What are Japanese candlesticks?
Basically it is a graphical charting tool that helps a trader to quickly recognise patterns that foretell the future price actions. Initially used by the Japanese merchants to record and indicate prices of rice, a common staple or grain, in the 1600s and hence to make huge profits in such commodity trading.
It normally consists of 4 data, i.e. opening price, closing price, the highest and lowest price for the day. It does not use pay attention to the volume of shares traded. This candlestick name comes from the candle-like appearance when the box formed from the two horizontal lines of open and closing price. Then wicks are extended below the box for the lowest price and above for the high price of the day.
It gives a highly visual form of stock price actions e.g. green if the closing price exceeds the opening price, and is red if the closing price falls below the open price. Hence when you see the chart and if you see a lot of red, it means blood is all over the place and prices are falling. Conversely if you see green, it’s the colour of money and hence uptrend is very easily seen!
Understanding basic candlestick shapes and its significance to predict bullish, bearing trends is essential towards successful stock trading. Numerous catchy and highly visual names are given to those shapes, for example, shooting star and hammers denotes trend reversal, bearish or bullish engulfing patterns, bearing dark cover and gaps denoting trending patterns. I suggest you can find easily explanatory notes on Japanese candlesticks on the internet and it would greatly help anyone who wants to trade profitably.
However I would not hesitate to recommend the works of Steve Nison, the man credited with popularizing Japanese Candlesticks to the Western world. He has written numerous books and toured Asia to promote his system. Just type “Japanese candlesticks + Nison” into Google and you will see what I mean. Or <click here to read his book>. I have seen Nison, with his pony-tailed hair and all, demonstrating his stock trading software during presentations. This man can, with one glance at a chart, start explaining with ease, how and why this stock price was trending up, stalling and then falling and each price action supported and validated by appearance of appropriate candlesticks symbols. This man oozed with passion, energy and commitment to Japanese candlestick trading techniques.
Japanese candlesticks can be used with other technical indicators such as oscillators, moving averages, MACD, but whatever it is, it is up to you to try and then decide what works for you. It is but one excellent way to simplify trading decisions and improve your profitability as well as improvement to your kaizen stock trading techniques.
Till then, Happy Trading