Japanese candlestick is an important foreign exchange market term, providing valuable information to investors. However, not everyone clearly understands the nature and how to read basic Japanese candlestick patterns. Forex Trading will guide you to learn more about this term. Helps you better understand the patterns and role of Japanese candlestick patterns in forex trading. Let’s see!
Overview of basic Japanese candlestick patterns
Understanding the Japanese candlestick pattern helps investors grasp the market and find suitable trading points. Please see the information compiled below.
What is the concept of Japanese candlestick patterns?
Japanese candlesticks are also known as Japanese candlestick patterns or Japanese candlestick charts. Is a tool used to illustrate the price fluctuations of assets during a specific trading session? Japanese candlesticks are represented by candlesticks with different colors and shapes, each with its meaning of price fluctuations in a certain period.
Japanese candlesticks, created by Munehisa Honma, are charts that represent rice prices on the market and are considered the “grandfather” of trading. Honma uses them to analyze factors such as weather, inflation, and tax policy. Steve Nison discovered candlestick patterns while working with brokerage companies in Japan, then wrote a book and introduced it to the trading community. Today, this model has become popular and widely used.
Characteristics of basic Japanese candlestick patterns
Japanese candlesticks are a popular technical analysis tool in Forex, helping traders grasp price trends through candle bodies and candle shadows:
The candle body represents the price fluctuation range during the session.
- Green: Opening price is lower than closing price – price increase.
- Red: Opening price is higher than closing price – discount.
Candle shadow:
- Upper shadow: Highest price in the session.
- Lower shadow: Lowest price in the session.
Analyzing Japanese candlesticks will help traders:
- Determine whether the price trend is decreasing or increasing.
- Measure trend strength (long/short candlestick shadows).
- Catching potential reversal points (candlestick patterns)
See more: Read candlestick charts: Basic & advanced material
Basic Japanese candlestick patterns are commonly used
To understand candlestick charts, you need to distinguish between the 5 basic types and the meaning of each type. They are Standard candles, strong candles, long lower candles, long upper candles, and indecision candles.
Standard Japanese candles
The structure of a standard candle includes a long body and shorter upper and lower shadows.
- The green candle symbolizes the continuation of the bullish trend
- While red candles indicate the continuation of a downtrend.
Basic Japanese candlestick patterns are commonly used
Strong Japanese candlestick pattern
- Structure: A strong candle has no shadow, only the body.
- Meaning: Indicates strong buying or selling strength in the market and announces a trend maintenance or reversal.
- Reversal signal: A strong red candle after a series of increases is a sign of a reversal to a downtrend. A strong green candle after a downtrend is a sign of a reversal to the uptrend.
- Continuation Signal: A green strength candle in an uptrend is a sign of uptrend continuation. Conversely, red-intensity candles in a downtrend are a sign that the trend will continue.
Japanese candlesticks in forex have long wicks below
In the forex market, when a downtrend is nearing an end, a Hammer candlestick pattern appears. This candle has a small upper body and a shadow 2 – 3 times longer than the lower candle body. This signifies the strength of the buying side as the price has been pushed down deep and then pulled up by the buying side, signaling a reversal. Meanwhile, as an uptrend nears its end, a Hanging Man candlestick pattern appears.
This candlestick also has a small body above and a long shadow below. It often indicates selling strength as the price has been pushed up and then pulled down by the sellers, signaling a potential reversal.
- If a candle has a long lower shadow and a red color appears in an uptrend. This could signal a potential reversal to the downside.
- Conversely, if in a downtrend, a candle with a long lower shadow and a blue color appears. This could indicate a potential reversal of the uptrend.
Basic Japanese candlestick patterns have long whiskers on top
The Inverted Hammer candlestick is a sign of the end of a downtrend, while the shooting star candle is a sign of the end of an uptrend.
- Structure: Small lower body, shadow 2-3 times longer than the upper body.
- Meaning: This shows the strength of the buying side first, but was pushed down by selling later. A candle with long wicks above is a sign of reversal. A long red wick candlestick in an uptrend signals a reversal to a downtrend. Green candles in a downtrend signal a bullish reversal.
Japanese candles hesitate
- Structure: Small or nobody, long candle shadows because open/closed prices are almost equal.
- Meaning: Reflects the unclear confrontation between buying and selling.
Basic Japanese candlestick patterns
Instructions on how to read Japanese candlestick charts in Forex
You have 2 ways to read and understand basic Japanese candlestick patterns:
Analyzing candle body color helps traders identify market trends.
- Long green candles (candles 1 and 4) indicate the dominance of the buying side.
- Long red candles indicate the strength of the sellers.
Analyzing Japanese candlestick charts helps traders understand forex market developments:
- Short candlestick: Indicates a transaction near the opening/closing price, without strong pressure from the buying/selling side.
- Long candlestick: This shows that the price went too far from the opening/closing level, indicating strong pressure from the buying/selling side.
- The upper shadow is long, the lower shadow is short: The buyers are stable, but are dominated by the sellers at the end of the session.
- The lower shadow is long, the upper shadow is short: The sellers prevailed but were counterattacked by the buyers at the end of the session.
Application of Japanese candlestick pattern
Using Japanese candlestick charts in the forex market brings many important applications. This is a testament to their immediacy, intuitiveness, and ease of use. Japanese candlestick patterns play an important role in forex technical analysis:
- It is the most popular and most widely applied model.
- Supports the identification of accurate support and resistance lines.
- Accurate in measuring market sentiment.
- Provides reversal signals, accumulation zones and buy/sell opportunities.
However, to avoid noisy signals, it is necessary to combine Japanese candlesticks with other indicators such as trend lines and resistance/support. One of the widely used technical analysis tools in financial trading to identify trends and predict price movements is the Heiken ashi candle. Let’s learn more about this type of candlestick to trade more effectively.
See more: Prestige Broker XTB: Elevate position of invest player
Conclude
Above is the basic knowledge about basic Japanese candlestick patterns, roles, and analysis methods. We hope this information will help you better understand Japanese candlesticks, thereby taking full advantage of the advantages that this tool brings in forex trading, helping you achieve the highest profits! Don’t forget to follow Forex Trading for more useful information about trading the foreign exchange market.
Frequently asked questions
Structure of Japanese candles?
Japanese candlesticks are made up of two main components: candle body and candle shadow. The candle body represents the price fluctuation range during the trading session. The candle shadow includes the upper shadow and lower shadow, representing the highest price and lowest price in the corresponding trading session.
Classify Japanese candles according to the candle body.
Japanese candles can be classified based on the characteristics of the candle body. Long-body candles often represent a strong price fluctuation range over a certain period. Meanwhile, short-body candles often show weaker price fluctuations, usually in a narrower range.
Notes when using Japanese candles?
When using Japanese candlesticks in forex trading, it is important to remember that it is only a supporting tool. To achieve the best results, traders need to combine fundamental analysis and effective capital management.
