The investors who are better prepared will be the ones who obtain the greatest benefits in their operations. For this reason, it is worth knowing different methods that help you analyze market trends, such as japanese candlestick chartswhich emerged in Japan during the rice sales boom and became popular in the West in the 1990s.
What are Japanese candles
Japanese candles (平均足 – Heikin-Ashi candlesticks) are a technique for graphing the trends of stocks or products in the stock market. Let’s say it’s the eastern version of the bar or line chart.
They are called “candlesticks or candles” because the price/time segments have that shape.
Japanese candles analyze the 4 most important price factors and place them in blocks of pre-established times. In this way, patterns can be analyzed in the short, medium and long term.
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Structure of Japanese candlesticks and their meaning
In a Japanese candlestick chart we find a time line divided into blocks, which would be the «X» axis, and a line that marks the prices on the «Y» axis.
Within the chart we observe the candles either color green (white or blue) and red (black).
The body of the candle and the ends or shadows mark 4 different prices:
- Starting price (Part lower either higher of the candle body)
- Max Price (Upper Shadow)
- Minimum price (bottom hat)
- Closing price (Part lower either higher of the candle body)
The green ones indicate an upward trend in prices, and the red ones a downward trend. doHow to know?
- uptrend: The closing price is higher than the opening price.
- downtrend: The closing price is lower than the opening price.
- Doji or no body: It opened and closed that period with the same price.
Types of Japanese candles and their meaning
According to the price quotes in a block of time, each of the candles can take different forms that start marking stock market behavior patterns.
Knowing the basic candlestick types will make it easier for you to interpret candlesticks in the future.
1 Elongated body:
Here it is clearly seen that the opening and closing price are quite far apart. It is usually due to a one-way movement in price, making a marked upward or downward trend.
2 Short Body:
Indicates a stable fluctuation or little movement in the market. The opening and closing price is quite close.
3 Candles without body or shadow:
It reflects that the price remained without any fluctuation during that period of time. It can also indicate stagnation.
4 Candles without body and with shadows:
It warns of uncertainty on the part of investors, it means that despite having opened and closed at the same price, there were quite a few buying and selling movements that moved away from the opening and closing prices. Usually this indicates a change in trend.
5 No body and no lower shadow:
It occurs when a maximum price fluctuation has been generated even though the opening and closing prices are the same.
6 Bodyless And No Upper Shadow:
Contrary to the above, minimum price quotes have been obtained, despite closing and opening at the same price.
Japanese candlestick patterns
Japanese candlestick patterns are those combinations of certain types of candles They almost always behave the same regardless of the product or the company’s actions.
To make an interpretation of Japanese candlesticks you need experience or at least a basic guide to help you better see the movements of the market, so that you can anticipate trends.
Many experts have dedicated themselves to reading Japanese candlesticks and studying their patterns, since they generate more success in your investments.
The patterns of the market are so varied that we could fill a book, although there are 3 basic patterns:
1 bearish engulfing candlesticks
They appear right at the end of an uptrend. It should be noted that in the last candle, the lowest point is usually a support zone.
2 Bullish Engulfing Japanese Candles
Unlike the previous one, they appear after a downward trend, and the highest point of the candlestick is taken into account as a resistance zone.
3 Piercing Japanese Candlesticks
They also usually appear after a downward trend, this means that there is probably a change in trend. The set is formed by a long red candle, followed by a long green one but whose prices do not exceed the highest of the previous candle.
To end the post, we leave you with this post from a stock market expert to teach you the secrets of Japanese candlesticks, how to interpret them and how to use them to earn a living in this stock market world.
More Types of CANDLES that may interest you: