Japanese Candlestick Chart

In the 17th century, Japanese rice merchants invented the candlestick charting.

The guiding principles of the Japanese candlesticks charting are :

  • The price evolution is more important than what can explain it (financial information economic, results, etc).
  • All known information is reflected by the price.
  • Purchasers and salesmen act according to their expectations and their emotions.
  • Markets have fluctuations.
  • Prices should not reflect the underlying value of firms.

The guiding principles of the Japanese candlesticks charting are :

  • The price evolution is more important than what can explain it (financial information economic, results, etc).
  • All known information is reflected by the price.
  • Purchasers and salesmen act according to their expectations and their emotions.
  • Markets have fluctuations.
  • Prices should not reflect the underlying value of firms.

Candlestick Layout

To draw a Japanese candlestick, it is necessary to know the opening price, the closing price, low and highest. If the period is in falling, the candlestick is Red . For a rise, the candlestick is Green. 

Basic Patterns of the Japanese Candlesticks

Green candlestick with small body

Little price movement and represent consolidation.

Red candlestick with small body

Little price movement and represent consolidation.

Green candlestick with long body

Intense buying pressure.

Red candlestick with long body

Intense selling pressure.

Bullish Marubozu

Bullish Marubozu Green candlestick with long body. The opening price is equal to the lowest and the closing price is equal to the highest.

Marked buying pressure. Sellers did not succeed to pushing price under opening price. 

Bearish Marubozu

Red candlestick with long body.

The opening price is equal to the highest and the closing price is equal to the lowest. Marked selling pressure. Buyers did not succeed to pushing price on top of opening price.

Spinning Top

Spinning tops represent indecision. It’s a potential change or interruption in trend.

Hammer (Green) and Hanging Man (Red)

Green candlestick (or Red) with a long lower shadow and a (almost) null upper shadow. It’s potential trend reversal. Hammers can mark bottoms or support levels.

Inverted Hammer (Green) and Shooting Star (Red)

Green candlestick (or Red) with a (almost) null lower shadow and a long upper shadow. It’s potential trend reversal. Inverted Hammers can mark support levels. A Shooting Star can mark a resistance level.

Doji

The doji appears when opening and closing price are (almost) equal.

Neutral pattern, it often precedes an important price movement.

Long-legged Doji

Long-legged doji have long shadows that are (almost) equal in length.

Long-legged doji represent strong indecision.

Doji with a short upper shadow and long lower shadow

Bull signal if it appears in a bear trend.

Doji with a long upper shadow and short lower shadow

Bear signal if it appears in a bull trend.

Dragon fly Doji

Dragon fly Doji is a potential trend reversal. Strong signal if it appears in a bear trend.

Gravestone Doji

Gravestone Doji is a potential trend reversal. Strong signal if it appears in a bull trend.