We briefly discovered what candlestick charts are and how they look like. Though we haven’t yet known how they came about and how to use and interpret candlesticks . Let’s calm down. Go step by step so that we don’t miss any bit.
Candlesticks are really important and they play a big role on the forex market charts. To begin with we need to know what really a candlestick is and its origin. Are we ready? Thumb ups !
Origin of Candlesticks?
The Japanese candlestick was an ancient method of analyzing markets which was used by Japanese to trade rice contracts. Candlestick charts were developed by a Japanese legendary rice trader named Honma Munehisa from the town of Sakata who analysed the markets basing on human emotions. It started in the early 1868 from the town of Meiji where Honma made great profits by using candlesticks.
The black and white real bodies of the candles were used to analyse the behavior of supply and demand of rice in the market. This further became familiar and people started developing trading strategies and patterns so market predictions became important.
It was later discovered by Steve Nison from the office of the Japanese trader and he was the first to introduce to the Western region. Nison understood the power of the Japanese candlesticks and not only did he fall in love with it but also took it as his companion of life.
He was so deep in love that he spent almost half of his life trying to study, research and discover the behavior of the great candlesticks. Finally” the cat was let out of the bag” by revealing the great secret that was behind the candlestick charts.
The Japanese candlestick later became popular to most traders due to its level of ease in reading and interpreting charts. Thanks to Nison he was able to transform many lives of people by sharing this great idea to the other side of the world.
Now we know the real origin of candlesticks, Let’s now take a brief look at the true nature of a candlestick
Formation of the Japanese candlestick?
The shape and a body of the Japanese candlestick is not very different from our ordinary candles we use to light especially in our churches. For those who have not seen that in churches at least you have seen one at home. Anyways where you saw it is not important , you can run to next shop and ask for one to take a clear look at it.
You will love it more after this section. Lets look at the illustration below.
A candlestick has a hollow or filled part known as the real body and long thin lines up and down.
The line below and above the body of the candlestick is referred to as the shadow or the wick.
The real body shows the range between the open price and the closing price while the shadows show the highest and lowest price can moved.
If the close is lower than the open of the real body, a black is normally used and if the close is above the open of the real body, a white color is used.The color of the candlesticks represent the market participants. From the above candlesticks, the black color is for sellers/ bears and the white color is for buyers/bulls.
You can choose any colors of your choice to differentiate the candlesticks instead of black and white. In that case here we preferred candlestick in blue and red colors, with blue representing the bulls/buyers and red representing the bears/sellers. These are what you will be seeing mostly through out the next free coaching sessions.
The length of the of real body shows the strength of the bears or bulls in the market.
They can be used in all market time frame; whether for minutes, hours days,weeks or month. This favours both long term investors and the day traders.
A Japanese candlestick is composed of the open, high, low and close in a specified time frame.
The Candlesticks are also good at giving turning points.
How long you should hold an open position, is a personal thing for all traders. The decision is all yours. You know what your goals are as a trader, the kind of strategy you use to trade. All this starts from what you are? and What you want? If I am to answer, this...