Japanese Candlestick Patterns
March 1st, 2010 at 11:00 am Posted by
There are lots of ways that you can predict what may or may not happen when you are trading stocks on the stock market. One common way of trying to predict what will happen is by using Japanese candlestick patterns.
These are patterns that were first created by a Japanese trader in the 18th century. It’s easy to spot a chart that has Japanese candlestick patterns indicated on it because they are usually more colorful than you would expect them to be on a normal chart. Each indicator consists of a colored block with a short ‘wick’ coming out of each end. Typical colors are red and green, although this can vary on occasion. Sometimes they will appear in black and white. This makes it essential to understand the meanings of the colors used in any chart you happen to be looking at.
The wicks of the candlestick shape can vary in length, indicating the best or worst prices for that trade in a single day. The color of the block in the middle will tell you whether the price has gone up or down. So for example a candlestick with a red body points to a price that has gone down – from the prices at the top wick to the bottom wick.
There are a lot of different types of Japanese candlestick patterns that are used, making it a good idea to become familiar with all of them. However there are a dozen or so that are really the main ones to be aware of.
Some patterns foretell of a bullish or bearish market. The bullish engulfing pattern is a good example. You will see a short black candlestick with wicks at each end to close one particular trading day. The following day will have a white candle that is much longer, again with the wicks at each end. In contrast a bearish engulfing pattern sees a small white candlestick for starters, followed by a longer black candlestick the following day.
As you can see once you become familiar with these patterns and what they mean, you stand a better chance of making the right decisions on the stock market when it comes to buying and selling at the right times. They take away a large amount of the guesswork when you are buying or selling, although of course they do not guarantee a successful result. Japanese candlestick patterns do increase your chances of doing well though.
To learn more about Japanese Candlestick Patterns, check out these resources:
