What Is A Japanese Candlestick Chart?
The Japanese version of price charting uses a shape similar to a candlestick as a visual representation. The Japanese candlestick method of visualising charts is one of, if not the, most popular methods of looking at charts for the modern trader.
The way it works is that one candlestick shows the open, high, close and low point of the price at a given timeframe. The shadow or wick shows the distance between the high and the low. The body of the candle, or “real body”, measures the distance between the open and the close. When the close is greater than the open price, then the body of the candlestick is white. This reflects a positive sentiment in the market. When the close is less than the open price, then the body of the candlestick is black. This reflects a negative sentiment in the market.
There are many different shapes and sizes to the candlesticks and the patterns they form, all of which come with their own special names. For example, one of the simplest and most popular candlestick patterns is called ‘the hammer’. This is when the candle has a long lower shadow and a short body, with a tiny or no shadow on top. The hammer is made up of just one candle and is a type of bullish reversal candlestick.
Next, head over to our video on trend reversal.
Analysis is a key part of a trader's day. Firstly, that means self-analysis about your own performance and results. Many traders keep a trading journal to help with this. Secondly, regularly monitor the markets you trade. This includes looking at both technical and fundamental factors that might affect your trades, throughout the day.
Keeping and maintaining short-term and long-term goals can help you on your journey to becoming more disciplined. Trading at a time of day when you are most alert is important. Being confident and calm will also help. Studies have even shown that being well-fed and comfortable helps traders maintain their discipline.
There are hundreds of different Japanese Candlestick patterns. They can be used for any time frame, from one minute to one day and longer. It is down to your individual trading strategy to decide which candle pattern suits you.
A common pattern to note is a 'doji'. This candlestick is formed when the opening and closing prices are the same, or very close to each other. The shadow lengths may vary, but the candle is telling us that buyers and sellers have cancelled each other out and there is indecision in the market.
There are several variations of a doji, including a long-legged doji and a gravestone doji, which have varying lengths of shadow or wick.
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