What is the Japanese candlestick pattern? How to read candle charts (easy to understand)

By triumphal | Technical Analysis

Japanese candle pattern

The candlestick chart, also known as the Japanese candlestick chart we still use today, originated in Japan.

Candles have been used since ancient times by the Japanese to trade rice. Steve Nison discovered this secret when working with brokerage firms in Japan. And since then, the Japanese candlestick chart is widely used in financial transactions.

Understanding candlestick indicators and patterns helps traders make more accurate forecasts. Choose better entry - points >> minimize losses and improve profitability.

In this article we will learn the most basic knowledge about Japanese candles and how to use them. Let's get started!

How to read candles

Japanese candles have 2 main components: Candle body and Beard (Shadow).

If the opening price is lower than the closing price / current price, the candle will be green >> indicating an increase. Conversely, if the price falls below the opening price >> red candles.

Here I will summarize 14 basic models of Japanese candles that you need to know. These are the most basic patterns to grasp.

My team has tried to design the picture in an intuitive and most understandable way, you can freely download it to your phone, when you have time to open and read!

Long body candles

  • The long body candles are the opening and closing prices that have a large difference.
  • Usually the first phase of trend setting of pump, dump after sideway.
  • Combined with the volume, we can determine the true power of the trend. However there are still cases where this is a fake sign to KILL MARGIN.

Marubozu candles

  • Also known as intense candles. A long body candle without a beard. Indicates a strong up / down trend and there is no hesitation of the trader.
  • Signs of top or bottom reversal appear.

Peak rotation

  • The turning point is the psychological hesitation between buying and selling.
  • Rotating candles act as a warning after a trend, located at the top or bottom according to the previous trend. Indicates that the buying / selling pressure has lost strength. However, it is now also a kill margin candle of derivatives exchanges.

DOJI opens and closes at 1 price (1)

  • A single candle that opens and closes equally or very close. The doji candle signals the indecision of the market. The doji candle is considered an important reversal signal at the top of the uptrend and the bottom of the downtrend.
  • DOJI comes in many forms.

DOJI opens and closes at 1 price (2)

For traders who are trading and prices are following a trend then a Doji candlestick appears. Traders may consider exiting part of the trade order and placing a stop loss more closely, as there is a possibility that the market is gradually losing its momentum.

The Doji candlestick pattern doesn't always warn a market reversal, but it does show a slowdown in the trend.

Bottom peak - Tomorrow - Tomorrow

  • The pattern consists of 3 candles, 1 short candle in between 2 long candles as shown below. The middle candle could be a doji.
  • Morning star - the morning star appears after sunset. This pattern signals a strong trend reversal. It is possible to enter an order with an entry between the 3rd day of this pattern and the stoploss is the second top of the candle.

The hammer creates the bottom

  • As a green candle with a small body, long beards appear in the downtrend.
  • On market sentiment, a bottom hammer shows a refusal to reach lower price levels. It is a sign that the selling pressure has ended and started to reverse the trend to the price TANG come back.
  • However, this model is currently easily controlled by sharks. Do not enter the command after appearing a bottom hammer, but should observe the next candle to be more sure.

Hammer set top

  • Similar to a bottom hammer, but a top hammer appears in an uptrend.
  • Because the Hammer relies heavily on their position on the price chart, traders often combine the hammer with some other indicators to find suitable profit points such as the Fibonacci tool, or Pivot points or resistance tools. , support.

Top bottom - Sao Doji

  • This pattern is similar to # 7 with the middle candle being doji. However, market sentiment at this stage was faster.
  • If the Doji appears after a series of bullish candles, but the shortening candles are shorter then that means the buyer is really exhausted. This signal indicates that the price reversal confidence will be higher.

Overcome Increase - Decrease

  • The pattern with 2 opposite candles, the longer long candle, engulf the previous candle.
  • Signaling a strong trend of market reversal. This is the trader's preferred pattern, which can enter orders within ⅓ of the candlestick's cover. Stoploss is the beard of the covering candle.

Harami Increase - Decrease

  • This is a reversal of the # 11 pattern with the previous candlestick covering the back.
  • Signaling a moderate reversal, sufficient for long / short safety. The longer the candle is, the greater the possibility of a reversal. If the second day candle is too short, it may sideway before the trend reversal occurs.
  • As I said, the Harami candlestick pattern is not considered a strong reversal pattern. So, before trading with this model, you need to observe the candles to see if there are candlestick declines, such as the price may have hit resistance, for example, EMAs.

Harami Cross Increase - Decrease

  • The harami pattern with the second candle is a doji. Harami is not a strong reversal pattern, but harami cross is a strong signal.
  • Discounted Harami Cross models are usually more effective than bullish models. Entry into the order should be decided after the next candle is formed.

Increase and decrease through the center line

  • Also known as a rising / falling line. Similar to harami, the second day candle is at least half the length of the previous one.
  • The Bearish Piercing Line is a reversal pattern that occurs at the bottom of a trend or range of prices.
  • Dard Cloud Cover: Like the harami Candle Models and Bullish Piercing Candle Models, this pattern often brings a low risk rate in trading. In addition, Dark Cloud Cover appears quite often, providing investors with more opportunities to trade, lower risk ratios.

Three candles

Pattern with 3 candles of the same color. Clearly showing the market reversal. However, combined with the volume and other factors, we can decide on the command.

The above is a basic guide on candlestick charting and how to read Japanese candles. There are many other things around the Japanese candlestick chart, volume, price indicators and other indicators.

In the latest article, I will continue to update you the bullish and bearish models to make it easier for you to grasp the trend of prices and entry into the order.

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triumphal

What matters is not the standing position but the direction.