Japanese Candles Patterns Explained - Japanese Candles Technical Analysis
Understanding Candles in Forex Trading - How to Read Candles in Forex
Brief History
Candlesticks were developed in 18th century by legendary rice trader called Homma Munehisa to give an overview of opening, high, low and closing market price over a given period of time.
They were used by the legendary rice trader to predict future market prices. After dominating the rice market, Munehisa then eventually moved to the Tokyo exchanges where he then gained a huge fortune using this analysis. It is said that He made over a hundred consecutive winning trade transactions.
Types of Trading charts
There are Three types of charts which are used in Forex: Line, bar and candles.
Line - plots a continuous line connecting closing prices of a currency 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.
The main disadvantage of a bars is that it is not visually appealing, therefore most traders don't use them.
Candlestick - these use the same price data as bar charts (open, high, low, & 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 called the body.
The high & low are described as shadows & drawn as poking lines.
The colour is either blue or red
- (Blue or Green Color) - Prices headed upward
- (Red Color) - Prices went down
Most trading softwares like the MetaTrader 4, use colors to mark direction. Colors used are blue or green: when the price moves up, red: when the price moves down.
Candles Vs. Bar Chart
When candlesticks are used it is very easy to see if the price went up or down as opposed to when a bar chart is used.
The Japanese methods also have very many formations that are used to trade the market. These patterns have different technical analysis explanation & the most common 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 in Forex trading is the same as that one used in stock trading.
Drawing These Charts on MetaTrader 4
To draw these on the MetaTrader 4, choose the charts drawing tools within the "Meta Trader 4 Toolbar" - shown below.
To view this tool bar on MT4 go to "View" Next to file at the top-left corner of MetaTrader 4 Platform, Click "View", Then Click "Tool bars", Then check the "Charts" Button. The above tool bar will appear.
Once the above tool bar, pops up you can then select the type you want to convert to, If you 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 candlesticks format click the "candlesticks tool button key".
