Japanese Candlesticks

Home Page: To those of you who have arrived at this site by surfing the web may I offer you  a very warm welcome and to those who have arrived from Making Bread - welcome back! I hope you find this site on Japanese candlesticks both helpful and informative for your online stock trading, and like all my sites the information is provided free of charge. Japanese candlesticks as a trading tool have been around for only 20 years having originally been introduced to the West by Steve Nison. As you may know I am a full time currency trader, and make my living using technical analysis and charting, and you will find a basic introduction to stock trading online and candlestick charts on the main site. 

The purpose of this site is to introduce you to one or two of the more complex signals which I hope will enhance your understanding of candlesticks and charts, which will help you in your online trading. It is a complex subject and one on which many books have been written, but one thing remains constant and it is this - candlestick analysis is more of an art than a science, and the more your practice the better you will become.  As a technical currency trader I use candlesticks almost exclusively. To me they are essential and without them I would be unable to trade effectively online.

All good brokers and software vendors will provide a candlestick option in their charting package, so having access to the candlesticks is easy. The hard part of course is learning how to interpret the patterns and types of candles that appear in whichever timeframe you happen to be using.  Now I have assumed that you are a technical trader, but if you have yet to decide, please have a look on the making bread site online trading investing  that will help explain the difference between the approaches. Even though I principally use a technical approach, I still use fundamental data to confirm any decision I have made based on the candlestick formations on the chart.

Japanese Candles : Volume

Now, one of the key points that you must appreciate with candlestick charts, is that on their own they are useless. Their secret lies in using the candle formation on the screen in conjunction with other European technical indicators such as volume, support and resistance and simple moving averages. Again, I have covered this aspect in more detail on the making bread site, so please visit.

Volume is the only indicator with which you can forecast future price- use it with your candlestick charts, and suddenly you will be able to forecast future prices simply from your analysis of the candle and the underlying volume. Volume is the powerhouse of the markets. In simple terms if the volume is low, then clearly the professional money is not involved in the move, so clearly they know something you do not!- I would therefore take notice of a large up move with low volume - this is clearly a trap up move by the market makers to trap you into joining in - prices will them be marked down sharply leaving you trapped at a higher price. This happens every day in the markets, and particularly first thin in the morning and last thing at night when trading volumes are thin - trade in these periods at you peril. I am developing a site on Volume Spread Analysis which is s big subject, but you do need to have a good understanding of candlestick charts first in order to be able to interpret the results - trust me it is worth the effort and you will make money, but learn about candles first!

Japanese Candles : Analysis

One another important aspect of interpreting  and analysing candlestick charts, is that one candle on it's own is meaningless. You cannot take this as a trading signal on its own. It is hard, I know, as the immediate response is to rush in and open the trade, but you must wait for a confirmation of the signal. If it appears, then fine, we open the trade, if not, we must sit and wait. The signal may be confirmed a few hours, days or even weeks later ( for longer term traders ) but again it may not, so we have to wait and see. If an upthrust doji candlestick appears after a long rally, and volume is extremely high, then this signals possible weakness in the market, but only possibly. The volume has confirmed the doji candle, but we must wait and see what happens next - it may be that prices start to fall immediately - this confirms weakness, and we may then open a trade at some point thereafter. This depends on the timescale you are trading, and again this aspect of time is covered in more detail on the making bread site. Candles are applicable to all timeframes and to all markets, so in learning to analyse them correctly, you will be able to trade any instrument, in any market in any timescale!! - Japanese candlesticks are a unique trading tool, but they do require effort, patience and practice! Have a look at one of the books I have used in the past - you may find it useful yourself.

Now let's look at some more advanced candlestick two bar patterns.

Japanese candlesticks - next page