The Japanese Candlestick patterns are one of the most popular technical analysis tools in use today.
Japanese Candlestick traces its roots to the Japanese rice traders, back in the 18th century. Over time, the Japanese Candlesticks have become one of the most popular chart types.
They are visual patterns easily seen on a trading chart. The patterns are made up of one or up to three candlesticks in a trading chart. These visual patterns depict the relationship between individual candlesticks.
It does not involve any mathematical calculations.
The Japanese Candlesticks are purely visual and potentially signals changes in the market sentiment. They can predict reversal of trends or corrections in a trend.
Learn the basics of reading Candlestick Charts
A Candlestick pattern with a reversal does not necessarily signal a trend reversal. In fact it could merely suggest a slowdown in trend or sideways trading after a trend is established.
The Japanese Candlestick patterns consist of about 40 reversal and continuation patterns.
All these patterns can indicate the probability of the future price direction.
Types of Candlestick Patterns
There are about 21 primary candlestick chart patterns.
- Long Periods Patterns
- Short Periods Patterns
- Marubozu Pattern
- Doji Shooting Star
- Morning Doji Star
- Evening Doji Star
- Stars and Raindrops
- Paper Umbrella
- Inverted Hammer
- Hanging Man
- Harami Cross
- Shooting Star
- Morning Star
- Evening Star
- Piercing Line
- Dark Cloud Cover
What do the Japanese Candlestick patterns indicate?
Individual Japanese candlestick patterns indicate whether price is bullish or bearish. The candlestick patterns must be used alongside other technical indicators to gain full market context.
Traditional Japanese candlesticks use black and white bodies or red and green depicting bullish and bearish sentiment.
A black body indicates that the close is higher than the open and therefore the price has increased over the period.
On the contrary a white body indicates that the closing price is lower than the opening price so therefore the value has decreased over the period.
The Japanese Candlestick patterns finds its use in different types of markets and in any time frame. Candlestick patterns work in just about any market which you want to analyse.
The Japanese Candlestick Patterns however cannot be used on a line chart as it provides only the close of the chart’s time frame.
Finding a Doji or a Dark Cloud cover candlestick pattern is not sufficient to indicate high probability high profit trading opportunity irrespective of the markets you are using them in.
Using candlestick patterns can give traders the ability to understand the meaning behind the price action behaviour. But you should not use the candlestick patterns in isolation.
But at the same time other patterns should not be ignored either as they can be used effectively to produce high profit windows.
In reality some of the Japanese Candlestick patterns occur very rarely.
The most basic difference between the Japanese candlestick patterns with any other form of chart patterns is that the Japanese candlesticks can be immediately recognized on the basis of price direction and strength.