HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%
XM information and reviews
XM
82%

Japanese Candlestick Chart Analysis


The most convenient option for charting any asset on Forex is Japanese candles. The information content and the state of the market’s data visibility presented by Japanese Candles have long earned popularity among all traders. It is the technical analysis of Japanese candles that makes it possible to forecast further price movement for various assets.

This technical analysis tool helps traders to see and understand the mood and psychology of the market.

What are Japanese candles


Correctly reading asset charts, correctly determining support and resistance levels, technical analysis of candles helps any trader. These methods combine the appearance of a price line with a variety of interval graphs. The graph perfectly displays the fluctuations in the quotes of all assets for a certain time period.

For a more complete understanding of the tool, you should consider its components in more detail:

These two components look like a candle. Each of them displays the price change for a certain time interval. Candlestick chart analysis helps in making market forecasts. And in this case, they do well without computer indicators. You can also anticipate the reaction of market participants to certain events.

A significant advantage of such a chart is that the candle is the equivalent of several indicators: opening and closing times, information about the prevalence of sellers or buyers in the market. Each candlestick corresponds to the timeframe on which it is displayed. On the time interval M1, one candlestick displays the price change in one minute, on 5M - in 5 minutes, on 15M - in 15 minutes, etc.

In addition, candlestick elements display various graphical figures on the trading terminal screen that are used by traders to open/close or buy/sell orders. Therefore, the candlestick chart greatly simplifies the comprehensive study of any market. Defining this or that pattern in time, the trader has the opportunity to prepare a trading plan and, acting according to its points, enter into transactions, making a profit.

Information from candlesticks on the chart


How to read candlesticks on a chart? This question is invariably asked by novice traders.

The information provided by candles at all time intervals is similar:

 

The figure shows that the opening and closing quotes are the frame of the candle element. It is commonly called “the body”. Thin strands extending from the body up and down are the shadow that is sometimes called a “wick”.

It is customary to distinguish between bullish (increasing) and bearish (lowering) candle options. In the first case, its formation occurs from the bottom up. Here, the opening price acts as the lower limit, and the closing price is the upper limit. Typically, on the MT4 terminal chart, such candles are colorless or colored green. A bearish candle is the exact opposite of a bullish candle. It is formed from top to bottom, painted in red or black. Opening price - its upper limit, closing price - lower.

In some cases, the body of the Japanese candle is absent. This happens when the opening price is equal to the closing price. Sometimes there is a lack of wicks in the candle element. Here all the parameters are equal: opening quotes, closing quotes, minimum and maximum.

Candle reading


Japanese candles, how to read them correctly? The study of such charts comes down to the identification of graphic patterns in the form of combinations of candle elements. There are a lot of similar models represented by several elements and each of them has a specific name: “hammer”, “hanged”, “shooting star”, “doji”, “tombstone”, “hara” and others.

Any of these patterns signals the moment of entering the market. There are continuation trend models and trend reversal patterns. The latter constitute the vast majority.

When analyzing candlesticks in trading, important features should be taken into account:

This is explained by the balance of sellers and buyers. The more orders are opened in one direction, the higher the probability of a reversal. Market makers closely monitor the market and, with a certain number of bidders, “bring down” the price, forcing it to turn around, make a correction or go into a flat.

Display of market psychology by Japanese candles


How to analyze Japanese candles? The answer to this question helps to understand the psychology of the market, in other words, the intentions of most sellers and buyers. Even beginners, having made certain efforts, will be able to learn how to analyze candlestick elements to predict further trend movement.

One of the most important parameters of a candle is its body size. Its length indicates pressure on the bull or bear market. If the body of a large size (relative to neighboring candles) has a white (green) color, it means that bullish moods prevail, and buyers prevailed over sellers. Confident victory sellers is displayed by a large dark (red) body. Its insignificant size indicates the approximate equality of forces between sellers and buyers. This means that a rollback (correction) of the dominant trend, or a further flat movement, is quite likely. In such cases, the trend “freezes” for a while before the next jerk up or down.

When a bullish candle formed after a long downtrend appears on the screen of the trading terminal, there is every reason to assume that an upward trend is emerging. And the close of the bullish candle above the resistance line indicates that the market has strengthened at a new price point. But such a statement will take place only upon completion of the formation of the candle element. For a more detailed view of this process, you should switch to a smaller timeframe.

The tail (a wick, often referred to as a pin-bar), departing from the body reflects the mood of market participants, or rather, its change in the process of forming the candle itself. The pin-bar is quite often a harbinger of a change in the prevailing trend or its continuation after an appropriate price pullback. Long wicks, as a rule, form near a strongly tested, but not broken level.

When the struggle between sellers and buyers reaches its maximum, “doji” with long pin bars appear on the screen. This indicates the indecision of market participants - against the background of active trading there is no result.

