Japanese Candlesticks - are the representative columns on the charts that represent price movements for certain periods of time from the opening price, the highest price, the lowest price, to the closing price. It was used by merchants in the Middle East in the Middle Ages in order to set and monitor prices for rice and food goodies from the beginning.
Japanese candles should provide several visual signals that make price action easier to interpret. Trading forex with candlestick patterns on the charts of the specified time periods let to better read the market sentiment. Candlestick charts offer a lot of depth of information than traditional price bar charts.
In this article, we will give an explanation of the types of Japanese candlesticks and an understanding of their elements, the most famous Japanese candlestick patterns, and forex trading strategies for trading various Japanese candlestick patterns and anticipating their upcoming trends.
The components of Japanese candles:
Japanese candlesticks focus on the relationship between the opening price and the closing price. The Japanese candlestick chart allows traders with a detailed description of the chart, with 3D illustration. Contrary to candlesticks, bar charts focus more on levels of tops and levels of bottoms than anything else.
The most authoritative thing about drawing candlesticks on the charts is that you can see more clear and distinct patterns of candles compared to other types of charts. Forex trader who uses various candlestick patterns should identify the different types of accompanying price action also, which tend to anticipate blows or trend continuations. In addition, when we combine it with other technical analysis tools, we should get a more accurate estimate of potential price movements.
As we can see from the image above, the closing of the candles at a price higher than the price at which they were opened will form the green candles (bullish). On the other hand, closing the candles at a price lower than the price at which they were opened will form red (bearish) candles. Boxes that are formed by price action are called (Body). The extremes of the daily price movement, which are acted by lines extending from the body, are called the tail, wick and shadow.
Finally we can say that Japanese candles contain the following components:
Body, the thickest part of the candle that points the contrast between the opening and closing price.
The wick, It can be called the shadow of the candle. The names differ, but they all refer to the upper and lower line of the candle’s body, which acts the entire price path during a particular time frame, which indicates the maximum and minimum of the candle’s body on the chart.
Color, It will allow us to check if the candle is bullish or bearish, if the price goes up or down. These colors of the candles can be customized according to the trader's own tastes.
With the ability to use them in different time frames (H1, 4H, D1, W1 ,...), the Japanese candlestick trading chart offers us with four basic data in that chosen time frame:
1- Opening price
After the former candle is closed, a new one begins to form, and the starting point is the closing level of the former candle. There perhaps exceptions if there's a gap in the market.
2- Closing price
It's the highest level of the candle body if it's bullish. In the case of bearish, it will be the lowest point in the body. From this level, under normal conditions, the next candle starts.
3- The highest price
It's the highest level arrived at by the price in the respective time frame. The price fluctuates and reaches its maximum at the end of the wick. It's less visible when the closing price is at the upper end of the candle.
4- Lowest price
This is the lowest level reached by the price in the respective time frame. The price fluctuates and arrives at a minimum at the end of the wick. It's less visible when the closing price is at the lower end of the candle.
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