Japanese Candlestick Charts – The Basics
Japanese Candlestick Charts – The Basics
Japanese candlestick charts are a visual way to track the price movement of a security over time. Candlesticks are composed of a “real body” (the difference between the openiing and closing prices) and “shadows” (the wicks that extend from the real body to the high and low prices). Each candlestick conveys important information about the price action for the period it represents, which makes them an invaluable tool for day traders. In this blog post, we’ll cover the basics of Japanese candlestick charting so that you can start using them in your own trading.
What Do Candlesticks Tell Us?
As we mentioned, each candlestick conveys important information about the price action for the period it represents.
The real body itself can be either bullish or bearish, depending on whether the close price is higher or lower than the open price. If the candlestick is bullish, then the open price is represented by the bottom of the real body and the close price is represented by the top of the real body. If the candlestick is bearish, then it’s just the reverse.
The shadows (or wicks) tell us how high or low the prices went during the period represented by the candlestick, even if they didn’t close at that level. For example, if there is a long upper shadow on a candlestick, it means that prices rose during that period but then fell back down before closing. This shows us that there was selling pressure at higher prices.
Candlesticks can also be classified according to their length. A long candlestick has a real body that is much longer than average, while a short candlestick has a real body that is much shorter than average. Longer candlesticks indicate more buying or selling pressure than shorter candlesticks.
Finally, candlesticks can be categorized as either Dojis or Marubozus. Doji candles have small real bodies with long upper and lower shadows, which indicates that there was little price movement during the period and that prices reached both high and low levels before ultimately closing near where they opened. Marubozu candles have very small or no upper and lower shadows, which indicates that prices moved steadily in one direction throughout the entire period without any major reversals.
How to Use Candlesticks in Trading
Now that we’ve covered some of the basics of candlestick charting, let’s take a look at how this information can be used in trading. First and foremost, candlesticks can be used to identify potential reversals in trend direction. For example, if prices have been trending downward for an extended period of time and then form a long white (or green) candle followed by another long white (or green) candle, this could be an indication that prices are about to start moving up again (assuming other technical indicators confirm this).
Candlesticks can also be used to trade breakouts from support and resistance levels. For example, if prices are consolidating near a resistance level and then form a long white candle (or green) with little or no upper shadow, this could be an indication that prices are about to break out above resistance and continue moving higher. Conversely, if prices form a long black (or red) candle with little or no lower shadow after consolidating near support, this could be an indication of an impending breakdown below support.
Candle patterns can also be used to trade reversals from trendlines. For instance, if prices have been trending upward and then form a bearish engulfing pattern at resistance (i.e., a black (or red) candle with a long real body engulfs a previous white (or green) candle), this could be an indication that prices are about to start falling again.
These are just a few examples of how Japanese candlesticks can be used in trading; there are many other ways as well. So experiment with different techniques and see what works best for you. Just remember to always use other technical indicators in conjunction with candlesticks to confirm potential trade signals.
Conclusion:
Japanese candlesticks are a valuable tool for daytraders because of their ability to communicate the price action of a security over time visually with just one glance. In this short blog post, we’ve only begun to touch on the subject but you should now have a strong foundation to build upon if you wish to learn more about using candlesticks in trading by yourself. Just remember to use other technical indicators in conjunction with candlesticks to confirm potential trade signals. Happy trading!
Anyone who wants to learn how to day trade S&P emini futures needs to have as much information as possible in order to help determine where to place a trade. Trading is not easy to do because it is impossible to know the future with any degree of certainty. But the market does give off signals and a wise trader needs to know how to interpret the signals. Market prices seem to move erratically, but with enough information, trading S&P emini futures can be done with a greater assurance of success. An S&P emini futures trader who has Information about market signals and knows how to use them makes knowledgeable traders much more successful than others who use “seat of the pants” method.
Some of the information that S&P emini futures traders should have are:
- The Trend
- The Intraday and / or Low
- The Calculated Trading Zone via Taylor’s Book Method
- The daily calculated range
- Support and resistance levels
- Stochastics
- Candlestick patterns
These are some of the bits and pieces of information every trader needs to have in order to assess a trade. Of course, that is not to say that even with all this information a trade will work out, but having this knowledge puts the odds of success more on the trader’s side.
Having as much information as possible gives S&P emini day traders a big advantage over “seat of the pants” traders. It cannot be stressed enough that without learning as much as possible about the market, it is highly unlikely that a trader will succeed at making money by day trading S&P emini futures, much less in a trading career.
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