IN-DEPTH READING COMPREHENSION OF JAPANESE CANDLES - THE BASICS OF JAPANESE CANDLESTICKS

A candlestick consists of closing price - opening price - highest price - lowest price, combined to show the movement of the price. Candles with white bodies (or green, or other custom colors) represent bullish price movement; Black (or red) body candlesticks represent bearish movement.


The entire length of the candle represents the price range the market has fluctuated during the candlestick formation. Candle's body is the distance between the opening price and the closing price.

Looking at the picture below, you understand the path of price movement in a candlestick:


Describe the movement of the market from a line chart and candlestick chart perspective:


Obviously, candlestick charts give more information and are therefore often used in technical analysis compared to other types of charts.

Reading and seeing the story of the market behind the candlestick bars will help traders have a very clear view, thereby making more accurate trading decisions. That is also the goal of price action Traders - price action traders.

Japanese candles can be divided into four factors, each of which represents a different view of the current market behavior and the psychology of the people who are participating in the market.

IN-DEPTH READING COMPREHENSION OF JAPANESE CANDLES - THE POWER OF CANDLESTICKS 

People imagine the market as a battle between buyers and sellers. Buyers who expect the price to increase should have action to buy, in contrast, sellers expect prices to fall and act to sell (short). If one of the two sides is stronger (has more incentive to buy/sell than the other, not outnumbered), the market will go up or down until the other side feels the price is high enough / low enough to sell down / buy up, then the market will either equilibrate or reverse.


The table above evaluates the strength of each candle bar, notice that the strength will be determined by the length of the candle body, the larger the body, the higher the strength. When the candle body reaches its minimum level, the opening price is close to the closing price, the market is at a neutral level, that is, it is uncertain to determine the direction.
  • The bullish candles have a long body, which shows that the buying force is getting higher and the bullish action is fast and strong
  • The real body length candle is increasing gradually, the trend is accelerating and will likely continue
  • If the real body length is decreasing, the trend is going to the end as the strength of the two sides starts to be equal
  • The body length is stable, ie the current trend is stable
  • If the market turns from a sudden long bullish candle to a long bearish candle, it shows a sudden change of momentum and an imminent reversal


Left picture: bearish wave includes long bearish candlestick and upside wave includes long bullish candlestick. If the price is sideways, the real body will be smaller and more volatile in size.

Right: upside wave consists of long bullish candlesticks (note that bearish candles in this bullish wave have smaller real bodies). When the price turns sideways, the real body starts to change in size for more variety. Suddenly there were long bearish body candles showing that the sellers were in control.

IN-DEPTH READING COMPREHENSION OF JAPANESE CANDLES -  CANDLES SHADOWS

Candle length is related to creativity, the area of price that the market has passed during the candle formation.


  • Long shadow is a sign of uncertainty because at that time both the buying and selling sides are fighting fiercely, but neither side has won;
  • The lower ball represents the buying force; The upper shadow represents the downward force;
  • Short shadow means stable market, low volatility;
  • Stable trends often have candles with short shadows, because only one side is prevailing.
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