Intensive reading of Japanese candles - The basics of Japanese candlesticks

A candlestick consists of close - open - highest - lowest prices, combined to show price movement. 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 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 the perspective of line charts and candlestick charts:

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

Reading and seeing the story of the market behind the candlestick bars will help traders get a very clear view, from which to make more accurate trading decisions. That is also the goal of price action Traders - price action traders.

Japanese candles can be divided into 4 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.

Intensive reading of Japanese candles - The power of candlesticks

You imagine the market is like a battle between buyers and sellers. Buyers who expect the price to increase should buy-in. In contrast, sellers expect the price to decrease and 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 reach equilibrium 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 bigger the real body, the higher the strength. When the candle body reaches the minimum level, the opening price is nearly equal 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 because 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.

Reading insight Japanese candles - Candle shadows

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

  • A 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.