August 21, 2007
Basics of Japanese Candlestick Charting: A Simple Strategy on Currency Trading
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During the 17th century, there was a Japanese man who became famous with regards to rice trading. It is believed that this man won over one hundred trades. His secret was using candlestick charting. |
During the 17th century, there was a Japanese man who became famous with regards to rice trading. It is believed that this man won over one hundred trades. His secret was using candlestick charting.
You may have a common query which most people have in mind: What are candlesticks?
Candlesticks can be visualized as your typical bar chart outlined in two dimensions. Many are aware that the usual bar chart has its components, just like using the candlestick chart.
The major components in candlestick charting are:
1. Real Body – this term refers to the main body of the candlestick wherein it corresponds to the opening and closing of prices. Real body is again subdivided into two categories:
* Black body, this is sometimes called “filled-in” body. Black body signifies that the “close” in a certain period of time is lower than the “open.”
* White body, which is sometimes referred to as “open” denotes that the “close” is on top of “open.”
2. Shadow – it is a narrow vertical line which characterizes the increase and decrease of price in a given period of time. Shadows are as well subdivided into two categories: (1) lower shadow; and (2) upper shadow.
Now that you have a basic background with regards to the components of candlestick charting, the next step is to have an idea of candlestick charting patterns. There are six common patterns to look into:
1. Hammer pattern – this is a candlestick with a small “real body” and a lengthy low shadow. This pattern can usually be viewed whenever there is a downtrend in the market.
2. Engulfing pattern – with this type of pattern, the market trend can be very well defined due to the candlestick’s white real body which surrounds the preceding day’s real body.
3. Dark-cloud cover pattern – this can be viewed where the pattern during the first market day is composed of resilient white real body in a top reverse form.
4. Hanging man pattern – the features of a hanging man pattern resembles that of the hammer pattern, the only difference is that the framework is on an uptrend form.
5. Bearish pattern – instead of a white real body, a black real body surrounds the preceding day’s real body.
6. Piercing pattern – this type of pattern is the exact reverse of dark-cloud pattern where instead of an uptrend, a downtrend occurs.
Each pattern is distinct from one another. Your advantage though is you can experiment mixing two or more patterns. You can also modify the patterns from its original to come up with a strategy which suits your preference.
The above-mentioned information is merely a prologue to Japanese candlestick charting. There are still so many information to decipher, there are still so many patterns to detail out, and there are still so much things to learn. What you can do is have an in-depth study of this type of currency trading strategy by reading books about Japanese candlestick charting. Additionally, you can also enroll in an institution where the said trading strategy is being taught.
With proper education and accurate application of learned theories about Japanese candlestick, many traders will be able to succeed with their goals of gaining profit and strategically learning the market. Who knows you would be able to win over one hundred trades just like what the Japanese man did.
Recommended Reading
- Japanese Patent Translation
- Technical Analysis Part One
- Technical Analysis Charting: A Single Point can be a Profit or Loss
- Technical Analysis Chart: Predicting the Market
- Charting and Technical Analysis: A Great Tool for Your Trades
