The Japanese candlestick is a charting method which is a means of analysis into the markets and their underlying securities, currencies and other assets, which helps identify market fluctuations, trends, and patterns to predict future price movements.
The Japanese candlestick charting method is a form of analysis on the price fluctuations on underlying instruments. Candlesticks is a centuries old technique and helps to target market fluctuations based on consumer’s fears and emotions where what is more important, than the why, in trading the underlying market.
With Japanese candlesticks, the real potential of any of the given stock, interest rate, currency or the entire market becomes more prominent and supplies you with a more unobstructed view of the price fluctuations and developing trends.
You will have more significant chance of knowing when to sell, and when to buy, and have a deeper understanding that the underlying value truly has no reflection on the actual price. This rings through in many markets with a prime example being the crypto markets.
What is a Japanese Candlestick?
The simple answer to what is a Japanese candlestick is is that it is another means of charting out fluctuations and repetitive patterns within the financial markets. In structure, it is similar to a bar chart which signifies OHLC (open, high, low, close) but has a “real body” that is colored depending on if it closed higher or lower from the opening and has lines on the top and bottom which are sometimes called wicks.
The “real body” of the Japanese candlestick is made up of the bottom representing the opening price and the upper signifying the closing price. When the opening price was higher than the close, the real body might be colored black or green, and if the real body is hollow with no color, then the close was higher than the opening price. The longer the real body signifies the intensity of the buying and selling pressure, while the shorter body represents a consolidated state or a consistent price movement.
The upper “wick” or sometimes referred to as a shadow of the Japanese candlestick signifies the high for that markets trading day. The lower “wick” or shadow signifies the low for that markets trading day. The easy to read fluctuations of real price action allows for traders to look at the Japanese candlestick chart and see the day’s highs, lows, along with the close and open prices and determine if they should buy or stick it out longer.
History of the Japanese Candlestick
The history of the Japanese candlestick method of charting goes back to the seventeenth century during a high rice trading time of a prolific rice trader named Homma. The original designs and concepts used have been further developed over the years, even from the nineteen hundreds on-wards when Charles Dow created the U.S. version.
Examples of Japanese Candlestick
There are many different names that have been used which identify the conventional Japanese Candlestick patterns in charting. Some examples of Japanese candlestick have been called Doji Pattern, Shooting Star Pattern, and Dark Cloud Covered Pattern. All of these different concepts utilize the same underlying methods of the Japanese candlestick with the charted open, close, high and low significantly spelled out but providing a bullish or bearish potential with each pattern.
Japanese candlesticks have become known as one of the most unambiguous concepts which are quick and easy to understand in its basic form; however, understanding the numerous patterns can take years of study to ensure upon proper recognition. The clear highs, lows, opens and closes are very noticeable for swift and fierce analysis and development of a strategy to buy, sell or hold. Thankfully, there are charting providers who have built-in recognition algorithms which easily identify all signals.