Japanese candlesticks were invented by rice merchants in the 17th century but nowadays they are considered the number one tool when trading Forex. Below is a quick explanation to each candlestick along with a picture of how it looks like.
While the Japanese candlesticks charting and analysis was different from the US version initiated by Charles Dow around 1900, however they both rely on the following hypothesis
1. The way prices move – their behavior – in the financial market is more important than what can explain it (financial information, economic releases, global news, etc).
2. All known information is reflected in the price of a specific currency at all times
3. Buyers and sellers (market participants) act according to their expectations and their emotions.
4. Financial markets fluctuates.
5. Prices should not be a reason for a devaluation of a currency.
When the charting system displays a Japanese candlestick, the shape of the candle will be determined by:
1. The opening price;
2. The closing price;
3. Lowest price recorded during the same time period;
4. Highest price recorded during the same time period;
The candlestick will be black when the closing price is lower than the opening price, and If the closing price is higher than the opening price. It should be noted here that candlesticks color might differ from white and black depending on the platform used, but usually it is relatively easy to distinguish between them.
Important shapes of the Japanese candlesticks