The Origins of Japanese Candlesticks
こんにちは [Kon'nichiwa]. Japanese candlesticks are a type of
chart used to visualize price movements in financial markets. These chart types
are commonly encountered in technical analysis. By representing opening,
closing, highest, and lowest prices in a single candlestick, they provide us
with the opportunity to monitor price changes in real-time and quickly assess
momentum. Japanese candlesticks were developed centuries ago by Japanese rice
traders and were used for analyzing rice futures. Today, they are widely used
in all financial markets. These charts are believed to have been developed by
Munehisa Homma, a trader and rice analyst in Japan during the 18th century.
Homma created Japanese candlestick charts by studying trading and analysis
methods of his time, and he developed these charts for use in rice trading. In
the years that followed, Japanese candlestick charts became popular and evolved
in Japan. Japanese candlestick charts were originally used in Japan. Their popularity
in the Western world can be attributed to Steve Nison. Nison introduced
Japanese candlestick charts to the Western world with his book "Japanese
Candlestick Charting Techniques," increasing the popularity of these
techniques. Nison's book was published in the 1990s and contributed to the
wider acceptance of Japanese candlestick charts in the West. Today, Japanese
candlestick charts are used in many financial markets and asset classes
worldwide.
The Structure of the Candlesticks
This chart type visually represents the price movements of a
financial instrument, usually a stock, currency pair, or commodity. Each candle
represents a specific time period (e.g., 15 minutes, 30 minutes, 1 hour, 4
hours, 1 day, etc.) and generally contains the following main elements:
1. Body. The body of the candlestick is the thick
part and represents the price difference between the opening and closing
prices. The candle can be green (bullish candle) or red (bearish candle). A
green candle indicates that the opening price is higher than the closing price,
signaling bullish control. A red candle, on the other hand, indicates that the
opening price is lower than the closing price, signaling bearish control. We
have the option to customize candle colors. It is also possible to use different
colors. For example, if the closing price is higher than the opening price, the
candle is shown as hollow (usually white). If the closing price is lower than
the opening price, the candle is shown as filled (usually black).
2. Upper Wick. The thin line on the top of the
candlestick represents the highest price within a specific time period. It is
also known as the upper shadow or the wick.
3. Lower Wick. The thin line on the bottom of the
candlestick represents the lowest price within a specific time period. It is
sometimes referred to as the lower
shadow or the wick.
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| Japanese candlestick constructions |
Japanese candlestick charts always visually represent price
movements in any time frame using these three fundamental elements. Each candle
starts with a line from the opening price, then adds thin lines (wicks) that
show the highest and lowest prices, and finally ends with the closing price.
Candles are arranged sequentially, and these sequences provide us with a
foundation for assessing price movements and market trends.
Trading with Candlesticks
Japanese candlestick charts provide important information
about price movements, either alone or in combination with other technical
analysis tools. Different candlestick patterns and combinations allow us to
predict future price movements, evaluate market trends, resistance and support
levels, trend reversals, and more by associating them with price actions.
Therefore, Japanese candlestick charts are a significant tool in technical
analysis. Candlestick patterns, both individual and in combination, are used in
both bullish and bearish markets. You can find more comprehensive information
about basic Japanese candlestick patterns in the following links:
Please keep in mind that when trading in financial markets like Forex, we can experience both profit and capital loss. Every trader should do their own risk analysis. No technical analysis tool can guarantee future price movements. Japanese candlestick charts can be used on their own, but it is recommended to combine them with other technical indicators for better results. Wishing you trading success!