Japanese candlestick patterns are essential when trading on the stock market based on technical analysis. They will allow you to analyze the price action quickly. In addition, traders use them to identify trends and reversals, as well as their continuation into the future.
These patterns can be applied to any financial market, both in Forex, as commodities, or cryptocurrencies.
Although past price performance does not guarantee your future movements, Japanese candlestick patterns can be helpful in spotting big opportunities.
In this post, we are going to develop this concept, starting with its meaning and later analyzing the main patterns.
What are Japanese candles in Trading?
The Japanese candles are graphs showing the price of an asset for a specified period. This analysis system was invented by Japanese rice traders centuries ago and became popular with Western traders in the 1990s by a stockbroker named Steve Nison.
Today, Japanese candlestick charts are the most popular way to quickly analyze the price action of an asset over any period of time. They offer much more visual information than traditional line charts, showing the high, low, open price, and close price of a market at a glance.
In addition to being used to track price movements, they are used to find clues about where a market is heading.
How to read Japanese candlestick patterns
Three elements are key when reading Japanese candle patterns: the color, the body, and the wick or shadow.
Japanese candles are usually red or green (you set the colors). The former indicates that the closing price is below the opening price. In contrast, green Japanese candles indicate otherwise.
On the other hand, the body of the candle shows the opening and closing levels of the market, that is, the variation suffered by the price during that time.
The wick can be upper or lower. They mean that the price has been moving at that price, with the top being the highest point and the bottom being the lowest point.
If you learn to Invest in the stock market with a good trading school, become familiar with these elements, and put them into practice, you will be able to effectively interpret the movements of the financial markets within a certain period of time.
Finally, and before detailing the main Japanese candlestick patterns, we have to consider three categories: single, double, and triple. This is based on the number of clubs that make up the pattern.
Simple Japanese candlestick patterns comprise only one trading period. When a signal is formed from two consecutive periods, it is known as a double candle pattern. These often point to trend reversals to come, but can also be used to identify continuations. Lastly, the longest patterns we'll cover in this post are triples, which form over three consecutive periods. Triple candlestick patterns are often seen as about of the sturdiest signals of an upcoming move.
Conclusion
You already know more about Japanese candles. But to start trading with these patterns, the first thing you have to do is learn the ins and outs of trading and technical analysis.
Remember to practice a lot with a demo account before you start investing with real money. These Japanese candlestick patterns will help you find great opportunities, which once you launch your live account, will bring you substantial profits. For more information, https://finmaxbo.com/en/strategy/3810-hammer-candlestick-how-it-works.html.
Cristina Herrera has a BA in Journalism. And she is an Independent Journalist. Her passion in life is to write meaningful stories and help others through the research and content. She truly believes that knowledge is power. So, she wants to share her experiences through content.