Japanese Candlesticks Patterns Explained
Japanese Candle Patterns PDFBrief History
Candlesticks were developed in 18th century by the legendary rice trader known as Homma Munehisa to give an overview of the opening, high, low & closing market price over a given time period.
They were utilized by the legend rice trader for predicting future market prices. After dominating the rice market, Munehisa after that eventually moved to the Tokyo Exchange where he gained huge fortunes using this trading analysis method. He is said to have made over one hundred consecutive winning trades.
Types of XAUUSD charts
There are three types of charts used in XAUUSD: Line, bar and candles.
Line - plots a continuous line connecting closing prices of a xauusd.
Bars- displayed as sequence of OHCL bars. O H C L represents OPEN HIGH LOW & CLOSE. The Opening price is highlighted as a horizontal dash on the left and closing price as a horizontal dash on the right.
The main disadvantage of a bars is that it is not visually appealing, therefore most traders do not use them.
Candles - these use the same market price info as bar charts (open, high, low, and close). However, they are represented in a much more visually identifiable way that resembles a candle that has wicks on both its ends.
How to Analyze
The rectangle section is known as the body.
The high & low are referered to as shadows and drawn as poking lines.
The colour is either blue or red
- (Blue or Green Colour) - XAUUSD Prices headed up
- (Red Color) - XAUUSD Prices headed down
Most trading platforms like the MT4, use colours to mark direction. Colours used are blue or green: when the price moves upwards, red: when price moves downwards.
Candlesticks Vs. Bar Chart
When candles are used it's very easy to see if the price headed up or down as opposed to when a bar Charts are used.
The Japanese techniques also have very many set-ups which are used by traders to trade the market. These patterns have different trading analysis explanation and the most common are:
The above patterns is what makes the Japanese candlesticks popular among technical traders & it is why this type of analysis are most often utilized in analyzing the market. The analysis for these pattern formations in xauusd trading is the same as that one used in stocks trading.
Drawing These Charts in MT4
To draw these on the MT4, select the charts drawing tools within the "MT4 Tool-Bar" - shown below.
To view this tool-bar in MT4 go to 'View' Next to file on the top left corner of MetaTrader 4 Software, Click 'View', Then Click 'Tool Bars', Then check the 'Charts' Button. The above toolbar will appear.
Once the above tool-bar, appears you can then select the type you as a trader want to convert to, If you as a xauusd trader want to view using the bar format, click the bar tool button key as illustrated above, for line format click the line tool button, for Japanese candles format click the "candlesticks tool button key".
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