How To Study Japanese Candles for Technical Analysis
This is the 2nd video of Technical Analysis for Cryptocurrencies. In this video you will learn Japanese candles and how they work.
Japanese candlesticks are an analytic tool and a type of financial chart that are used to explain the changes in the daily prices of currencies and securities.
Why called Japanese candlesticks?
Munehisa Homma was a Japanese rice trader that first introduced the concept of candlestick charting because he noticed that the fluctuating rates in a rice market were not under the influence of the market’s demand and supply but were considerably affected by the sentiments of the traders. This observation led him to the invention of a candlestick-shaped graphing technique to explain the daily price movements including the opening and closing rates, he also used different color schemes to describe the differences in price movements. This method was greatly welcomed in the rice market and they adopted it eventually, progressively this technique became popular among the local traders also and hence they started using it in their trading process. Years later, Steve Nison introduced this concept, in his book, to the Western world. But as it was originally the brainchild of a Japanese trader hence the tool was named Japanese candlesticks.
Analyzing Japanese candlesticks
The Japanese candlestick pattern explains the four daily prices of the market i.e. opening, high, low, and closing rates. Japanese candlestick presents a concise price pattern made up of two parts a body and a wick or shadow. The body shows opening and closing market rates and the wick explains the highest and lowest trading prices. The body of candlesticks can be of either black and white or red and green colors. The green/white body indicates that the closing price is higher than the previous candle’s closing price, whereas, a red/black candlestick body indicates that the closing price is lower than the previous candle’s closing price.
Japanese candlesticks are very different from the bar charts and present a more detailed and clear explanation of the price patterns and movements. Along with differences in price movements they provide the demand and supply demonstration also.
Candlesticks are better than the bar charts, although both show almost similar information, but candlesticks are more visually attractive due to the different colors coding and also spotlight the difference between opening and closing rates in a better way.
The lengths of both body and shadow/wick of the candle are considered to be an important criterion for demonstrating the price movements. Some candlesticks may not have either body or wick. They can also show the current price rates that are being formed explaining the increase and decrease in the price range over a certain time. The different types of candlestick patterns are used by traders to understand and analyze the price movements. Traders can predict the future changes in the prices by actually analyzing the relationship between different candlestick patterns. Some of the most notable Japanese candlestick patterns are doji, hammer, and marubozu patterns.
Uses of Japanese candlesticks
As Japanese candlesticks are eye-catching, easy-to-read, and concise so they are used more to explain the price difference in the trading. Foreign exchanges, stock markets, commodity trading, and options trading are some of the other areas in which they are being used. One can easily understand and read the price changes, the highs and lows, and the opening and closing of the rates just by having a look at the candlesticks. They are of great help in financial and technical analysis.
Japanese candlesticks technique is although a very ancient one but it is beneficial for the traders and they can understand the fluctuating trends in the prices very easily through these candlesticks. It not only saves their time but also simplifies the complex graphing techniques that take a lot of time to be understood and are also difficult to understand.