Japanese candle technical analysis and candle types chart
Trading with financial instruments on the Forex, a trader will always use various types charts. The simplest price chart is a line graph. It shows rates along the single line. But there are other kinds of charts that are more informative, for example, a Japanese candlesticks chart. Japanese candle technical analysis is widely applied in Forex.
It is not difficult to guess that Japanese candle types of chart origins from Japan in the XIII century. Candle technical analysis is used to display price quotations rates, commodity prices, stocks and others. "Japanese candles" type of chart is often called configuration of interval and line graphics, because each element displays a range of changes in price for a certain period of time, for example, minutes, hours, days, weeks. Nowadays, they are one of the most popular methods for representing price movement.
Japanese candles are easy to draw. These charts do not require anything new or different as far as it is concerned about data. You need to know four prices of a time interval you are reviewing. They are: opening price - Open, highest price for the period - High, minimum price - Low and closing price of a session - Close. In the society of traders these 4 prices are often abbreviated as OHLC. On the following figure you can see how to build the Japanese candles.
As the above picture you can see that a candle is made up of body and two shadows. Let us examine every of them in details.
The range between Open (O) and Close (C) prices is the rectangular limited by individually white or black fields called candle’s body. When O = C, the body is drawn as a horizontal line. Looking at the picture above, you can see that the body is painted in black color if the opening price is above the closing price (O> C) - which means that price fell. Otherwise, the body will be white.
Straight vertical lines are called shadows. In technical analysis, shadows are more important than body of a candle. Distance between the maximum price H and the body - is the line of the upper shadow, Distance between the candle body and the minimum prices L - lower shadow. Shadows of a candle may be present either not. Sometimes, candlesticks have only one shadow.
Building of Japanese candlesticks is easy and at the same time conveys a lot of useful information giving traders an opportunity to analyze the situation in the market and forecast price movements. They show a psychological picture of short-term trading and allow to study the effect, rather than the cause of price movements.
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