May 7, 2021, | AtoZ Markets – Once there was a Western man called Steve Nison. He learned a unique technique called the Japanese candlestick from a fellow broker who is Japanese. Steve became very invested and interested in candlesticks to the point that he even made write-ups about them. In the 90s, people began to recognize and widely use Japanese candlesticks. What once was uncommon became a helpful tool for traders.
What are these Japanese candlesticks?
Traders use Japanese candlesticks when they want to describe a specific price action for a given time. The given time frames can be any. It can be days, weeks, hours, or even minutes! These candlesticks form with the use of the open, close, high, and low for a given time frame.
Here are some essential Japanese candlestick points
Draw a hollow or white candlestick when the close is above the open. On the other hand, draw a black or filled candlestick if the close is below the open. Here the parts of the Japanese candlestick to further understand what we mean:
- The body. The body, also known as the real body, is the candlestick’s hollow or filled section in the middle.
- Shadows. These lines are thin, extending above or below the body. They display the high or low range.
- The high. It is the upper shadow’s top part.
- The low. It is the lower shadow’s bottom.
More on the anatomy of Japanese candlesticks
If a candlestick’s body is long, then this suggests a strong buying or selling. As the body becomes longer, the buying or selling pressure becomes more intense. Furthermore, buyers or sellers took control. If a candlestick’s body is long, then this suggests minimal buying or selling.
If candlesticks are long and white, then it is showing intense buying pressure. The longer the white candlestick, the farther away the close is above the open. It also means that the price had a massive increase from the open to the close as there was an enormous buying activity.
If candlesticks are long and filled, then this suggests intense selling pressure. The longer the filled candlestick, the greater the distance is the close below the open. It also means that the sellers became more aggressive, and there was a massive price decline from the open.
The mysterious shadows
Japanese candlestick lower and upper shadows give traders significant clues about the trade. The upper shadows signal the session high, while lower shadows signal the session low.
Long shadows indicate that the action happened a little far from open and close, while short shadows indicate that the action occurred near the open and close.
Here is more! If a candlestick has a long upper shadow, but the lower shadow is short, buyers bid higher prices; then sellers came to make the prices decline, ending the trade near the open price. If the opposite happened where the lower shadow is long, and the upper shadow is short, sellers forced lower prices, and buyers came to move prices back up, ending the trade back near the open price.