Traders deploy different analysis systems for debunking the charting and graph systems to know about the current market condition.
They use these charts and graphs to know if the market is generating any pattern which has been formed in the past and yielded positive or negative results. Among these charts, the Japanese Candlestick Chart is one of the best and one of the most popular one. Candlesticks are popular for their in-detail presentation of the market. Traders find some additional information from them that no other graph or analysis system doesn’t provide.
Japanese Candlestick Trading
It is quite an ancient technical analysis system. It had been invented to analyse the rice trading market in Japan. Because traders are struggling to keep track of the rice market all across the world. A Japanese rice merchant comes up with the idea of candlesticks to solve the problem.
Later Steve Nison, a Westerner discovered these systems and learned them from few Japanese brokers. He studied and researched, breathed, lived, and ate the technique and began to scribble down all the characteristics of it. With time, this hidden strategy gained popularity in the early ‘90s.
Table of Contents
What are Candlesticks?
Candlesticks can be deployed for any timeframe may it be in one day or in one hour, or half-hour, whatever a trader wants or needs.
They are mostly used to explain the price action during the provided timeframe. They are formed using the close, low, high, and open of the given time period.
When the open is beneath the close, then it will be called a hollow stick. The colour of hollow sticks is generally white or green.
If the open is above the close, then it will be named as a filled candlestick. It generally takes black or red in color. But if you use a premium platform to deal with the online options trading industry, you can easily select the candlestick patterns like the pro UK traders.
The filled or hollow section of the stick is called the body or the real body. The thin thread spiking below and above the body shows the low/high range and is termed as shadows. Some may also call them wicks.
The peak of the upper wick or shadow is called the high.
The base of the lower wick is called the low.
Anatomy of the Candlesticks
So, let’s know what make these awesome technical charts:
Just like people, candlesticks have different sized bodies. And in terms of Forex trading, there cannot be anything naughtier than cracking the bodies of them.
Long shapes signal strong selling and buying. The longer the main body, the more profound the selling and the buying pressure. It tells that either seller or buyers were dominant and took overall control.
Conversely, the short bodies imply little selling or buying activity. In the language of Forex, bulls refer buyers and bears refer sellers.
2.Short Vs. Long
Loong white or green sticks show robust buying pressure. The longer the white, or green body, the further the open is beneath the close.
This signals the prices boosted perceived from open to end and buyers were aggressive. In other words, the bullish movements overhaul the bears all the time.
Long black candlesticks present robust selling pressure. The longer the filled bars, the further the open is above the close.
This signals that the prices of the currencies fell a lot from the open and sellers were highly dominant. In other words, the bearish moves were grabbing the bullish ones and slamming them.
The lower and upper shadows provide important clues about different sessions. Upper shadows glorify the high of a session while lower shadows glorify the low of a session.
Candlestick with prolonged wicks tells the trading action emerged well past the close and open. While the short shadow signals that most of the executions were confined closely to the close and open.