Japanese Candlesticks


Japanese candlesticks is a must know thing for all Forex traders. If you don't know this, you have to depend on the other traders for Forex signals. So learn to read Japanese candlesticks effectively.

Since you have read my all previous posts so far I think you are familiar with the Forex jargon. So it'll be easy to go bit deep in to Forex technical analysis. If you not went through my previous lessons first read those to have basics of Forex trading.

Let's see what is a Forex chart and then we will move in to Japanese candlesticks. 


What is a forex chart and why do we use it

Forex chart is a simple graph with two axes which illustrates the changing of the value of a given currency pair over the time. So it looks like this.
Why do we use charts in forex. There are various reasons.

      1. They provide a good visual image of price movement of a currency pair.
      2. They allow us to use number of indicators which are used to analyse charts.
      3. It provide valuble information about "trend"
      4. It allow us to predict future price movement

Here a line has used to draw the chart. But there are different types of chart drawing methods in forex trading. Those are,

Candlestick charts :

These charts are drawn using "candlesticks" instead of a line. This is the most important type of forex charts. Because they can provide us a lot of information about price movement and it is the type that we have to learn in detail. A candlestick chart looks like this.
              
You can see many candlesticks in two colors in above chart. A candlestick shows us the price variation in a fraction of time. This time fraction can be 1 minute, 2 minutes, 5 minutes, 10 minutes, hours, or even days or weeks. You can select the time fraction which should be represented by candlesticks in the chart you view. Therefore if you select the chart to show candlesticks which show 10 minutes by each, the duration of 6 candlesticks will be one hour. So these 6 candlesticks show the price variation in one hour. I think you got the point...!

Then we'll learn about morphology (the parts) of a candlestick and what information does it gives us.
                      
Candlesticks have a body, high, low, upper shadow and a lower shadow (See above picture). 

Body : is the area between starting (opening) price and the ending (closing) price of the currency pair. That is, if you have selected to show candlesticks in 10 minute durations, the starting price is the price at the beginning of 10 minutes and closing price is the ending price at the end of the 10 minutes. If the closing price is higher than opening price, we call it a "Bullish" candlestick. If it's in opposite way, we call it a "Bearish" candlestick. In charts, usually bullish candlesticks are colored in green, whereas bearish ones are colored in red.

High and low : High is the highest value recorded for the currency pair in the time period selected for candlestick, and Low is the lowest value during the candlestick's time period.

Upper and Lower shadows : These are the parts of the candlestick above and below it's body

Other chart types

There are few other types of forex charts as well. But I recommend you to get use to candlestick charts as a beginner. Because candlestick charts are more informative, if you get used to any other less informative type it'll be difficult for you to get adapt to candlestick charts later when you need them. Other chart types are,
  1. Line charts
  2. OHLC bar charts
  3. HLC bar charts
  4. Bar charts
  5. Area charts
  6. Heiken - Ashi 
I don't discuss about these types as it will complicate the lesson unnecessarily. I will discuss patterns of Japanese candlesticks in my future posts. Until then keep in touch with us. 



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