Types of Japanese candles
In the last article we saw what are the three main types of charts used daily by traders to follow the prices of any financial instrument and obviously to make useful analyzes and considerations to operate. As described, the Japanese candlestick chart is the most used and known in fact the single candles highlight the difference in the opening and closing prices in a more clear way than the other types of chart. Furthermore, they provide good ideas more quickly based on simple observation thus giving, almost always, a real price situation and good visual signals aimed at warning us about any trend reversals; which is not impossible, but more complex and difficult, with bar charts. Another very interesting thing is that several consecutive candles can give rise to real PATTERN which from an operational point of view can be very interesting, but we will see this in the next articles, let’s proceed with order and see specifically how the candles look and what they are the names attributed to the most significant.
To begin with, it must be said that the candles are made up of three basic parts: the BODY (real body), the UPPER SHADOW (upper shadow) and LOWER SHADOW (lower shadow). Let’s see them in detail.
The body: it is the distance between opening and closing and will be empty (white) or green when the opening price will be lower than the closing price, thus resulting in a bullish candle, the full black or red candle will have a closing price lower than the opening one indicating a fall.
Upper shadow: it is the distance between the closing and the maximum for a bullish candle, or between the opening and the maximum for a bearish candle.
Lower shadow: it is the distance between the opening and the maximum if it is a bullish candle, vice versa for a bearish candle it is the distance between the close and the maximum.
With reference to the three parts that make up a candle, we can therefore say that, regardless of the color of the candle, whether it is bullish or bearish, the more the body is extended, the greater the difference between the opening and closing price. Conversely, a small difference between opening and closing will draw a very small body.
Therefore, if as time passes and the body of the candles increases we will be faced with a clear directional moment where sellers or buyers (obviously depending on the color of the candles themselves) are pushing prices. If instead, even if we are facing a clear trend direction, the bodies alternate with small and large, we will be faced with a moment of uncertainty where perhaps the push is ending and the price is finding a balance and could consequently stand still. for a long time in laterality if not even reverse.
As for the upper or lower “shadows”, they provide information on volatility. Very long shadows can represent a clear signal of the price’s refusal to exceed certain levels especially if they are found at important key levels such as RESISTANCES, SUPPORTS or psychologically important levels for traders.
The world of trading intrigues you and you would like to know more? find out more here
As written at the beginning, the same candles, depending on their shape, are given names and each is given a meaning capable of giving more or less reliable indications on what the future price will be. I wrote “more or less reliable indications” because obviously, as already said for the indicators, the resistances, the supports and everything described so far, it must always be contextualized and evaluated with experience and a lot of practice to do by testing the graphs in the past.
Let’s see below to give a name to some of these candles, the best known. Obviously there are many more but the main ones are the following:
Long body candlestick
Short body candlestick
Long shadow candlestick
Let us now describe them one by one.
In this particular candle, as you can see, there is no SHADOW and this is because the two prices, opening and closing, correspond with the minimum and the maximum. It is a very long candlestick and is therefore the most bullish or bearish one, obviously based on the color, that you can have. Therefore, after prices begin to take direction on a chart, the formation of one or more Marubozu can indicate a clear directional confirmation of the trend.
As for the Marubozu her body is very long, but in the Long body there is the presence of the two shadows of normal length. It can obviously be bullish or bearish and according to the rules of classical technical analysis it gives us an indication of an upward trend when we find it on a chart and it is at least three times longer than the one that precedes it.
In this case the candle is shorter, a sign of a shorter distance between the opening and closing price and the shadows are of normal length. It usually occurs when there are moments of stall in prices which can therefore be in the phases of consolidation of a trend or in those where one of the two pushes is starting to fail and therefore prices can present a stall before the inversion or at a strong retracement.
The Spinning, as you can see, has a very short body and both Shadows, upper and lower, very long. It occurs when the volatility is increasing or in any case very accentuated, the price tears up or down but then, before the end of the period, it returns close to the starting values. So a sign of great market indecision.
Do you want to try our service FREE, register here: www.brainprofx.sc
In the long shadow we have the formation of a very small body and the two “shadows” different from each other, that is, one slightly accentuated and the other very long and obviously this can happen both for the UPPER and for the LOWER. It can therefore be deduced that if the longer shadow is the upper one, the candle will take the name of long upper shadow, vice versa if the longer shadow is the lower one it will be called long lower shadow.Long Shadow
The Hammer candle, as the name suggests, has the shape of a hammer, a reduced body and a single shadow (it can be the upper or the lower) that is very long.The rule of technical analysis on candles says that to be a Hammer the shadow present must be at least twice the length of the body. Usually their appearance on the charts, obviously in certain situations, is an indication of a trend reversal.
The candlestick bozu has a fairly large body and has a single short shadow that if it develops on the lower part gives it the name of opening bozu, on the upper part closing bozu; and obviously, depending on whether it is a bullish or bearish candle it will split into
Opening bullish or opening bearish. (see figure). These types of candles are also a symptom of market uncertainty and may herald an imminent trend reversal.
Doji are candles without any trace of body and this is due to the fact that the opening and closing prices at the end of the period have remained practically the same. You can have different types of candlestick doji depending on the length of the shadow and the position in which it is located: if only the lower one is present, the lower will take the name of Dragonfly, vice versa it will be called Gravestone. Sometimes the shadow can be long in both directions and this gives it the name of long legend.
Do you want to try our service FREE, register here: www.brainprofx.sc
However, all these candles represent market uncertainty and are often found near excellent supports or resistances.
Well today we have seen some of the most important candles, from the next articles we will see the different types of PRICE PATTERN that can be observed with the presence of one or more of these candlesticks and the precious information that derives from it, so I invite everyone to stay connected and do not miss the next articles of our EVER MORE COMPLETE BLOG!
If you liked the article, you might also be interested in: