Forex Analysis Using Japanese Candlesticks

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Technical analysis with Japanese candlestick patterns is an ancient trading strategy originating from the Japanese rice trade during the middle ages. Using candlestick patterns is becoming increasingly popular due to the ability of the Japanese candlesticks to successfully determine trend shifts and changes. A candlestick chart contains an incredible amount of price information within a single chart.

Prior to investigating trend patterns, the first step in Japanese candlestick technical analysis is understanding the information contained in a candle. The candle is comprised of bodies and wicks. The candlestick body captures the open and close for the period representing the candle. Typically, if the period closes at a higher price, the body of the candle is filled in green, and red if the price closes lower than the opening price. Protruding above and below the body are the candlestick wicks. The wicks denote the high and low for the described period. Long wicks mean a considerable retreat from the high or low, short wicks show stronger price momentum.

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Using Japanese Candlesticks allows analysts to view more information than a typical line chart, which would just show either open or close price. The shading makes it very easy to determine the trend direction, and the length of bodies and wicks show the power of the price action. Long bodies and wicks denote price moving aggressively, and short bodies and wicks are usually consolidation periods. Candles with no bodies, the open and close being at or near the same point, called doji candles, show indecision in the marketplace.

To best utilize Japanese Candlestick technical analysis, certain patterns are often used to denote changes in trend, or continuations in trend. Some candle patters comprise a single candlestick, such as a hammer pattern or a shooting star. Other patterns utilize multiple candlesticks to denote a shift in the trend. Common multiple bar patterns are the morning star pattern, engulfing pattern, and piercing patterns.

When using Japanese candlesticks, utilize support and resistance indicators to improve the quality of the signal. A hammer candle at a strong resistance point is a very strong reversal signal, much stronger than either signal on their own. By combining candlesticks with other strategies and indicators, an experienced candlestick trader can recognize opportunities with laser-like accuracy.

Learning and mastering Japanese candlesticks and their patterns is an incredible tool in a Forex trading arsenal. Using candlesticks, investors can learn to time trend changes and shifts with amazing accuracy.

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