An Introduction To Japanese Candlestick For Beginners
If you are new to trading, you will have heard about Japanese Candlesticks and how they are so useful for the trader. Popularized by Steve Nison, considered the father of modern day candlestick charting, almost all new trader use this new form of chart. Prior to the candlestick chart, traders will use the bar chart or other type of charts. Today, it is almost a staple for all serious traders. To witness the power of candlesticks I suggest you read an article I wrote not long ago How Bottoming Tails Can Signal A Reversal And Provide A Great Trading Opportunity.
Here are the benefits of using Japanese Candlesticks:
Here are the benefits of using Japanese Candlesticks:
- Some patterns are very easy to spot
- There are many bullish and bearish reversal candlestick patterns that point to early reversals and give traders an edge
- You can combine candlestick patterns with western indicators to have a high accuracy trade
- You can use a software to scan candlestick patterns to easily find trading setups
- There are lots of trading strategies that you can come up with using candlestick patterns
The chart above shows the construction of a Japanese Candlestick bar. Usually the green bar represents a bullish bar where the stock open lower and close higher while the red bar represents a bearish bar opening high but closing lower. Green represents money and hence charting software usually use the color to represent a bullish bar. I heard in China it is the other way around since red color is a favorite color among the Chinese.
A Japanese Candlestick bar has a body and sometimes wicks on both side of the body. In a bullish bar, the lower left of the body represents the opening price and the upper right of the body represents the close. The two wicks at the top and bottom represents the high and low for the day.
The red color bar which represents a bearish session also has the same information. However, the upper left of the body represents the opening price while the lower right of the body represents the close. The wicks on the top and bottom shows the highs and lows for the day.
A Japanese Candlestick bar has a body and sometimes wicks on both side of the body. In a bullish bar, the lower left of the body represents the opening price and the upper right of the body represents the close. The two wicks at the top and bottom represents the high and low for the day.
The red color bar which represents a bearish session also has the same information. However, the upper left of the body represents the opening price while the lower right of the body represents the close. The wicks on the top and bottom shows the highs and lows for the day.
A single Japanese Candlestick by itself might not mean much. It just tells you who won the battle for that period. But when you analyze the candlestick in the context of where it is happening, you can gain a clear picture of who is starting to win the battle. For example, at reversal points, a stock may form a candlestick reversal pattern.
In the picture above, you can see 2 of my favorite Japanese Candlesticks patterns. These two are are reversal patterns and they often signal a reversal in the direction of the stock. The bottoming tail is a powerful bullish reversal pattern because of the bullish activity that happen in the stock. The stock opened and then move drastically lower before reversing up and closing higher. What this means is that the stock opened and tried to go lower only to lose its selling momentum and reversed higher. This is bullish.
The topping tail is a bearish reversal candlestick pattern and is often seen when a stock tops. What happened is the stock opened and then move higher only to end the period lower than where it started. This is a bearish sign because the stock tried to move higher only to sell off into the day. The stock has no strength to go higher.
The topping tail is a bearish reversal candlestick pattern and is often seen when a stock tops. What happened is the stock opened and then move higher only to end the period lower than where it started. This is a bearish sign because the stock tried to move higher only to sell off into the day. The stock has no strength to go higher.
In the chart above, you can see how powerful the bottoming tail candlestick pattern can be. When the pattern formed in AIG around 27 June, it marked the bottom for AIG. A bottoming tail is indeed a powerful bullish reversal pattern which you will no doubt come across again and again if you are observant.
In the chart above, you can see how powerful the topping tail candlestick pattern can be. When the pattern formed in late April, COP formed a short term top. Topping tails are characteristics of many tops and if you are observant, there will be many topping tails that you can spot as you scan through stock charts.
I hope this short article has convinced you about the merits of using Japanese Candlestick charts. In future articles, we will delve deeper into more candlestick patterns that will help you profit from the movements in the market.
I hope this short article has convinced you about the merits of using Japanese Candlestick charts. In future articles, we will delve deeper into more candlestick patterns that will help you profit from the movements in the market.
