Japanese Candles Patterns Explained - Japanese Candles Technical Analysis
Understanding Candles in Forex Trading - How to Read and Interpret Candles in Forex
Brief History
Candlesticks were created in 18th century by the renowned rice trader called Homma Munehisa to give an overview in general of the opening, high, low & closing price over a given and specified time period.
They were used by the legendary rice trader to predict future market prices. After dominating the rice market, Munehisa then eventually moved to Tokyo exchanges where he then gained a huge fortune using this market analysis. It is said that He made over a hundred consecutive winning trade transactions.
Types of charts
There are Three types of charts which are used in Forex: Line, bar & candles.
Line - plots a continuous line connecting/joining closing prices of a forex pair.
Bars- displayed as sequence of OHCL bars. O.H.C.L. represents OPEN HIGH LOW and CLOSE. Opening price is displayed as a horizontal hyphen to the left & the closing price is portrayed as a horizontal hyphen to the right.
Main disadvantage of a bar chart is that it isn't visually identifiable, therefore most traders do not use them.
Candlestick - these use the same price info as bar charts (open, high, low, & close). However, they are represented in a more visually appealing way that looks like a candle that has wicks on both its ends.
How to Analyze
The rectangle section is referred to as the body.
The high & low are described as shadows & drawn as poking and protruding lines.
The colour is either blue or red
- (Blue or Green Color) - Prices headed upward
- (Red Color) - Prices went down
Most trading platformsplatforms like the MetaTrader 4, use colour to mark direction. Colours used are blue or green: when price moves up, red: when the price moves down.
Candlesticks Vs. Bar Chart
When candlesticks are used it is very easy to see if the price went up or down as compared to when a bar chart is used.
The Japanese methods also have very many formations which are used by the FX traders to trade the markets. These patterns have different trading analysis explanation and the most regular are:
| Reversal Setups |
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 in analyzing the currency exchange market. The analysis for these setup formations and setups in Forex trading is the same as that one used in stock trading.
Drawing These Charts on MT4
To draw these on the MT4, select the charts drawing tools within the "Meta Trader 4 Tool-Bar" - shown below.
To view this tool-bar on MetaTrader 4 navigate to the "View" Next to file on the top-left corner of MetaTrader 4 Software, Click "View", Then Click "ToolBars", Then check "Charts" Button. The above tool-bar will appear.
Once the above toolbar, pops up you as a trader can then choose the type you want to convert to, If you as the trader want to view using the bar chart 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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