Japanese candlestick is the ABC of trading. It is the first chapter for any trader who wants to understand the concept of trading. The Japanese candlestick was first developed by Munehisa Homma in 1800 and later was introduced by Steve Nison to the west in 1989. Japanese candlestick is a very vast topic. however, In this article, I will try to introduce you to the most important points which will help you understand the basics and make you a pro trader.
What is a Japanese candlestick?
Japanese candlestick is a type of price chart that displays the opening, closing, high and low price points of the security price. understanding the concept of candlestick is not a tough job. you need to familiarise yourself with the three elements of each candle i.e colour, body, and wick.
The colour of the candle represents the domination of either bull or bear or they sometime show the intense fight between the two.
Talking about the body, the length of the body represents the strength of the domination. If the length of the body is big it represents more domination and vice versa a small body represents less domination.
Just like the body, the wick helps to analyse the strength of the trend lower the size of the wick higher the domination and vice versa higher the size of the wick represents less domination.
Japanese candlestick patterns
Before, I share with you the Japanese candlestick patterns you need to first remember the basic rule of the candlestick.
The basic rule of the candlestick says
=>When the opening price of the security is greater than the closing price then a red or seller candle is formed.
=>Similarly, when the closing price of the security is greater than the opening price then a green candle or buyer candle is formed.
Marubozu candlestick pattern represents the complete domination of either sellers or buyers. Marubozu is a Japanese term which means no shadow.
There are basically two types of Marubozu:
Green Marubozu: this pattern is made from a green long body which has no wick. talking about the interpretation it represents complete bullish domination.
Red Marubozu: it is just the opposite of green Marubozu this pattern is made from red long body which has no wick. talking about the interpretation it represents complete bearish domination.
Doji is the opposite of Marubozu which represents zero domination. this pattern displays the indecision in the marketer and the intense fight between the buyers and the sellers. the colour of Doji does not really matters it signals an upcoming reversal.
Hammer and Inverse Hammer
The hammer candlestick pattern is a short body pattern with a long lower wick. this pattern signals an upcoming bullish trend reversal and is usually found at the bottom of the downtrend.
Traders usually place buy trade with the help of this pattern.
Vice versa, the Inverse hammer is just the opposite of the hammer candlestick pattern and is usually found at the top of the bullish trend.
The spinning top is the trend reversal pattern that has a long wick with very little body this pattern represents the confusion are indecisive behaviour of the buyers and the sellers.
Last but not least, The Piercing line is it two candle stick pattern made up of big red candles following the green candles. the green candle usually opens at the mid-body of the red candle. this pattern indicates the upcoming bullish trend.