Japanese Candlestick Charting Techniques
Enjoy this blog from Steve Nison of Candlecharts.com, the first to reveal Japanese Candlesticks to Western traders and investors. You will discover how to use Japanese candlestick charts no matter what you trade: stocks, options, Forex, and more. These strategies also work in any time frame, including day trading, daily, weekly, swing trading, long-term investing, and more. Receive instant updates via email.
In this multi-part series of blogs we will delve into the benefits of candlesticks, the essentials of candlesticks and why candlestick charting works. In Part 1 of What Is Candlestick Charting, we detailed the benefits of candlestick charts. In this blog we move onto the construction of the candlestick line. In an upcoming blog we will look at the doji, a key candlestick signal.
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CONSTRUCTING THE CANDLESTICK LINES
As a key aspect of the topic of What Is Candlestick Charting, we first need to detail the anatomy of the candlestick line. The broad part of the candlestick line is called the real body .The real body represents the range between the session’s open and close. If the close of the session is above the open then the real body is white. If the real body is black the close of the session is lower than the open. Depending on your charting platform, the real body may be other colors, for example green instead of white or red instead of black.
The thin lines above and below the real body are the shadows. These are the session’s price extremes. The shadow above the real body is called the upper shadow and the peak of the upper shadow is the high of the session. The shadow under the real body is the lower shadow and the bottom of the lower shadow is the session’s low.
Candle lines can be drawn for all time frames, from intraday to monthly charts. For example, a 60 minute candle line uses the open, high, low and close of that 60 minute period; for a daily chart it would be the open, high, low and close for the day. On a weekly chart the candle would be based on Monday’s open, the high and low of the week and Friday’s close.
Notice that the candles to the right have no real bodies. These are examples of doji (pronounced doe-gee). A doji is a candle in which the opening and close are the same.
While the candlestick line uses the same data as a bar chart, the color of the candlestick’s real body and the length of the candle lines real body and shadows convey an instant x-ray into whose winning the battle between the bulls and the bears. For instance, when the real body is black, that means the stock closed below its opening price. This gives you an instant picture of a positive or negative close. Those of us who stare at charts for hours at a time find candlesticks are not only easy on the eyes, they convey strong visual signals sometimes missed on bar charts.
For example, we can easily tell that a tall white candle means, that at that session, the bulls are in control. While a long black real body is relaying a weak session. A doji means that the market is in balance between the bulls and bears and as such is often a turning point in the market. Doji represent a market that is in balance between the forces of supply and demand. We will look more at the doji in the next series of blogs.
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Filed Under Candle Charts, Candlestick Chart Patterns, Candlestick Charting, Candlestick Charts, Japanese Candlestick Charting
One aspect of technical analysis that I like to focus on is a stocks trend. So I look to see if a stock is making higher highs or lower lows for uptrends or lower highs and lower lows for downtrends. This is fairly basic but I often see people making their own decisions on whether a stock is bullish or bearish without taking this basic price structure into account. It seems that part of the reason why this happens is that there are multiple time periods within which to evaluate a trend as well as multiple methods to evaluate stock trends.
As for how to determine the trend for multiple time periods one can either use varying moving averages such as a ten, fifty, and two hundred period moving average on a daily chart and if all are pointed up, there is a clear uptrend in place. Another way to accomplish this is to use the same moving average such as a ten period moving average but look at it on varying timeframes such as a weekly, daily, and hourly chart to see which direction each time frame’s moving average is headed.
Another method to evaluate stock trends is to use trendlines. This is what I prefer to use more than moving averages since I feel that often a trendline will be broken earlier than a moving average will be crossed – especially for longer term moving averages. So there are multiple ways to determine using technical analysis of a stock trend is but it’s important to be consistent in what method you use.
One of the things we try to emphasize is incorporating candlesticks usage with a stocks trend to create a more complete technical analysis picture so feel free to check the resources at www.mycandlecharts.com for more on how to integrate candlesticks with Western technical analysis.
Filed Under Technical Analysis of Stock Trends
Getting Started in Candlestick Charting
If you are reading this, you at least have some level of interest in learning what candlesticks can do to benefit your trading. All of our students started out in the very same position..learning and getting started in Candlestick Charting. While one of our most important rules in trading is measuring the risk and reward of every decision, I would encourage you to do the same when deciding if using candles in your trading will benefit you.
Here are just a few of the Rewards of using candles in your trading:
- Candles can be used in any market as long as it has an open, high, low, and close
- Candles can be used in any time frame from one minute charts, 15 minute charts thru daily, weekly, monthly, and even longer
- Candles represent true price action which is a current indicator
- Candles help to identify early reversal signals allowing great entry and exit signals
One of the best analogies we have ever heard about learning candles and why they would benefit the new trader, or even the experienced trader who is new to using candles is that candle charts would make the chart look like it was on one of the new high definition 60 inch tv’s compared to other charts like bar charts that would make it look like it was on one of those old 13 inch black and white tv’s. Meaning, candles make the chart a fantastic visual indicator of what is going on, and who is in control of the market, the bulls or the bears. When a trader can truly understand who is in control of that specific market, the trader will have the advantage in making decisions that will ultimately benefit their trading account!
Candles will enable you to see what the market is trying to tell you. Obtaining the clues from the market is essential in making wise decisions on entries and exits. Here is the construction of a candle to show just how easy it is to understand:
Understanding candles is not difficult, but again as we have already mentioned about measuring risk and reward. There is some time needed to become fluent in understanding all of candles, but the team at Candlecharts.com has created education based on traders feedback for years on how to get there as efficiently as possible. So, now that you have a better idea on how candles can benefit you, take the next step by visiting us at Candlecharts.com.
Filed Under Candlestick Charting, Candlestick Charts
Watch this FX Market Update now to see:
- What to look for in three key FX markets
- Where are price targets and support/resistance levels on these markets
- Which FX market has a rounding top and how to trade it
- How to trade the recent breakout
- Using a rising triangle to get a price target
- How to become a member of the brand new Nison FX University for continuing education
Filed Under Candle Charts, Candlestick Chart Patterns, Candlestick Charting, Candlestick Charts, Price Patterns, Trading