Learning to read Japanese candlesticks on the chart
What is a Japanese candlestick how to read Japanese candlesticks on the chart, how to analyze candlesticks, what is a gap – all of this you can find in our article.
Hello friends! Today we will talk about Japanese candlesticks, their structure, advantages over linear graph and the analysis of Japanese candles. After reading this article, you will learn how to read Japanese candlesticks on the chart and apply them in Forex trading.
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The history of Japanese candlesticks
The history of the emergence of candlesticks began in the seventeenth century to the emergence of stock trading when Japanese rice traders invented a new way to display price movements. At this time, the Western traders used bars and line graphics image prices that are markedly inferior to Japanese candlesticks. And only in 90-ies of the last century, thanks to the exchange trader and analyst Steve Nison, who wrote many books on the candlestick chart analysis, Japanese candlesticks literally supplanted other ways of displaying price and has taken a key role in technical analysis.
What is Japanese candlestick?
Unlike line charts, which shows only closing prices, Japanese candlesticks are the prices of opening and closing, as well as the maximum and minimum price over a certain period of time.
Display Japanese candlesticks due to the timeframe. So, 15 minute Japanese candlestick represents the price change in 15 minutes time. After 15 minutes there is a closing of the current candle and the new candle opens. In one 15 minute candle contains three 5 minute candles, and one candle hour includes four 15-minute candles or twelve 5-minute candles, etc.
The picture below shows the 5-minute and 15-minute charts in real time. They show the same price but have different display Japanese candlesticks. Comparedison with 15-minute schedule 5-minute chart gives a more complete picture of price change.
To the right of the chart shows the price value, and the bottom is the date and time.
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Read candlestick chart
Japanese candle consists of the following elements:
- the candle body in the form of a rectangle in the middle of the candle;
- the upper shadow in a thin line over the body;
- the lower shadow in a thin line under the body.
Japanese candlesticks in Forex there are two colors: blue and orange, green and red, white and black etc. You can set the color in the settings of the trading terminal. Blue candle suggests that during its formation the price is moving up. The lower border of the body of the candlestick shows the opening price and the upper border of the body of the candlestick shows the closing price. Orange candle suggests that during its formation the price moved down. The upper border of the body of the candlestick shows the opening price and the lower border of the body of the candlestick shows the closing price. The upper shadow of the candle corresponds to the maximum price and the lower shadow – minimum price over a certain period of time.
Blue candle the price is moving upward, called the "bullish" candle and an orange candle the price is moving down, is called "bearish" candle.
You must understand that only by the color of candles it is impossible to determine the direction of the trendbut, for this you need to use a combination of candlestick with support and resistance.
Graphical analysis of candlesticks
To determine the balance of power between buyers and sellers have to analyze the size and color of candlesticks:
- The more the body is, the higher the strength of the "bulls" (if the blue candle) or bearish (if the candle is orange);
- If there are long shadows, it speaks of the weakening of the "bears" (the long shadow of the candle body) or the bulls (long shadow above the candle body);
- A candlestick with a small body and long shadows indicate the uncertainty of the market in the current time and the equality of power between buyers and sellers (candles "Doji").
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Why is it important to wait for the candle to close before entering a trade?
When the formation of candles on the market can happen a lot of different events that can lead to the imbalance of power between "bulls" and "bears". For example, we see on the hourly chart, as in the early hours actively formed a bullish candle.
After some time, the market sellers and the candle of the bullish becomes bearish. This means that to make a decision on entering a trade only when a candle is closed, when it will be precisely known size, shape and color of the candle.
What is The gap?
Usually the closing point of the previous candle coincides with the point of a new candle is open, but to this rule there are exceptions. When the markets are closed for the weekend, can get the important news, which will lead to the imbalance of power between "bulls" and "bears". This inequality looks on the chart as a Gap – price gap between the candles at the opening of the market. So sometimes it is important to close trades on Friday evening, and new trades to open on Monday morning.
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Japanese candlesticks for beginners are a simple and effective way to analyze the price movement. Despite the fact that candlesticks were invented a few centuries ago, they still retain their relevance due to graphic displays in the chart. Every trader should learn to read a candlestick chart if he wants to become a professional player in the Forex market.
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