is the Doji candlestick. 

In the candlestick charting other types of candlesticks are also used:

  • Hummer 
  • Marubozu 
  • White and Black candlesticks etc.

Even more, there are about 50 different figures on the candlestick chart, that traders use to describe all sorts of market activities.

Using Japanese candlestick charting techniques may help to qualify better candlestick setups to trade. The point is not to catch every profitable trade. The point is to increase your odds of taking profitable trades by focusing on quality over quantity.