Bodies Wicks and Shadows
By: PipsAngels
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How To Read A Japanese Candlestick
I'm going to explain how to read a Japanese Candlestick.
While barcharts are useful, Candlestick charts are much more visual and therefore it is easier to spot patterns within the charts. Both types of charts provide the same information; open, close, high and low prices. But the Candlestick chart creates a box between the open and close values, visually reducing possible rare extremes to the prices.
Japanese Candlesticks visually provide a clear and easy to identify set of patterns that are highly accurate in predicting market trends. The average investor doesn’t need to rely on a professional broker for advice. Since the broker makes money whether you do or not, a broker doesn’t always have your best interests at heart.
As I just mentioned, Candlestick charts display the high, low, open, and close for a given security or market. In our case, a Forex currency pair. It is different from a bar chart in that a narrow line - called the shadow or wick - shows the day's price range. In other words, the high and the low. And there is a body, which is called the "Real Body", that shows the range of pricing from the open to close prices.
The best way to explain is by using a picture:
Candlesticks are formed using the open, high, low and close prices of the time period:
- A market price closing higher than where it opened will produce a hollow - or white - candle.
- A market price closing lower than where it opened creates a solid - or black - candle.
- A wide body - or box - marks the area between the open and the close, referred to as the Real Body or body.
- The thin lines poking above and below the body display the high or low range and are called wicks or shadows.
- The top of the upper wick/shadow is the “high”.
- The bottom of the lower wick/shadow is the “low”.
In reality, it doesn’t matter what colors you choose for your charts. You could use the color red for the Bear candle - meaning price went down - and green for the Bull candle - meaning price went up. Whatever you choose to use, it gives a dramatic visual indication of the day's market price movement.
Candlestick trend analysis is easy to use, thus great for beginners, but extremely powerful and accurate; therefore even the professionals use them often.
The signals and patterns are easy to see. Memorizing the Japanese Candlesticks names and descriptions of the candlestick trading formations is not necessary for successful trading. The patterns are what's important.
Fortunately, out of the many, many patterns available, there are only about a dozen major patterns that you need to know...
Well, that is how you read a Japanese Candlestick! Next time, we will show you various Japanese Candlestick patterns and how to read them. Keep learning and mastering Forex right here at PipsAngels.com.
