An Introduction to Japanese Candlestick Charting Techniques

History of Japanese candlestick charting can be traced back to the eighteenth century. A Japanese trader of a speculative market known by the name Munehisa Homma first propounded it. He made many successful winning trades with the help of his new candlestick analysis. Candlestick charts usually shows the open, close, high or low for a security each day of a particular period. In format, it has similarity with that of a bar chart. However, its specialty is that it extenuates the relation between opening and closing prices.

A shadow or a wick indicates the price range of the day. When the opening price is below the closing price and the body is usually white or green. However, in the opposite case, the body is filled with black or red color. Japanese candlestick chart is a useful commodity price chart that is very easy to learn. Candlestick charts bring a different perspective on the table. They are usually more visually attractive and the information relating to prices are much easier to grasp.

Visual attractiveness is one of the major advantages of candlestick charts. A candlestick chart shows the open, low, high, and the closing prices within a particular period like a standard two-dimensional bar chart.

For the proper analysis of candlestick charts, it is important that you know about the components that make it. In a candlestick chart, the body is usually referred to as the real body and it signifies open and closing price ranges. A narrow vertical line that lies below and above the real body indicates the extreme low or high prices. To a Japanese candlestick chart-analyst, the open and closing prices are of utmost significance and therefore special attention is given to them. Whether the closing price is higher or lower than the opening price is easily distinguished by simply glancing at a candlestick chart.

No introduction to Japanese candlestick chart is complete without a mention of different terminologies involved in this method. When the opening price is above the closing price the candlestick chart is usually referred to as the black candlestick while on the other hand when the opening price is lower than the closing price it is called white candlestick. A candlestick chart that is devoid of any upper shadow, it is called the shaven head candlestick. Similarly, the candlestick chart with no lower shadow is called the shaven bottom.

Candlestick charts can be used by the traders to show double tops and bottoms, heads and shoulders etc. However, while viewing candlestick reversal patterns the background of its past activity must be kept in mind. Candlesticks apparently alike might be quite different in meaning due to differences in the background of their previous trends and formations.

For being a successful trader of the speculative market, the traders require assistance of some trading tools and a clear knowledge of the candlesticks if effectively applied goes a long way to help the trader to make profitable speculations and thus excel in his trade.

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