What are Japanese candlesticks? No, we’re not talking about candlesticks made in Japan. We’re talking about a method of communicating investment information on a price chart over an established period of time. Many people find that Japanese candlesticks are an easier way to interpret information as opposed to traditional investment charts. Each candlestick represents a period of time and when you consider the candlestick’s body, wicks, and color, you can understand the price information and use it to make smart investment decisions. Still wondering, “What are Japanese candlesticks?” Read on to learn more.
What Are Japanese Candlesticks?
What are Japanese candlesticks? Well you’ve already learned that they are a method of communicating information on a price chart. Let’s delve into the details a bit more.
Although the history of Japanese candlesticks is hazy, it is believed that they came into being sometime in the late 1600s or early 1700s in Japan. A talented and business-savvy rice trader named Munehisa Homna refined candlestick charts in the 18th century, creating the technique now known as Japanese candlestick analysis. This ancient investment strategy was introduced to the Western world by investor and author Steve Nison, whose book Japanese Candlestick Charting Techniques was published in 1991.
So how do Japanese candlesticks work? Well, each candlestick is composed of a “body” (the central block, which is rectangular or square in shape) and “wicks” (thin vertical lines that sprout out of the top and bottom of the body). When you take the formation and characteristics of these forms into consideration, you can understand the chart’s information. These are some of the things you might interpret from the candlesticks:
- If the candle is white (or empty), it represents a bullish period. That is to say, the closing price was higher than the opening price.
- If the candle is black (of full), it represents a bearish period. The closing price was lower than the opening price.
- The top and the bottom of the body of the candle represent the opening and closing price. On a bullish candle, the closing price is the top and the opening is the bottom. On a bearish candle, the closing price is the bottom and the opening price is the top.
- The ends of the wicks represent the highest and lowest prices reached during the time period.
Once you understand the basics, you can start searching for patterns and signals. Some are very simple and some are quite complex, but if you learn to analyze them effectively and react appropriately, you can make great gains.
So what are Japanese candlesticks? Candlestick charts are an effective method for interpreting investment information on a price chart. When you understand how they work and react well to the patterns and signals they present, it will be easy for you to make successful investing decisions.
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