Candle mood


Such a concept was proposed by Lance Begs, a well-known Forex trader and specialist in the price action algorithm.

The mood depends on the position of the closing price relative to the previous candle element. It is customary to distinguish several types of mood:

In turn, each of the species can be high, low and medium. This is the intensity of the mood. It is determined depending on the place of the candle range where it was closed.

Candlestick chart study


Japanese candles, the technical analysis of which is beyond any competition to other graphical market research, can give the trader a lot of useful information about upcoming market changes.

Candle bodies are of paramount importance, their shadows are of secondary importance. Wicks are considered market noise, although it should be considered in any trading.

Such chart studies take into account certain fundamental principles:

Conclusion


The use of Japanese candles is characterized by both positive aspects and certain difficulties. The reliability of these elements, in contrast to computer indicators, makes it possible to examine the price itself, and not mathematical calculations. Candles are universal. They are applicable for asset graphs of all markets - currency, commodity, stock, etc.

However, novice traders have some difficulty in comprehending this tool. You should make some effort and spend time to thoroughly understand the candlestick analysis. But the results of labor, clearly, will not be wasted and will help to earn good money.

Author: Kate Solano, Forex-Ratings.com

RELATED

Fundamental Analysis Explained: A Trader’s Tools For Profitability

What is Fundamental Analysis? There are many ways to define fundamental analysis, but breaking it down to as simple terms as possible, it is the study of the underlying...

Choosing a Trading Instrument: How to Trade Indices

By now, you must be familiar with the names of the world's major stock indices: Dow Jones, S&P 500, NASDAQ, DAX30. But did you know that they...

Forex Market: Is Technical Analysis Dead?

Every year the confidence of many traders is growing that classical technical analysis in its pure form does not work anymore. Think for yourself, all the main books on the technical...

The US Dollar Index Chart. What is it, and how do you use it?

Many traders use indices in their trading. The stock market offers a huge variety of indices such as the S&P 500, NASDAQ, Dow Jones, etc. They provide a picture...

The role of a technical analyst

Forex traders use technical analysis to forecast future price movements of financial assets based on historical market data. It involves analysing trends, patterns...

What Is the Risk/Reward Ratio and How to Use It

The risk/reward ratio tells you how much risk you are taking for how much potential reward. Good traders and investors choose their bets very carefully. They look for the highest potential upside...

A Comprehensive Guide to Technical Analysis: Definition, Tools & Examples

Technical Analysis is a systematized approach employed by traders to predict price movements and trends by examining market data, primarily price and volume...

Bull Flag Pattern in Trading - Open Long Trades

In the world of technical indicators and patterns, finding a reliable, workable tool that would help you predict price direction is challenging. However, they exist...

How to Use the US Dollar Index (DXY) in Trading

The US Dollar is the most traded currency in the world. It is used as a currency of the majority of international transactions while also being part of the most popular currency pairs on the Forex market...

XPro Markets - Boost your Technical Analysis Skills

What is your angle when trading in the financial markets? Do you opt for the technical analysis strategy or are you a "fundamentalist" when it comes to trading?

The Ultimate Guide to the Best Forex Candlestick Patterns

Trading Forex is a complex game that absorbs a lot of time and requires psychological endurance and vast knowledge of all aspects of the art of price prediction...

How to Calculate the Value of One Point in Forex

A point is a very important concept for calculating possible profit or loss in financial markets. When conducting transactions, you need to clearly understand how much...

The Ascending Triangle Pattern in Trading

Investors tend to use different tools to define the market direction. Technical indicators, candlesticks and chart patterns are all key to successful trading...

How to Trade Shooting Star Pattern

One of the most popular and reliable methods of finding entry and exit signals is identifying candlestick and chart patterns. These patterns are a part of technical analysis...

Beautiful Signals of the Butterfly Pattern

The butterfly pattern. It sounds nice, doesn't it? However, the real hides many difficulties for traders, especially for newbies. It's not a common trading tool...

Types of analysis when trading in financial markets

It is well known that trading in the financial markets is one of the most dynamic and effective ways to make a profit, even in the absence of significant initial capital...

Bullish vs. Bearish Market: How to Distinguish

In trading, you should focus not only on learning new strategies and indicators but also on discovering the terms that are widely used within the trading community. This will help...

Strategy session: Why momentum is a short-term traders best weapon

We can approach trading in a very similar vein as many do in Blackjack or how a casino operates, in that we can think in probabilities and potentially forge, and exploit an edge...

ADX: Find the Strong Trend

In a wide variety of indicators that provide different signals, it's almost impossible to find the one that defines the trend's strength. It's vital to know whether the trend is stable or not, especially during...

Do you follow the Trend Lines?

Looking for ways to boost your technical analysis skills? Keep reading to see if trend lines are part of your trading strategy!

FP Markets information and reviews
FP Markets
81%
RoboForex information and reviews
RoboForex
77%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.