Japanese candlestick is a tool used by the Japanese since ancient times, used to trade Rice.
Steve Nison discovered this when working with brokerage firms in Japan. He did more research, then write a book about this technique, and its popularity in the West. This technique became popular in the 90’s of the 20th century.
See the picture below:
Japanese candlestick can be used on any timeframe, may be 1 day, 4 hours, 1 hour, 30 minutes… – whatever time frame you want! They are used to describe price action in the time frame you choose.
Japanese candlestick is formed using the open, high, low, and close of the chosen time period.
1. If prices close above the opening price, the candle is bullish (like the example image above, white candle ).
2. If the price closes below the opening price, the candle is bear (like the example image above, black candle ).
3. The hollow or filled section of the candlestick is called the “real body” or body.
4. Part outside the real body, the top and bottom are called shadows.
5. The top of the upper shadow is the “high”.
6. The bottom of the lower shadow is the “low”.
Like humans, the Japanese candlestick has many different body sizes. For example, long real body expressed strong buying or selling.
The longer the body is, the more intense the buying or selling pressure. This means that buyers or sellers are in control of the market at that time.
Meanwhile, short bodies imply very little buying or-selling activity.
The upper and lower shadows on Japanese candlesticks showed important signal of trading session.
Upper shadows signify the session high and lower shadows signify the session low.
Long shadow shows the trading is more volatile, beyond the opening price and closing.
If a Japanese candlestick with long upper shadow and short lower shadow, it means that buyer faction was trying to push prices higher but for some reason or another, faction sellers jumped in and pushed prices down again, do prices closed near the opening price.
Case long lower shadow and shadow upper short be interpreted similarly.