Origin of Japanese candles
As the name implies, candlestick charting originated in Japan, it appeared more than 100 years before Western countries developed bar and line charts.
In the 1700s, a rice trader named Homma, discovered that, although there is a connection between the supply and demand of rice in the market, the market is strongly influenced by the emotions of traders. He believes that studying market sentiment can predict the movement of rice prices
Homma meticulously recorded the daily fluctuations in the price of rice with candles, and he found that there was an amazingly frequent repetition when he looked back at his notes. From that discovery Homma was able to predict the price of rice more accurately than looking at his records and that was a huge advantage for him over the rice merchants of the time.
The Japanese candlestick pattern, also known as the Japanese candlestick chart, is one of the tools used by the Japanese since ancient times to trade rice. It was not until later that Steve Nison discovered this secret while working with brokers in Japan and introduced this model to the West through his book Japanese Candlestick Charting Techniques .
Later Japanese candlestick charts were used by traders to identify price movement based on past patterns.
What is Japanese Candle?
Price movement at a certain time frame will be represented by a candle with 2 main components, the body and the shadow.
The body of the candle is usually black or white (or green/red), the shadow will be above and below the real body. The body is the part between the closing and opening prices, the shadow is the part between the highest or lowest price in the trading session compared to the open/close price.
The green (white) candle is bullish, the red (black) candle is bearish
To make it easier to understand, look at the picture below:
The Japanese candlestick chart is highly useful and is used more than other chart types because it shows information about the opening price, closing price, lowest price, and highest price in the timeframe. traders choose.
Basic Japanese candlestick patterns
a) Spinning Tops candlestick pattern – Spindle
Is a Japanese candlestick pattern with long upper and lower shadows and small real bodies called Spinning Tops.
Meaning of Spinning Tops candlestick pattern
The length of the shadow shows that both buyers and sellers are trying to gain control of the market.
The small real body shows that neither side has the upper hand.
If the candlestick shows an uptrend, this means there will be more buyers and a reversal in direction will often occur.
If the candle shows a downtrend, this means there are more sellers and a direction reversal will occur.
b) Marubozu candlestick pattern
A Japanese candle with a long body and no shadow is called a Marubozu candle
The meaning of the Marubozu candlestick pattern
A bullish candle indicates that the buyers have taken control of the entire session.
A bearish candle indicates that sellers have taken control of the entire session.
c) Doji candlestick pattern
A Doji candle is a candle whose opening price is very close to or coincides with the closing price.
The meaning of the Marubozu candlestick pattern
A bullish candle indicates that the buyers have taken control of the entire session.
A bearish candle indicates that sellers have taken control of the entire session.
d) Doji candlestick pattern
A Doji candle is a candle whose opening price is very close to or coincides with the closing price.
Characteristics of Dragonfly Doji candles
There is a very long lower part of the candle wick
No beard at the top
The body of the candle is small, the opening price coincides with or is very close to the closing price of .
Meaning of Dragonfly Doji
The Dragonfly Doji shows that the bulls have increased their buying pressure until the end of the session and have a bigger advantage going into the next session.
e) Gravestone Doji (Tombstone)
The Gravestone Doji candle is a reversal candlestick pattern of the Dragonfly Doji candle.
There is no candle beard below
The upper candle’s whiskers are very long
The body of the candle is very small, the opening and closing prices are almost the same
Meaning of Gravestone Doji:
In contrast to the Dragonfly Doji candle, the Gravestone Doji candle shows that the sellers increase their selling pressure until the end of the session and have a great advantage when going through the next session.
f) Hammer candlestick pattern (hammer candle)
Hammer candlestick identification features:
The body of the small candle
The lower shadow is very long
The upper shadow is very short or nonexistent
Meaning of Hammer candle (hammer candle)
When the price is trending down, the hammer candle signals that the bottom is near and the price will reverse and rise again. The long lower shadow shows that the bears held the upper hand when they fell sharply from the open, but the bulls later gained the upper hand when pushing the price up.
If the Hammer candlestick appears in the case of a downtrend, it is most likely a forecast for an opposite reversal.
g) Inverted Hammer candlestick pattern (Inverted Hammer candle)
Identifying characteristics of Inverted Hammer candles
The body of the candle is very small
Long upper shadow
The lower shadow is very short or absent
The meaning of the Inverted Hammer candlestick pattern (Inverted Hammer candle)
The long upper shadow shows that the bulls held the upper hand when pushing the price higher than the open, but the bears later regained the upper hand when pushing the price down.
If an inverted hammer appears in an uptrend, it is most likely a forecast for a bearish reversal.
