How to Use Japanese Candlesticks in Stock Indices
Japanese Stock Index Trading Candlestick Patterns TutorialBrief History
Candlesticks were developed in the 18th century by the legendary rice trader called Homma Munehisa to give an overview of opening, high, low and closing market stock index price over a given period of time.
They were used by the legendary rice trader to predict future market stock indices prices. After dominating the rice market, Munehisa eventually moved to the Tokyo exchanges where he gained a huge fortune using this analysis. He is said to have made over 100 consecutive winning trades.
Types of Stock Indices Trading charts
There are 3 types of charts used in Stock Indices: Line, bar and candlesticks.
Line - plots a continuous line connecting closing stock indices prices of a stock indices.
Bars- displayed as sequence of OHCL bars. OHCL represents OPEN HIGH LOW & CLOSE. The Opening stock index price is displayed as a horizontal dash on the left and closing stock index price as a horizontal dash on the right.
The main disadvantage of a bars is that it is not visually appealing, therefore most stock indices traders don't use them.
Candlesticks - these use the same stock index price data as bar stock indices charts (open, high, low, and close). However, they in a much more visually identifiable way which resembles a candle with wicks on both ends.
How to Interpret
The rectangle part is called the body.
The high and low are described as shadows and drawn as poking lines.
The color is either blue or red
- (Blue or Green Color) - Indices Prices moved up
- (Red Color) - Indices Prices moved down
Most trading platforms like the MetaTrader 4, use colors to mark the direction. colors used are blue or green; when stock index price moves up, red; when stock index price moves down.
Candlesticks Vs. Bars
When candlesticks are used it is very easy to see if the stock index price moved up or down as opposed to when a bars are used.
The Japanese techniques also have very many formations that are used to trade the Stock Indices market. These patterns have different technical analysis interpretation and the most common are:
The above patterns is what makes the Japanese candlesticks popular among technical traders and it is why this type of analysis are the most widely used when it comes to analyzing the stock index market. The analysis for these pattern formations in stock index trading is the same as that one used in stocks trading.
Drawing These Charts on MetaTrader 4 Stock Index Trading Platform
To draw these on the MetaTrader 4, select the charts drawing tools within the "MetaTrader 4 Toolbar" - shown below.
To view this toolbar on MetaTrader 4 go to "View" Next to file at the top left corner of the MetaTrader 4 Platform, Click "View", Then Click "Toolbars", Then check the "Charts" Button. The above toolbar will appear.
Once the above toolbar, appears you can then select the type you want to convert to, If you want to view using the bar format, click the bar tool button as shown above, for line format click the line tool button, for Japanese candlesticks format click the "candlesticks tool button".
