Japanese Candles Patterns Explained
Japanese Candle Patterns PDFBrief History
Candlesticks were created 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 used by the legendary rice trader to predict future market prices. After dominating the rice market, Munehisa after that eventually moved to Tokyo Exchange where he gained huge fortunes using this analysis method. He is said to have made over one hundred consecutive winning trades.
Types of XAUUSD charts
There are 3 types of charts used in XAUUSD: Line, bar & 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 highligthed as a horizontal dash on the left & closing price as a horizontal dash on the right.
The main disadvantage of a bars is that it isn't visually appealing, therefore most traders don't use them.
Candlesticks - these use the same trading price data as bar charts (open, high, low, & close). However, they in a much more visually identifiable way which resembles a candle with wicks on both its ends.
How to Interpret
The rectangle part is called the body.
The high & low are described as shadows & drawn as poking lines.
The color is either blue or red
- (Blue or Green Color) - XAUUSD Prices moved up
- (Red Color) - XAUUSD Prices moved down
Most trading platforms like the MetaTrader 4, use colors to mark the direction. Colors used are blue or green: when price moves upward, red: when the price moves downward.
Candles Vs. Bar Chart
When candlesticks are used it is very easy to see if the price moved up or down as opposed to when a bar Charts are used.
The Japanese techniques also have very many setups that are used to trade the market. These patterns have different technical analysis explanation & 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 the most widely used when it comes to 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 on MetaTrader 4
To draw these on the MetaTrader 4, choose the charts drawing tools within the "MT4 Tool-bar" - shown below.
To view this tool-bar in MT4 go to 'View' Next to file at top left corner of MetaTrader 4 Platform, 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 choose the type you want to convert to, If you want to view using the bar format, click the bar tool button key as shown above, for line format click the line tool button, for Japanese candles format click the "candlesticks tool button key".
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