Japanese candlesticks are the most used technical tool, mostly they use it in naked trading which does not mean you trade in front of computer naked, you can keep your clothes on. It means that when you do technical analysis you have chart free without any indicator except japanese candles. Obviously they plan now the most important role but they can do that beacuse each japanese candle gives us enough information and if we form them together and look at them, they form patterns from which we can indicate where the price will go in future.
WHAT YOU WILL LEARN HERE:
- What is japanese candlestick?
- How japanese candlestick looks?
- How to use different types for trading?
WHAT IS JAPANESE CANDLE?
Japanese candle will show us based on the time frame of course where is the open and close price and also the highest and lowest peak in the specified time. So if we will use hourly chart, means that one japanese candlestick will represent one hour and will give use information where the price was the highest in this hour and where it was the lowest and also the open and closing price as we said. Same goes for all other time frames. Here is how japanese candle looks:
As you can see we have on the left, bullish candle which is used in an uptrend and on the right we have bearish candle which represent downtrend. The bullish candle has the closing price higher then the opening price. You can see the upper shadow or also called wick which shows highest point that price reached and on the down side you can see the lower shadow or wick to where the price went down the most in period of time. This is the information you get from japanese candlestick but we have different forms of candlestick which can be used in trading.
HOW TO USE THEM?
You have seen what japanese candle is and what kind of information it can give you. Now, let us take a look at various japanese candles and how you can use them for trading purposes and what they represent.
If you are following our school you remember this pin bar from pinocchio strategy. If we focus now on the right pin bar from the picture which is bullish one meaning it goes uptrending. You still have to know how to read such candlesticks. As you can see, the bears were pushing price down but the more we went too the end of the period, the more bulls were pushing the price up and managed to push it higher then the opening was. It closes a little lover that is why a little upper shadow or wick is made. After such candle, means that bulls are now in control and they have reversed the price to go uptrending and will more likely move up. Bearish or downtrending pin bar is opposite as you can see from the picture aswell.
This kind of sub-japanese species of candle forms when there is almost the same open and close price which as you can see from the picture creates a small body and long shadows or wicks. Most usual doji candles have almost the same lower and upper shadow or wick lenght. But you can see that others also qualify as doji candle since the open and close price are almost the same.
When you see a doji candle on a chart it means there is no specific direction and therefore there is indecision on the market. Eventually one side will prevail and move to that direction, so focus on the trend.
This candle represent good indicator of strenght. If doji has no specific direction this has high direction. When you see a marubozu that is bullish you can be certain that bulls are in control and vice versa if you see bearish marubozu. As you can see charactheristics of a marubozu are, long bodies with no shadows or wicks which gives you strong indication. Although they are really rare to find but when you do, you know it is a good indicator that price will go in the direction it is indicated.
No matter what, there is no 100% signal that japanese candles are always right but most of the time they give us the correct information. This is just basic formations we have mentiond while you have even more shapes it is good to learn when you for example join two or three together. Today actually almost everyone uses japanese candlesticks when trading since they are the best when it comes to predicting values.