Japanese candlestick signals are one of the most effective indicators of current price activity. They provide an easy way to quickly understand what is happening in the market.
Originally developed to analyze price patterns by a Japanese rice trader in the 1600's, candlesticks have become a favorite trading tool for all markets. This form of technical analysis is based entirely upon the action of price for a given time period.
Most software platforms let you change how the candles are displayed. You should set your color scheme so that it makes the most sense to you.
I normally set mine as you see them in these pictures. The hollow green ones are up bars and the solid red bars represent falling prices.
You will still often see candlesticks shown as hollow black bodies for up bars and solid black bodies for falling prices. This was probably the most effective way to display them before the days of colored printers and computer screens.
Over the years, traders have developed names for most of the commonly occurring Japanese candlestick signals or patterns. The book shown at the right by Steve Nison is considered by many to be the modern day encyclopedia on this subject.
As with other forms of
, many traders attach special significance to these patterns and believe they offer clues to future price trends.
Factors such as the length of the real body, as well as the length or absence of the upper and lower shadows give a clear picture of how the trading unfolded.
Long bodies with little or no shadows show strong one-way price action, while short bodies indicate a less volatile session. Long shadows show us that there was a fierce battle between the bulls and the bears, with the body indicating the winner.
Candlesticks show, at a glance, the relationship between the opening price, high, low and closing price for a given time period. The size of the real body and the upper and lower tails (the shadows) give us an easy to understand picture of the current
Some Common Patterns and Their Meanings
There are literally hundreds of named patterns that traders use as signals. Here are a few you should watch for...
Watch for more patterns coming soon to this web page.