The most convenient charting option for any asset on Forex is Japanese candlesticks.The information content and clarity of the data provided about the market situation have long enjoyed great popularity among all traders.It is the analysis of Japanese candlesticks that makes it possible to make forecasts about further price movements.

This technical analysis tool helps the trader identify and understand the sentiment and psychology of the market.

What are Japanese candlesticks

The technical analysis of candlesticks helps any trader to correctly read asset charts and correctly determine support and resistance levels. They combine the type of price line with a type of interval chart. The chart perfectly displays the price fluctuations of all assets over a certain period of time.

For a more complete understanding of the tool, you should take a closer look at its components:

• body, a rectangle;
• Shadow – a line emanating from the body.

These two components visually resemble a candle. Each of them shows price changes over a certain period of time. Candlestick chart analysis is a great help in making market forecasts. In addition, in this case they also do without computer indicators. They can also predict the reaction of bidders to certain events.

A significant advantage of such a chart is that the candle is the equivalent of several indicators: opening and closing times, information about the dominance of sellers or buyers in the market. Each candlestick element corresponds to the time frame in which it is displayed. At the time interval M1, one candle shows the price change in a minute, at 5M – in 5 minutes, at 15M – in 15 minutesetc.

In addition, candlestick elements represent various graphic figures on the screen of the trading terminal, which are used by traders to open (close) buy or sell orders. Therefore, a Japanese candlestick chart greatly simplifies a comprehensive study of any market. By recognizing this or that pattern in time, the trader has the opportunity to draw up a trading plan and, in accordance with his points, make trades and make a profit.

Information of Japanese candlesticks in the chart

How to read Japanese candlesticks on a chart?This question is invariably asked by novice traders.

The information provided by candles at all time periods is similar to:

• Opening offer for a specific period (Open);
• Final offer for the same period (Close);
• Minimum price for the period (Low);
• Maximum price for the period (High).

The figure shows that the opening and closing quotes frame the candle element. It is usually called the body. The thin threads that run up and down the body are the shadow, sometimes called the wick.

It is customary to distinguish between bullish (rising) and bearish (falling) versions of a candle. In the first case, its formation occurs from bottom to top. Here, the opening price serves as the lower limit, the closing price serves as the upper limit. Typically, such candles on the MT4 terminal chart are colorless or green. A bearish candle is the exact opposite of a bullish candle. Formed from top to bottom, colored red or black. The opening priceis the upper limit, the closing price is the lower limit.

In some cases, the body of the Japanese candle is missing. This happens when the opening price is equal to the closing price. Sometimes there are missing wicks in the candle element. Here all the parameters: opening quotes, closing quotes, minimum and maximum are equal to each other.

Reading Japanese Candles

Japanese candlesticks, how to read them correctly?The study of such charts involves identifying graphic patterns in the form of combinations of candlestick elements.There are a whole range of similar models represented by several elements, and each of them has a specific name: “Hammer”, “Hanged Man”, “Shooting Star”, “Doji”, “Tombstone”, “Harami” andothers.

Each of these patterns signals the moment of market entry. There are trend continuation models and trend reversal models. The latter represent the vast majority.

When analyzing Japanese candlesticks in trading, you should consider important features:

• all research is best done on a daily time frame. At shorter time intervals, the reliability of the signals emanating from candlestick patterns decreases. The smaller the time frame, the lower the reliability;
• The forecast of long-term trends is carried out in monthly and weekly time intervals;
• after the appearance of reversal patterns, the trend does not always change. Sometimes there is a trend correction or flattening. Therefore, the reversal model is more likely to predict a change in the current market situation.

This is explained by the balance between sellers and buyers. The more orders are opened in one direction, the higher the probability of a reversal. Market makers closely monitor the market and, with a certain number of trading participants, “lower” the price, forcing it to reverse, correct or stop.

• Patterns with price differences are more reliable.
• Each combination of candlesticks must be confirmed. For example, if a bullish pattern has formed in the market, the subsequent candlestick should indicate market expectations.

Representation of market psychology in candlesticks

How to analyze Japanese candlesticks?The answer to this question helps to understand the psychology of the market, that is, the intentions of the majority of sellers and buyers.Even beginners can, with a little effort, learn to analyze candlestick elements to predict further trend movements.

One of the most important parameters of a candle is the size of its body. Its length indicates the pressure of the bull or bear market. If the body of a large candle (compared to neighboring candles) has a white (green) color, it means that a bullish mood prevails and buyers have gained the upper hand over sellers. The confident victory of sellers is reflected in a large dark (red) body. Its insignificant size indicates an approximate equality of power between buyers and sellers. This means a rollback(Correction) of the prevailing trend or a further downward movement is very likely. In such cases, the trend “freezes” for a while before the next increase or decrease occurs.

When a bullish candle appears on the trading terminal screen, formed after a long downward trend, there is every reason to assume that an uptrend is emerging. And the closing of a bullish candle above the resistance line indicates that the market has strengthened at a new price level. However, such a statement is made only after the completion of the formation of the candle element. To view this process in more detail, you should go to a shorter time frameswitch.

The tail (wick, often called the pin bar) emanating from the body reflects the mood of trading participants, or more precisely, its change during the formation of the candle itself. A pin bar is often a harbinger of a change in the prevailing trend or its continuation after a corresponding price decline. Long wicks tend to form near a strongly tested but not broken level.

When the battle between buyers and sellers reaches its peak, dojis with long pin bars appear on the screen. This indicates the indecision of market participants - against the background of active trading, there is no result.

Candle Mood

This concept was proposed by Lance Begs, a famous Forex trader and price action algorithm specialist.

Sentiment depends on the position of the closing price relative to the previous candlestick element. It is customary to distinguish between several types of sentiments:

• bullish.Closing price above last high;
• bearish.Close the period below the previous low;
• neutral.Last candle close in the area of the previous candle.

The individual types can be high, low and medium. This is the intensity of the mood. It is determined depending on the place in the candle area where it was closed.

Candlestick chart research

Japanese candlesticks, whose technical analysis is in no way comparable to other graphical market research, can provide the trader with a lot of useful information about upcoming market changes.

Candle bodies are of primary importance and their shadows are of secondary importance.Wicks are considered market noise, but should be taken into account in every trade.

Graphic studies like this take certain basic principles into account:

• long bodies with short wicks form the basis for the development of a new trend. This is a pronounced superiority of buyers over sellers or vice versa, the sellers versus the buyers. Typically, the longest candlestick bodies are at the beginning and end of a trend. If the order was opened following a trend, the appearance of long body elements is a signal to close the deal;

• Short body, long wick candlesticks often appear during a trend reversal. The best sign of this is an element in which one shadow is extremely longer than the other shadow and the body. This is how the battle between bulls and bears is depicted, in which one initially won and in the end the championship went to the other;
• Bodies and wicks of smaller size appear when sideways trends occur. At this moment, you can open orders with small stop losses (stop loss).

Conclusions

The use of Japanese candlesticks is characterized by both positive aspects and certain difficulties. The reliability of these elements, unlike computer indicators, allows studying the price itself, and not mathematical calculations. Candles are universal. They apply to asset charts of all markets - currency, raw materials, stocks, etc.

However, novice traders have some difficulties in mastering it. It takes some effort and time to thoroughly understand candlestick analysis. But the results of your work will definitely not be in vain and will help you make good money.