Lesson #14 Defining Japanese Candlesticks

The candlestick analysis originated from Japan, then used in analyzing rice trading. A westerner, Steve Nison learned the secret technique of interpreting the chart from a fellow Japanese, studied the concept and came up with a powerful tool now know as the candlestick charting.

The Japanese candle chart analysis, is so called because the patterns resembles the line of candles, attracted traders from all walks of trading: from institutional power players to individual part-timers. Why? Because of reliability. Knowledge on how to use and interpret it properly is assured of an increased profit and lower risk.

Why Use Japanese Candlestick Charting?

Candlestick charting utilizes the same information that appear on the bar chart and used primarily as visual aid. This method is adopted internationally by traders, investors and premier financial institutions because of the following advantages:

a. Can be easily interpreted/understood. Beginners as well as seasoned traders, can easily figure out the trading movement in candlestick analysis because it employs the same data (high, low, open, close) required in plotting a bar chart

b. Powerful tool in pinpointing market turning points. Reversal signals (uptrend to downtrend and vice versa) are visible in candlestick chart after a few sessions unlike in the traditional bar chart. Most likely, market turns with the candle charts are advance thus the trader can send out and exit the market with better timing.

c. Provide unique market insights. Unlike the bar chart, Candle charts showed not only show the trend of the move but the force underpinning the move as well.

The information in the candlestick chart and the bar chart are the same, however, candlestick chart is pleasant to look at because of its graphical format.

Candlestick bars show the high-to-low ranges with a vertical line. The top of the block is the opening price and the bottom is the closing. The middle block is the range indicator showing the opening and closing prices.

If the closing price is higher than the opening price, the middle block will be hallow or white, and if the concluded price of the currency is lower than its opening price, then middle block is filled or colored.