0 Japanese Candlesticks

What is a Japanese Candlestick?
While we briefly covered candlestick charting analysis in the previous lesson, we'll now dig in a little and discuss them more in detail. Let's do a quick review first.

What is Candlestick Trading?
Back in the day when Godzilla was still a cute little lizard, the Japanese created their own old school version of technical analysis to trade rice. That's right, rice.

A westerner by the name of Steve Nison "discovered" this secret technique called "Japanese candlesticks", learning it from a fellow Japanese broker. Steve researched, studied, lived, breathed, ate candlesticks, and began to write about it. Slowly, this secret technique grew in popularity in the 90s. To make a long story short, without Steve Nison, candlestick charts might have remained a buried secret.
Candlesticks can be used for any time frame, whether it be one day, one hour, 30-minutes - whatever you want! Candlesticks are used to describe the price action during the given time frame.

Candlesticks are formed using the open, high, low, and close of the chosen time period.
•    If the close is above the open, then a hollow candlestick (usually displayed as Green) is drawn.
•    If the close is below the open, then a filled candlestick (usually displayed as Red) is drawn.
•    The hollow or filled section of the candlestick is called the "real body" or body.
•    The thin lines poking above and below the body display the high/low range and are called shadows.
•    The top of the upper shadow is the "high".
•    The bottom of the lower shadow is the "low".

0 Candlestick Chart (Briefly Description on Candlestick Chart)

You already learnt what candlestick charts are so now it's time to learn what candles actually are, and how to use candle patterns to your advantage. Reading candlesticks can reveal to you a lot of very useful information, about the market. This information can make you a lot of pips.
First you need to learn how to read the information provided by a candle. So here is a quick glossary:

Bullish Candle - In financial markets, the term bullish refers to any long move. You already learnt that going long or taking a long position means buying, and expecting the rate to go up. A bullish candle is a long candle that forms when the price goes up.

Bearish Candle - In financial markets, the term bearish refers to any short (sell) move. Bearish candles form when the price moves down.

Body - The candle body is the space between the open and the close of the candle. If the body is white it means the candle closed higher than it opened. If it is red it means it closed lower than it opened.

example 1: You're watching a EUR/USD 1hr chart. The price opens at 1.4200 and moves up 100 pips to close at 1.4300 giving you a bullish (white) body.

example 2: You're watching a EUR/USD 1hr chart. The price opens at 1.4200 and moves down 100 pips to close at 1.4100 giving you a bearish (red) body.

The purpose of candlestick charting is strictly to serve as a visual aid, since the exact same information appears on an OHLC bar chart. The advantages of candlestick charting are:

•    Candlesticks are easy to interpret, and are a good place for beginners to start figuring out chart analysis.
•    Candlesticks are easy to use! Your eyes adapt almost immediately to the information in the bar notation. Plus, research shows that visuals help in studying, it might help with trading as well!
•    Candlesticks and candlestick patterns have cool names such as the shooting star, which helps you to remember what the pattern means.
•    Candlesticks are good at identifying marketing turning points - reversals from an uptrend to a downtrend or a downtrend to an uptrend. You will learn more about this later.

What You've Learned About Candle Basics so Far ?
•    Bullish candles form when the rate moves up. If you take a long position you want to see bullish candles.
•    Bearish candles form when the rate moves down. If you take a short position you want to see bearish candles.

0 Types of Charts

Let's take a look at the three most popular types of charts:
1.    Line chart
2.    Bar chart
3.    Candlestick chart
Now, we'll explain each of the charts, and let you know what you should know about each of them.
Line Charts:

A simple line chart draws a line from one closing price to the next closing price. When strung together with a line, we can see the general price movement of a currency pair over a period of time.
Here is an example of a line chart :

Bar Charts :


A bar chart is a little more complex. It shows the opening and closing prices, as well as the highs and lows. The bottom of the vertical bar indicates the lowest traded price for that time period, while the top of the bar indicates the highest price paid.
The vertical bar itself indicates the currency pair's trading range as a whole.
The horizontal hash on the left side of the bar is the opening price, and the right-side horizontal hash is the closing price.
Here is an example of a bar chart:

Take note, throughout our lessons, you will see the word "bar" in reference to a single piece of data on a chart.
A bar is simply one segment of time, whether it is one day, one week, or one hour. When you see the word 'bar' going forward, be sure to understand what time frame it is referencing.
Bar charts are also called "OHLC" charts, because they indicate the Open, the High, the Low, and the Close for that particular currency. Here's an example of a price bar

:

Open: The little horizontal line on the left is the opening price
High: The top of the vertical line defines the highest price of the time period
Low: The bottom of the vertical line defines the lowest price of the time period
Close: The little horizontal line on the right is the closing price









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Candlestick Chart (Briefly Description on Candlestick Chart)