Written by Robert McKinley

Review of Japanese Candlesticks

 

Candlesticks were invented a long time ago by the Japanese to improve the business of rice trading.

Forex software creates candlesticks using the session open, high, low, and close prices.

• A hollow (usually white) candlestick is formed if the close is above the open.
• A filled (usually, but not always, black) candlestick is formed if the close is below the open.
• The hollow or filled part of a candlestick is called the real body or just body.
• The thin vertical lines above and below the body are called shadows and they indicate the high/low range of a trading session.
• Upper shadows are about the session high.
• Lower shadows are about the session low.
• The topmost point of the upper shadow indicates the highest price of a session.
• The lowermost point of the lower shadow indicates the lowest price of a session.

The length of a candlestick body tells us how strong or weak a trading session is. The longer the body the more active (stronger) is the buying or selling.

• Long bodies imply strong buying or selling.
• Short bodies imply weak buying or selling.

Spinning Tops

• They have a long upper shadow, a long lower shadow, and small bodies.
• They tells us that the activity between buyers and sellers is indecisive.

Marubozu

• They have no shadows.
• Whether the candlestick’s body is hollow or filled, determines if the session high and low are the same as it’s open or close.

Doji

• They either have the same open and close price or their bodies are very short.

The Hammer

• It is a bullish reversal pattern, which is formed during a downtrend.
• It gets its name because it “hammers out a bottom.”

The Hanging Man

• It is a bearish reversal pattern.
• It can identify a top or strong resistance level.

The Inverted Hammer

• It appears in a downward price trend.
• It can indicate the possibility of a reversal.

The Shooting Star

• It is a bearish reversal pattern.
• It looks just like an inverted hammer but it appears in an upward price trend.

The next lesson is Support and Resistance. Quote this article on your site

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