Trading Currency Online

Japanese Candlestick Tutorial

 Japanese Candle Sticks speak the sign language of FOREX and understanding terms like morning star candlestick and hanging man candlestick can be an invaluable skill for your trading arsenal.

Whether you trade stocks, heating oil, gold or currency, learning to "listen" and understand what the candles are "saying" will give you a powerful edge in FOREX trading.

Candles tell a story and our Japanese candlestick tutorial will teach you to read what they say.

For in-depth tutorials on this subject this tutorial or this one are recommended.

Candles have been around a long time.

I don't think there is a trading tool with more of a track record except for maybe the concept of supply and demand.

Created by the Japanese sometime during the 1600's, candle sticks where used to analyze the price of rice contracts.

Japanese candle sticks animate what are otherwise technical price records by painting a colorful picture thus creating a visual representation of price history.

Candles record the emotion of the markets.

Simply put, candles are the sign language of the FOREX markets.

They are constantly telling a story and the day you are able to effectively read them is the day your trading will improve dramatically.

Before we get into how to read candles, let's review real quickly the basics.

Japanese Candlestick Tutorial 1

A candle simply records price movement for a unit of time.

If you are looking at a one hour chart then each candle represents the price activity for one hour. If you are looking at a day chart then each candle would represent one day and so on.

Candles are comprised of the BODY and an upper and lower wick.

Not all candles have bodies.

Not all candles have both wicks or sometimes they will have no wick at all.

Japanese Candlestick Tutorial 2

Looking at the picture above we can see that:

  • On the bullish (blue) Candle the opening price is lower that the close. This tells us prices where going UP while that candle was open.

Another way to look at it is that there was more buyers than sellers.

  • The red bearish candle's close is LOWER than the high. This tells us there was more sellers than buyers while this candle was open so the price fell.

The tips of the upper and lower wicks are the extreme highs and lows for that candle.

If the low is also the close, there will be no lower wick.

If the high is also the close, there will be no upper wick as is the case with the blue bullish candle above.

Bullish and Bearish Candlles

Japanese Candlestick Tutorial 3

The close on a bullish candle is always higher than the open.

The close on a bearish candle is always lower than the open.

Decision and Indecision Candles

Japanese Candlestick Tutorial 4

Full bodied candles are considered "decision" candles, a decision candle tells us the market has made a decision to go in a particular direction.

Indecision candles are candles with little or no body at all. These candles tell us the market cannot make up its mind which direction it wants to go.

Look at the picture above. Note the left hand red bearish candle opened and while the candle was open, prices continued to fall producing a long red body. This is a decision candle. The market knew where it was going and that direction was down.

 During the life of the next candle the direction was not a sure. Notice the smaller body and the small upper wick.

This candle tells us that although the price continued to fall, it may be slowing down.

The next candle often referred to as a "Doji," is the grand daddy of indecisive candles.

Notice how price climbed up and fell way down before closing just about the same place it opened? Dojis usually have long wicks on both sides and a very little or no body at all.

 This Doji candle is giving us a clue...

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