In this chapter, I will try to re-write the Japanese candlestick.
We first start with a brief review of Japanese candlesticks.
Early history, rice traders in Japan using the candlestick to analyze the price of rice in the market.
Munehisa Homma is a rice businessman who routinely records open, high, low, close prices and then makes them into candlesticks.
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Japanese candlestick history
Initially, rice traders in Japan used candlesticks to analyze and observe rice prices in the market.
This candlestick method was discovered in the 16th century.
In the late 1500s and up to the 1700s.
Japan, which still had as many as 60 provinces, became a very rapid commercial country.
Around the 16th and 17th centuries.
The country of Japan faced a fierce war between the daimyo (feudal lords) by risking territorial power.
At that time there was a rice entrepreneur named Munehisa Homma in the 1700s who was an expert at analyzing and predicting the movement of rice prices at that time.
In 1755 Munehisa Homma wrote a book called San en Kinsen Hiroku, which contained market psychology.
In that book, he stated about the psychological aspects of market conditions.
Which are very important in achieving success in business and the emotions of traders have an influence on the price movement of rice.
The assumption, this can be to determine the position about the state of the market such as bearish and bullish because there is any factor that influences.
He also described Yin (bearish) and Yang (bullish) and mentioned that each type of market could cause movement in other markets.
Homma began to record movements in rice prices on a piece of paper.
He drew price patterns on rice parchment paper.
Noting the opening price (open), the highest price (high), the lowest price (low), and the closing price (close) every day.
Homma began to see patterns and repetitive signals in the price bars of the picture and gave it the name of the candlestick chart pattern.
Steve Nison Japanese candlestick charting techniques
From his expertise in analyzing the price of rice, Honma reportedly has won trading 100 times continuously.
According to the news that the assets he collected were equivalent to the US $ 10 billion.
Honma’s books on the market and her trade laws developed into the candle chart that we know today.
It was Steve Nison who later discovered the chart this candlestick when he met a Japanese broker in 1987.
Then Steve Nison through the book “Japanese Candlestick Charting Techniques” introduced the candlestick to the western world.
Nowadays many traders all over the world use this candlestick chart.
This is because the influence of Steve Nison introduced candlestick charts.
Even his work has been appreciated as a work that revolutionized technical analysis.
If you find lots of websites, real-time trading service systems and technical analysis software packages.
Many of them have included this candlestick chart.
This is proof of the popularity and interest of world traders’ interest to study this chart is very high.
Because this graph has the functions and advantages compared to other charts.
Many traders prefer to use Japanese candlesticks than other charts, such as line charts and bar charts.
What is the reason? Generally, traders use Japanese candlestick charts because looking at this chart will be easier and faster when doing analysis.
Japanese candlestick charts are very easy to understand because traders can use two different colors for bullish and bearish shapes, it will be easier to distinguish what happens to one candlestick.
In addition, Japanese candlestick has other advantages, it is able to display market psychology more easily and clearly than line charts or bar charts.
The image below will describe easiness to reading Japanese candlesticks
You can use this Japanese candlestick chart on all timeframes.
Whether 1 minute, 5 minutes, 15 minutes, 30 minutes, 1 hour, 4 hours, daily, weekly and monthly.
One candlestick bar represents the time span of the timeframe used.
Japanese candlesticks form candlesticks with open, high, low and close prices.
- If the open price is above the close price, it will form a white hollow, meaning this is a bullish candle.
- If the open price is below the close price, it will form a black hollow, meaning this is a bearish candle.
- The hollow candle that is filled with the color of the candlestick is the real body.
- Thin lines above and below the candlestick are shadows.
- The top shadow is high.
- The bottom shadow is low.
Japanese candlestick function
Psychologically, the candlestick can find out the pressure exerted by the buyer or seller.
At the end period of the time the strength of the pressure will be seen in the length of the body and its shadow, for example:
- A long white candlestick (bullish) indicates that from the beginning to the end of the time period the buyer is controlled without significant resistance from the seller.
- Long black candlestick (bearish), showing that from the beginning to the end of the period controlled by the seller without significant resistance from the buyer.
- A long shadow under the body, indicating that at first, the seller dominated but at the end of the time period, the buyer gave a strong resistance so the price reversed direction.
- Long shadows above the body, indicating that initially, buyers dominated but at the end of the time period, sellers exerted strong pressure so prices reversed.
Japanese candlestick formations
Read also Trading psychology importance
In trading practice, you will find a variety of Japanese candlestick formations.
A long body indicates strong buying and selling pressure, meaning that the buyer or seller is dominating the market in one direction.
While the short body is indicating that sellers and buyers do not do much activity, trading volume is only little, so it only forms a short candlestick.
If you see a long Japanese candlestick white color, this indicates strong buyer pressure, the longer the candlestick bar, the open and close prices will have more pips distance.
This shows the increase in buyers aggressively dominating the market, or in other words, the buyer kicked the seller absolutely.
But if you see a long Japanese candlestick black color, this indicates strong seller pressure, the longer the candlestick bar, the open and close prices will have more pips distance.
This shows the increase in sellers aggressively dominating the market, or in other words, the seller kicked the buyers absolutely.
Shadow candles are lines formed at the top and bottom of candlesticks.
According to its position, there are two types of shadows in candlestick anatomy, it’s Upper Shadow and Lower Shadow.
The Upper Shadow tip marks the highest price, while the Lower Shadow tip represents the lowest price in a given period.
If we look at the various candlestick shapes on the chart, it can be seen that the length of the Upper Shadow and Lower Shadow is not always the same.
There are even some candlesticks that have no Upper Shadow, Lower Shadow, or both.
The difference in shadow length is due to the behavior of market participants between buyers and sellers, or in other words demand and supply volume.
Thus understanding the concept of shadows in this Japanese candlestick will provide important information related to market behavior.
If there is a candlestick with a long upper shadow and a shorter lower shadow shorter.
This means that the buyer starts to decrease the volume and the seller starts to fight so the close price near to the open price.
But if there is a candlestick with long lower shadow and short upper shadow.
This means that when the seller starts to reduce his pressure, then the buyer starts to fight with a higher volume, so the close price near to the open price.
Japanese candlesticks have a very old history, starting in the 16th century by rice traders in Japan.
Japanese candlesticks have become increasingly popular since Steve Nison introduced the candlestick pattern to the western world.
Learning the basic forms of candlesticks will provide basic information related to market behavior.
Which reflects the strength of buyers and sellers that occur in a certain time frame.
Japanese candlestick is one of the chapters that has many lessons in various education so that it becomes the basis for technical analysis.