When you start trading on Forex, the first thing that catches your eye is the charts, which are a visualization of the price flow, divided into intervals. There are several types of charts in our terminal that help the trader to better navigate the price volatility. One of the most popular and illustrative types of such charts are “Japanese candles”.
Japanese candles — a type of graphical analysis that shows the price history of a transaction using special bars.
It got its name because of the characteristic appearance of the bars, reminiscent of real Japanese candles — narrow rectangles. Due to their convenience, Japanese candles have become extremely popular and are used to build many graphical models in technical analysis. Candles show turning points in the market and price movement.
The main parameters of the Japanese candle
The fundamental points of a Japanese candle are:
Opening Price (OPEN)
Close Price (CLOSE)
Price High (HIGH)
Lowest Price (LOW)
Also, a Japanese candle consists of:
The body of the candle is a rectangle (bar), which indicates the period separating the opening price and the closing price. The body of the candle is either white or blacked out. It depends on the dynamics of quotes. With the growth of quotations (growing candle), the body of the candle is colorless or white, the lower border of the body marks the opening price, the upper - the closing price. When quotes fall (falling candle), the body of the candle is black, and already the upper border of the body indicates the opening price, the lower - the closing price.
The shadow of the candle is a part of the Japanese candle, which indicates price lows and highs between the opening and closing of trading, which is an indication of the participants' uncertainty during the trading session. The location of the shadows and their length indicate various situations in the market:
Short shadows of candles indicate that the main activity, during trading, was near the opening and closing prices for a specific period of time.
Long shadows indicate that after active trading, prices increased or decreased, but then there was a rollback to the original opening prices.
A long upper shadow and a short lower shadow indicate the dominance of bulls in a certain period.
A short upper shadow and a long lower one, on the contrary, indicate the dominance of bears.
Assessing the size and location of bars and shadows, you can understand the market situation and make forecasts of its development.
Types of Japanese Candles
stand out with their massive body, the opening price is distant from the closing price.
Spinning tops and paper umbrellas
stand out with a very insignificant body.
is an extremely small body or the body is completely absent. Its usually connected to a situation where the opening price corresponds to the closing price and is a sign of turmoil in the market.
Rules for trading with candles
The size, color and configuration of the candle are evaluated only after the candle is closed to avoid the impact of changes in the market.
The size of the candle is estimated subjectively by the trader, based on the current market volatility.
U-turn candle configurations are considered at the top or bottom of the market.
The longer the time interval, the more reliable the signal of the candle configurations.
Reversal candle configurations indicate a price reversal, but do not indicate how far the price chart will go.