Let’s do a quick review first.
Japanese candlesticks can be used for any time frame, whether it be one day, one hour, 30-minutes ….whatever you want!
They are used to describe the price action during the given time frame.
Japanese candlesticks are formed using the open, high, low, and close of the chosen time period.
If the close is above the open, then a hollow candlestick (usually displayed as white) is drawn.
If the close is below the open, then a filled candlestick (usually displayed as black) is drawn.
The hollow or filled section of the candlestick is called the “real body” or body.
The thin lines poking above and below the body display the high/low range and are called shadows.
The top of the upper shadow is the “high“.
The bottom of the lower shadow is the “low“.
How to Trade Three Black Crows Candlestick Pattern
Japanese Candlestick Trading
Back in the day when Godzilla was still a cute little lizard, the Japanese created their own old school version of technical analysis to trade rice. That’s right, rice.
Traders be hustin’ back then also. To rock ice, you traded rice. 💎
A Westerner by the name of Steve Nison “discovered” this secret technique called “Japanese candlesticks,” learning it from a fellow Japanese broker.
What are Japanese candlesticks?
A Beginner’s Guide to Candlestick Trading
Long white Japanese candlesticks show strong buying pressure.
The longer the white candlestick, the further the close is above the open.
This indicates that prices increased considerably from open to close and buyers were aggressive. In other words, the bulls were kicking the bears’ butts big time!
Long black (filled) candlesticks show strong selling pressure.
The longer the black Japanese candlestick, the further the close is below the open.
This indicates that prices fell a great deal from the open and sellers were aggressive. In other words, the bears were grabbing the bulls by their horns and body-slamming them.
No, we’re not talking about wearing dark smokey eye shadow.
The upper and lower shadows on Japanese candlesticks provide important clues about the trading session.
Japanese Candlesticks: a Complete Guide
Lower shadows signify the session low.
Candlesticks with long shadows show that trading action occurred well past the open and close.
Japanese candlesticks with short shadows indicate that most of the trading action was confined near the open and close.
If a Japanese candlestick has a long upper shadow and short lower shadow, this means that buyers flexed their muscles and bid prices higher.
But for one reason or another, sellers came in and drove prices back DOWN to end the session back near its open price.
If a Japanese candlestick has a long lower shadow and short upper shadow, this means that sellers flashed their washboard abs and forced the price lower.
But for one reason or another, buyers came in and drove prices back UP to end the session back near its open price.
Basic Japanese Candlestick Patterns
What do spinning tops, marubozus, and dojis have in common?
They’re all the basic types of Japanese candlesticks!
Let’s take a look at each type of candlestick and what they mean in terms of price action.
Japanese candlesticks with a long upper shadow, long lower shadow, and small real bodies are called spinning tops. The color of the real body is not very important.
The Spinning Top pattern indicates the indecision between the buyers and sellers.
The small real body (whether hollow or filled) shows little movement from open to close, and the shadows indicate that both buyers and sellers were fighting but nobody could gain the upper hand.
Even though the session opened and closed with little change, prices moved significantly higher and lower in the meantime.
Neither buyers nor sellers could gain the upper hand, and the result was a standoff.
If a spinning top forms during an uptrend, this usually means there aren’t many buyers left and a possible reversal in direction could occur.
If a spinning top forms during a downtrend, this usually means there aren’t many sellers left and a possible reversal in direction could occur.
Sounds like some kind of voodoo magic, huh? “I will cast the evil spell of the Marubozu on you!”
Fortunately, that’s not what it means. Marubozu means there are no shadows from the bodies.
The word “marubozu ” translates to “bald head” or “shaved head” in Japanese.
So a Marubozu candlestick is a bald candle or shaved candle means it has no shadow or wick.
Depending on whether the candlestick’s body is filled or hollow, the high and low are the same as its open or close.
Check out the two types of Marubozus in the picture below.
A White Marubozu contains a long white body with no shadows. The open price equals the low price and the close price equals the high price.
This means that the candle opened at its lowest price and closed at its highest price.
This is a very bullish candle as it shows that buyers were in control of the entire session. It usually becomes the first part of a bullish continuation or a bullish reversal pattern.
A Black Marubozu contains a long black body with no shadows. The open equals the high and the close equals the low.
This means that the candle opened at its highest price and closed at its lowest price.
This is a very bearish candle as it shows that sellers controlled the price action the entire session. It usually implies bearish continuation or bearish reversal.
Depending on where a marubozu is located and what color it is, here are few guidelines:
If a White Marubozu forms at the end of an uptrend, a continuation is likely.
If a White Marubozu forms at the end of a downtrend, a reversal is likely.
If a Black Marubozu forms at the end of a downtrend, a continuation is likely.
If a Black Marubozu forms at the end of an uptrend, a reversal is likely.
Doji candlesticks have the same open and close price or at least their bodies are extremely short. A Doji should have a very small body that appears as a thin line.
Doji candles suggest indecision or a struggle for turf positioning between buyers and sellers.
Prices move above and below the open price during the session, but close at or very near the open price.
Neither buyers nor sellers were able to gain control and the result was essentially a draw.
There are FOUR special types of Doji candlesticks.
The length of the upper and lower shadows can vary and the resulting forex candlestick looks like a cross, inverted cross, or plus sign.
The word “Doji” refers to both the singular and plural form.
When a Doji forms on your chart, pay special attention to the preceding candlesticks.
If a Doji forms after a series of candlesticks with long hollow bodies (like White Marubozus), the Doji signals that the buyers are becoming exhausted and weakening.
In order for the price to continue rising, more buyers are needed but there aren’t any more! Sellers are licking their chops and are looking to come in and drive the price back down.
If a Doji forms after a series of candlesticks with long filled bodies (like Black Marubozus), the Doji signals that sellers are becoming exhausted and weakening.
In order for the price to continue falling, more sellers are needed but sellers are all tapped out! Buyers are foaming in the mouth for a chance to get in cheap.
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