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How To Read Japanese Candlestick Charts
Reading Japanese candlesticks chart is a very big part of successful trading. Charts exist to express all the necessary information about the market - both current and past. By knowing how to read candle sticks, traders enter a new level of success, because they can recognize the signs for entry, exits and more. Today we are going to discuss the basics of candlesticks and how to read Japanese candlestick charts.
Reading candle sticks
The very first stage Japanese candle trading is understanding the elements of the chart. Candles, or candlesticks, originated ages ago in Japan, where they were used by rice merchants for accounting purposes. Today this type of expressing price movement is widely used in trading across most markets, but primarily in financial and stock ones.
Every candle is carrying four major pieces of information: what was the price of the asset in the beginning and in the end of the selected time period and what were the highest and lowest points during the same time. The most common look for the candle is a vertical box with vertical line markings at the top and at the bottom.
The box itself is referred to as a body of the candle. Color of the body depends on the type of candle. There are two types: bullish and bearish. Bullish candles appeared when the closing price was higher than the opening one, meaning that the asset rose in value. And the bearish candles form when the value went down and the closing price was lower than the opening one. In the standard setting bullish candles are green or white and bearish are red or black.
The vertical lines at the top and bottom are often called wicks or shadows, and they represent the highest price point and the lowest point respectively. They might be very long or non-existent and play a big role in analyzing the chart.
Candle volume charts
As a build up on top of the usual candlestick chart, there are also candle volume charts. Volume candles are built from the same elements as the regular ones with the addition of volume. Volume measures the amount of attention a certain asset is getting, by calculating how many trades took place during the chosen period and what was the direction of majority.
Candlesticks that express a high amount of volume are appearing much larger than normally. If you are using volume candles you will observe the really big ones appearing in the morning, when the market opens, in the evening, before closure or during the releases of crucial news and updates.
Common advice by professional traders is that you should learn how to read regular candle charts before you start learning how to read trade candles with volume or any other additional indicators. Some expert traders even say that trading on a bare chart is more productive as it does not distract your attention from what is important.
Understanding Japanese red and green candlesticks
After you have a good understanding of the basics and can easily read a single candle it is time to take it one step further. A big part of knowing how to read a Japanese candlestick chart is becoming familiar with the specific look a candle can take and the meaning of certain candle combinations.
Successful Forex traders always base their decision-making process on a specific strategy. Trading strategies help you to stay focused and achieve your goals in the most optimal ways. The big portion of any strategy is locating signals - signs on the chart that it is a good time to open or close a trade. Some signals might also point out to not taking any actions at all, because in some cases stepping back and letting the situation unravel is the smartest thing you can do.
Candlestick formations, also known as patterns, are a great example of signals. In many cases, a pattern can predict the upcoming trend and tell us whether it will be heading up or down. Specific candles, such as the Doji star, can point out to trend reversals and others, like Maruzobu, show us that the trend is going to continue.
You might have noticed that candles and candle patterns have very distinctive names, most of them originating from Japanese language. Those names make it easier to learn and memorize the patterns which later allows to faster spot them on the chart and take appropriate measures.
You can see that knowing how to read a Japanese candlestick chart is a very helpful skill. Understanding how candles come to exist and spotting the right ones at the right moment can give traders a very visible advantage. Take your time and consider practicing reading the charts in demo before you go on to the actual live market.
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