Japanese candlesticks are a very important tool of the Forex technical analysis. Most every trading platform includes the ability for utilizing Japanese candlestick signals and patterns. Japanese candlesticks are a versatile chart combining interval and linear approaches. Such a combination of approaches makes the chart very convenient. Japanese candlestick charts have gained the great popularity with the traders all over the world.
This graphical tool is a versatile tool: it can be used with various instruments of technical analysis. Japanese candlestick signals come much earlier than signals sent by other tools of technical analysis. Moreover, other tools of technical analysis sometimes even cannot detect those signals that are distinguished by the Japanese candlesticks. Due to these and other advantages of the Japanese candlesticks, they are widely used as a main tool of graphical analysis on the financial markets.
Japanese candlesticks show four main price levels called Open, Max, Min, and Close where Open stands for an opening price, Max stands for a maximum price for a given period, Min defines a minimum price for a given period, Close stands for a closing price.
One of the main advantages of the Japanese candlesticks is that they indicate who has the leading positions on the market: bears or bulls. The candlestick with a long white body indicates a bullish trend, while the candlestick with a long black body indicates a bearish trend. If the closing price is higher than the opening price, a long white candlestick is drawn. If the closing price is lower than the opening price then a long black candlestick is drawn. A candlestick called Doji occurs when the closing price equals the opening price. Doji does not give any signals in the sideways trend, but in the uptrend Doji indicates that the trend is about to reverse.
Hammer is a candlestick with a very long lower shadow, with a very little or no upper shadow and a small body. The candlestick body can be of a black or white color. This candlestick indicates the reversal after the up-trend. The importance of signal directly depends on the length of the lower shadow.
Engulfing bullish is one of the reversal patterns. The engulfing bullish occurs in the downtrend when the black body is engulfed by the white body of the previous period. The ideal engulfing bukkish is possible only when there is a clear downtrend on the Forex market. A long body of the second candlestick indicates that bulls are strengthening their positions on the market.
Morning star is a bottom reversal pattern formed by several candlesticks. The first candlestick is a long black body. The second candlestick is a small black or white body. The third one is a white body followed the aforementioned long black body and small black or white body. Morning star indicates that bulls are wining on the market. The importance of signal depends on the degree of the engulfment of the first candlestick by the third one.
Hanging man (Hangman or Inverted Hammer) is a candlestick with a long lower shadow and a small white or black body near the top. Hanging man is a bearish reversal pattern occurring in the uptrend. This candlestick is the opposite of Hammer. The importance of signal depends on the length of the upper shadow.
Shooting Star is a candlestick with a long upper shadow and a small white or black body near the lower end of the trading range. Shooting star occurs in the uptrend, even if the trend is a short-term trend. Ideally, the body of the shooting star should gap away from the body of the previous candlestick. This gap and a relatively small body indicate the possible price reduction and that the bears will gain control over the market.
Engulfing bearish is a reversal candlestick pattern that occurs in the uptrend when the black body engulfs the white body of the candlestick of the previous period. The ideal engulfing bearish is possible only when there is a clear uptrend on the market. This pattern indicates the changes in trend and the price reduction.
Dark Clouds (Dark Cloud Cover) is a pattern combining two candlesticks: white and black. Maximum of the white candlestick should be lower than the opening price of the black candlestick, and the closing price of the black candlestick should be inside the body of the white candlestick. Both white and black candlesticks in this pattern are long without a shadow. Dark Clouds indicate a potential weakness of the uptrend and movement to the downtrend.
Evening star is a top trend reversal pattern. It consists of a long white body, small while or black body, and a long black body. The top star (it can be a Doji star) indicates trend changes in favor of bears, and a long black candlestick, appearing after the gap, holds the reverse. The longer body of the third candlestick is, the smaller body of the first candlestick becomes and the stronger and more important signal is sent.