Japanese Candles Patterns Explained - Japanese Candlesticks 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 & 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.
Bars- displayed as sequence of OHCL bars. O H C L represents OPEN HIGH LOW & CLOSE. The Opening price is displayed as a horizontal dash on left & closing price as a horizontal dash on right.
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 & plotted as poking lines.
The color is either blue or red
- (Blue or Green Color) - Prices moved up
- (Red Color) - Prices moved down
Most trading platforms 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.
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 techniques also have very many formations that are used to trade the FX market. These patterns have different technical analysis explanation & the most common are:
| Reversal Patterns |
The above patterns is what makes the Japanese candlesticks popular among technical traders & 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 pattern 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 charts plotting tools within the "MetaTrader 4 Toolbar" - shown below.
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".
