Trade Forex Trading

Japanese Candles Patterns Explained - Japanese Candles Technical Analysis

Understanding Candles in Forex Trading - How to Read Candles in Forex

Brief History

Candlesticks were developed in 18th century by legendary rice trader called Homma Munehisa to give an overview of opening, high, low and closing market price over a given period of time.

They were used by the legendary rice trader to predict future market prices. After dominating the rice market, Munehisa then eventually moved to the Tokyo exchanges where he then gained a huge fortune using this analysis. It is said that He made over a hundred consecutive winning trades.

Types of Forex Trading charts

There are Three types of charts which are used in Forex: Line, bar and candles.

Line - plots a continuous line connecting closing prices of a currency pair.

Japanese Candle Setups Technical Analysis - How Do I Use Japanese Candles in Trading Forex?

Bars- displayed as sequence of OHCL bars. O H C L represents OPEN HIGH LOW and CLOSE. The Opening price is displayed as a horizontal dash on left & closing price as a horizontal dash on right.

Bar Chart in Trading - Japanese Candle Trading Setups Technical Analysis

The main disadvantage of a bars is that it is not visually appealing, therefore most traders don't use them.

Candlestick - these use the same price data as bar charts (open, high, low, & close). However, they in a much more visually identifiable way which resembles a candle with wicks on both its ends.

How to Analyze

The rectangle section is called the body.

The high and low are described as shadows and drawn as poking lines.

Trading Forex Candlestick Chart Setups - Japanese Candles Setups Trading Analysis

Broker

The color is either blue or red

  • (Blue or Green Color) - Prices moved up
  • (Red Color) - Prices moved down

Most trading softwares like the MetaTrader 4, use colors to mark the direction. Colors used are blue or green: when price moves up, red: when price moves down.

Japanese Candles Setups Technical Analysis - How Do I Use Japanese Candlestick in Trading Forex?

Candles Vs. Bar Chart

When candles are used it is very easy to see if the price moved up or down as opposed to when a bars are used.

The Japanese methods also have very many formations that are used to trade the FX market. These patterns have different technical analysis explanation & the most common are:

Marubozu Candle Pattern & Doji Candle Pattern
Spinning Tops
Reversal Setups
Inverted Hammer Candle-stick Pattern and Shooting Star Candle Pattern
Piercing Line Candlestick Pattern and Dark Cloud Cover Candle Pattern
Morning Star Candle-sticks and Evening Star Candle-sticks

The above patterns is what makes the Japanese candlesticks popular among technical traders and it is why this type of analysis are the most widely used when it comes to analyzing the currency exchange market. The analysis for these setup formations in Forex trading is the same as that one used in stocks trading.

Drawing These Charts on MetaTrader 4

To draw these on the MetaTrader 4, choose the trading charts drawing tools within the "Meta Trader 4 Toolbar" - shown below.

Japanese Candles Patterns Technical Analysis - How Do I Trade Candle Setups Technical Analysis PDF?

To view this tool-bar on MT4 go to "View" Next to file at the top left corner of MetaTrader 4 Platform, Click "View", Then Click "Tool bars", Then check the "Charts" Button. The above tool bar will appear.

Once the above tool bar, pops up you can then select the type you want to convert to, If you want to view using the bar format, click the bar tool button key as shown above, for line format click the line tool button, for Japanese candlesticks format click the "candlesticks tool button key".