Japanese Candlestick Chart

candlestick hommaIn an effort to comprehend the term “Japanese candlestick”, we need to go back to the 17th century when the Japanese were using technical analysis to trade rice. Yes, technical analysis is that old! The history of the Japanese candlestick is a little a mystery and is mostly left to tales, but we do are aware that much of the credit belongs to a legendary rice trader by the name of Homma from the town of Sakata. His unique ideas and concepts probably have been altered since then, but his early development of the candlestick pattern put the way for more refinement.

 
The Japanese candlestick techniques popularized by Homma later built their way to the united states around 1850, where technical analysis and price action were further developed by Charles Dow. You might recognize the name. Charles Henry Dow founded the Wall Street Journal and later on invented the Dow Jones Industrial Average as part of his ongoing market research as it pertains to price action. You read that correctly, the founding father of both Wall Street Journal and the Dow Jones Industrial Average was adamant about Japanese candlesticks and price action. A great deal for price action being some form of “hocus pocus” as some fundamental traders have advertised.

 

The Japanese Candlestick Anatomy

The Japanese candlestick essentially is just a visible enhancement of the bar chart. Japanese candlesticks supply the same data but in a considerably visually pleasant, interpretable way. Like the bar chart, each single bar gives us a high, low, open and close price. Each candle on a candlestick chart would show exactly the same information, just better.
Observe that the only real difference between both is that the open and close are opposite. It is because the one on the left with the hollow body is considered a bullish Japanese candlestick, exactly where it closed higher than it opened. Whereas the one on the right is considered a bearish Japanese candlestick, that it closed less than it opened. The shadow can also be also known as a “wick”.

candlestick chart
High Price – The top of the candle will be the maximum price the candle hit during its open time.

Low Price – The bottom of the candle is the lowest price the candle reached in the period it had been open.

Open Price – The price the candle opened at. For a bullish candle this can be the bottom of the candle body, for a bearish candle the open price would be the top of the body.

Close Price – The closing price of the candle. A bearish candle’s close will be the bottom of the body and bullish candle’s price will the top of the candle body.

Candle Body – The candle body is the thick part of the candlestick that represents the space between open and close price. If the close is higher than the open then the candle closed bullish and will show a bullish candle body. In case the candle closed lower than its open it’s a bearish candle and will show a bearish body.

The thicker the body the more buying or selling pressure there is in that candle’s open period.

Candle Range – The candle range may be the distance involving the candle high and the candle low. Large candle ranges show high volatility. Usually candles with big ranges are produced by large news, or economic events.

Upper candle wick – The upper candle wick may be the line that produces in the top of the candle body and represents the space between the candle high and body top.

Lower candle wick – The lower candle wick creates from the lower end of the body and represents the space between the low price and the candle body bottom.

Japanese candlesticks can be used for any time frame. The chart above is the daily time frame, however the anatomy of the candlestick doesn’t change whether it be a daily chart, four hour, one hour, you name it.

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