Forex Trading Using Japanese Candlesticks

The use of Japanese candlestick charts, as a means of technical analysis has become increasingly popular in the forex trading community. Japanese Candlesticks are a well known charting and technical analysis methodology based on a set of patterns. Japanese Candlesticks are true Zero-Lag indicators which can help you to be more profitable in your trading systems. Japanese candlesticks are bar charts with lines above and or below the body of the bar, that look just like candles with a wick. Candlesticks are more user friendly to the novice trader and in most cases are preferred by the experts as well. Japanese Candlesticks are a very powerful method of studying the stock market.

Properly applying Japanese candlesticks and candlestick patterns to a few key price and market indicators, provides an excellent means of timing profitable entries into the forex trading market. Since candlesticks use the exact open, high, low and close as bar charts they can be applied in any market and in any time frame ranging from intraday to weekly charts. When trading hourly charts, for example, each candlestick will represent 1 hour, which means it will be formed based on data collected during one hour period.

Compared to traditional bar charts, many traders consider candlestick charts more visually appealing and easier to interpret. Each candlestick provides an easy-to-decipher picture of price action. Immediately a trader can see compare the relationship between the open and close as well as the high and low. The relationship between the open and close is considered vital information and forms the essence of candlesticks. Hollow candlesticks, where the close is greater than the open, indicate buying pressure. Filled candlesticks, where the close is less than the open, indicate selling pressure.

Long white candlesticks show strong buying pressure. The longer the white candlestick is, the further the close is above the open. This indicates that prices advanced significantly from open to close and buyers were aggressive. While long white candlesticks are generally bullish, much depends on their position within the broader technical picture. After extended declines, long white candlesticks can mark a potential turning point or support level. If buying gets too aggressive after a long advance, it can lead to excessive bullishness.

Long black candlesticks show strong selling pressure. The longer the black candlestick is, the further the close is below the open. This indicates that prices declined significantly from the open and sellers were aggressive. After a long advance, a long black candlestick can foreshadow a turning point or mark a future resistance level. After a long decline a long black candlestick can indicate panic or capitulation.

Most online brokers I've seen use the blue/red color scheme rather than the more traditional white/black. Trends are easily spotted even by newcomers as blue candles signify price increases while red indicates price decreases. As soon as a candlesticks current price exceeds the previous candlesticks close it turns blue. Likewise as soon as a candlesticks current price falls below the previous candlesticks close it turns red. Just remember a candlestick is blue or red based on the current candlesticks close.

Typically, the longer the body is, the more intense the buying or selling pressure. Conversely, short candlesticks indicate little price movement and represent consolidation.

Keep in mind that candlesticks do not reflect the sequence of events between the open and close, only the relationship between the open and the close. The high and the low are obvious and indisputable, but candlesticks (and bar charts) cannot tell us which came first.

Finally, Japanese candlesticks are the most widely known and used special-purpose box charts employed in technical analysis of the currency trading market. Japanese candlesticks are the absolute best means of observing and acting upon price action set-ups. Candlestick charts give you a better graphical look at what is going on in the market.