Despite its Japanese origin, the well-known japanese candlesticks chart analysis becomes an essential way to act on the basis of technical analysis. Although it is a method that has become popular only in recent years, Japanese traders have used this technique of chart reading for many years.
Charts with candles display the values of the openness of a candle, the maximum, minimum and the closing value. A candlestick comes in two parts. The rectangular body, which includes the period between the opening and the closing value, constitutes the typical appearance of the japanese candlesticks form. If the opening price is higher than the closing price, the bodies are black or red, if the closing price is lower, they are white or green. The situation, where the opening and the closing price are identical is usually called a doji candle and is represented by a single vertical line is drawn at a certain stage.
The maximum and the minimum are frequently seen as the final level of the market. These changes point to significant price differences. Candles are useful for this purpose. It is similar to low or high values of the Gantt chart to have important maximum or minimum values in japanese candlesticks form. The maximum value of the body represents the starting point of resistance, i.e. the base point to take the next step. This includes the prices that are above the resistance level, may be a new maximum as well as a lower value. According to the development, you can then weight what your next steps on the markets are and how to open positions.
In addition, the value of candles on the market, can also be considered as the level of the “breakout”. The purpose of a height of “Breakout” is important to understand how the markets move.
Forex market: Japanese candlesticks technology
The japanese candlesticks technique can be described as revolutionary invention for Forex trading. This technique originated in Japan in the 18th century and was used by the rice traders. This technique has also an Oriental charm and allows to combine precision and wisdom.
What is the candlestick technique on the Forex market and how can we use it for our trade? This technique is the presentation of information on different tables and in the form of different patterns. Producing a candlestick pattern requires a number of information, contain different values, or the opening and closing price, and the highest and lowest level, which reached within a certain time were.
The candle is made of a body and two extensions of the body in the form of a cross, stretching. The form of presentation of the candlestick form gives information that is somehow similar to those of some other representation of Forex trading. However, there is something else that is connected to this method, or the type on which it is represented, that is very pleasant and helpful when compared to any other graphics.
One of the advantages of this technique is that the candles show an obvious connection between the four most important price points that make a special appearance. Traders are able to detect the development of the price and therefore to decide how they act at best and profitable positions open at a glance.
In addition, the japanese candlestick patters have the security of interpretation of any prize that is fundamental to the prediction of the price.
Disadvantages of the Japanese candlesticks technique
To describe the japanese candlesticks technique we have analyzed how this technique can be useful to us. We now experience what the disadvantages of this method are. The method based on the candles cannot anticipate to volatility of the currency price during the phases of negotiation. Let’s make an example to understand it more clearly.
A green (long) candle means that we are in a bull market trend and the larger the candle is, the greater the participation of dealers.
On the contrary, a very long red candle means a strong bearish trend with strong active participation of the seller.
Among the most interesting candles the doji candles representing a match between the opening and closing prices. Doji candles show a turnaround in progress. These are very clear candles that produce strong signals.
There is a more remarkable candle, where you have a green bar with a very small body, which recorded a slight increase in the closing prices as compared to the opening prices. This points to an approximation of a bearish trend. If it was the contrary i.e. a closing price or slightly lower than the opening price, then we would be facing a trend reversal upwards.
Many traders consider using the japanese candlesticks technique for Forex trading and technical analysis. The japanese candlesticks are more widely trusted than many other strategies of technical analysis with security, but traders should be always careful and not be confined to a single method.