An Introduction to Japanese Candlestick Patterns
When it comes to interpreting financial charts, there are several methods to choose from, including line charts, bar charts, Renko charts, and candlestick charts. Japanese candlestick charts, in particular, have gained widespread popularity due to the wealth of information they can convey.
But what exactly are Japanese candlesticks, and where did they come from?
The answer lies in Japan, where a rice trader named Munehisa Homma developed the technique several hundred years ago. In modern times, the western world learned about candlestick patterns thanks to Steve Nison, who authored the seminal book "Japanese Candlestick Charting Techniques."
So, how can you read a Japanese candlestick chart?
Essentially, you'll only see two types of bars: bullish bars and bearish bars. But what do these bars indicate, and how can you use this information to your advantage? With a deeper understanding of Japanese candlestick patterns, traders can gain valuable insights into market trends and make more informed decisions.
Bullish Candle
Bearish Candle
1)- Bullish Candle
A bullish bar on a Japanese candlestick chart can be easily identified by observing that its open is at the bottom, followed by a price increase that eventually closes at the top.
The high of the candlestick represents a specific point in time, while the lowest point is indicated below the open.
The highs and lows are determined by the type of candlestick chart being used. For instance, if the candlestick chart is based on a daily chart, the highs and lows will represent one day, while an hourly chart will represent one hour.
This is the standard method of reading a bullish candlestick chart.
2)- Bearish Candle
When looking at a bearish candlestick chart, the open is at the top of the bar and the price moves down towards the bottom, eventually closing at the bottom.
The high of the candle represents a particular point in time, above the close, and the lowest point of the candle represents another point in time, below the open.
It is important to note that the highs and lows of the candlestick are determined by the timeframe being analyzed, whether it is a daily chart, an hourly chart, or any other timeframe.
Therefore, understanding how to read a bearish candlestick chart is crucial to analyzing price movements and making informed trading decisions.
Summarise:-
To summarize, a bullish candlestick has an open below the close, while a bearish candlestick has an open above the close.
The wick of the candlestick represents the highest and lowest points for a specific period of time, which depends on the timeframe of the chart.
These candlestick patterns provide valuable insights into market trends and are widely used by traders to make informed trading decisions.
Understanding candlestick charts is a fundamental skill for anyone interested in technical analysis in financial markets.
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