What are Japanese Candlesticks?

Japanese Candlesticks. Don’t worry if the name sounds more like a Yakuza initiation rite than anything involving the stock market; it’s simply a term to describe a form of technical chart analysis. Every field has its own jargon and trading is no different. As you delve in you’ll find delightfully exotic names such as:

  • The Doji
  • The Bearish Engulfing Pattern
  • The Shooting Star
  • The Dark Cloud Cover
  • The Piercing Line
  • The Bullish Harami
  • Enter the Dragon

And many more. The names might be intimidating but the subject matter itself is not and it’s well worth it to make the effort to understand.

Four centuries ago rice was the currency of the day in Japan. The rice markets were dominated by a man called Munehisa Homma, who also developed the basics of candlestick analysis that was carried over when the Japanese stock market began in 1870. Steve Nison, known as the father of candlestick charted, was responsible for introducing the Western world to candlesticks in his classic book “Japanese Candlestick Charting Techniques” in 1991.

So, is it worth it to learn Japanese Candlesticks? While candlesticks are by no means an infallible chart reading tool, they are widely regarded as being accurate in combination with western technical analysis. While candlesticks reveal the same information as our western bar (open-high-low-close), they offer a visual representation of price action that many find to be superior.

After four hundred years of refinements to the art, candlesticks now offer high probability signals. The candle can be represented in:

  • Single session candles
  • Two session candles
  • Three session candles
  • And more

Candles can be used in time frame, from 5-minute charts to monthly charts, thus the reference to sessions instead of days. The most effective use of candles is in calling pivot points in the markets. Candles can become extremely accurate when combined with trendlines, overbought/overbought oscillators, moving averages and chart patterns.

Japanese candlesticks can seem daunting to novice traders at first as there are hundreds of candlestick patterns to be learned. The good news is that in our experience, 95% of what you need to know to be consistently successful can be achieved by properly learning and applying less than 20 candlestick patterns.Japanese candlesticks can be viewed as an x-ray look into the markets. With a trained eye, even market manipulation will not escape undetected. If you can learn and truly understand the following list of major signals, you will be at a distinct advantage over your fellow traders:

  • Rising Window
  • Falling Window
  • Bearish Harami
  • Bullish Harami
  • Morning Star
  • Evening Star
  • Bearish Counter Attack
  • Bullish Counter Attack
  • Piercing Line
  • Dark Cloud Cover
  • Inverted Hammer
  • Shooting Star
  • Hanging Man
  • Bearish Engulfing Patter
  • Bullish Engulfing Pattern
  • Doji (note: there are several variations of the Doji pattern and it is important to learn all of them)

The use of Japanese Candlesticks will give traders the ability to instantaneously assess whether a stock is about to reverse direction, languish or continue the trend. Don’t let the exotic sounding names keep you from diving in and mastering the rich and fruitful world of technical analysis. Your efforts will be well rewarded, not only financially but with an increased intellectual vigor.

If you want to follow a seasoned candlestick trader visit us at www.MarketTamer.com. We have On Demand and Live Classes that show you how to profit from candlestick patterns. To join a dedicated and winning team, visit is at MarketTamer.com

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