Japanese candlesticks (Japanese candle) are a popular tool for analyzing financial markets.
Japanese candles are widely used by traders around the world to analyze stocks, currencies, commodities and options. Forex trading online Rice trading, which most traders would consider unlikely, is what it all began. But, it is a venture which popularized the ideas and visions of one Japanese trader.
Ancient Commodity Trading
Trading is not a new activity. Humans have traded countless items over thousands of year. When livestock was the main commodity traded, ancient trading took shape and formal organization. Later, in the classical era silver and gold became dominant trades. When ocean vessels were larger and more efficient, international trade boomed. This allowed traders to travel to distant countries to bring back exotic goods. Trade is affected by economic and social events. This is why workers can sometimes be paid for commodities with high market prices at different times in the history. One example is that shepherds might be paid for livestock, while feudal farmers would receive a portion from the farm produce. It was not unusual for soldiers, blacksmiths and court officials to receive expensive items such as metal or agricultural commodities. This is where the history of Japanese candlesticks began.
How Japanese Candlesticks were Created
The Samurai ruled Japan in 18th century Japan and were well-known for their fighting skills, but also their business acumen. As payment for their services, Samurais received a certain amount of rice. Rice was a common commodity in Japan. It was an essential ingredient in daily meals and the main ingredient in Sake, a popular Japanese drink. Rice was in great demand. One day, Sokyu Honma, a Samurai who lived in Sakata (Japan) between 1716-1803, entered the rice market. Munehisa Homma was also a popular name for Sokyu Honma. He would become a successful rice trader and the father of what is now known as Japanese candlesticks.
Munehisa observed many things about rice trading. These included the impact of seasons, farming, and the market and perceived rice values. He began studying the rice price movements and made deductions. Munehisa identified certain trends and traits in the rice market, as well as their triggers and impacts. He developed a trading strategy that made it a successful rice trader. He developed his trading strategy based on five techniques, and called it the Sakata Five. These techniques were later adapted to make modern technical analysis. Munehisa kept his strategies to himself. However, in 1775, he wrote the ‘Fountain of Gold,’ which detailed his observations, deductions as well as techniques and strategies. Munehisa rose to the position of Financial Advisor to the government, a status that was almost godlike among traders.
From Japan to the West
The Fountain of Gold remained in Japan. This is where traders from all over Asia began studying and implementing the trading techniques. The techniques were adapted to their markets and trading styles by traders. This new strategy was not widely adopted outside of Asia. It took a while before the rest of the world would adopt it. In the late 80s Steve Nison started translating Japanese manuscripts about trading techniques. His book, Japanese Candlestick Charting Techniques, was published in 1991. The book quickly attracted the attention of top traders who began to study and practice the techniques. The modernizing period coincided with the publication of the book. financial markets Trading. Japanese candlesticks are being used today in technical analysis to trade any financial need on any platform that supports charts.
Modern Forex Trading and Japanese Candlesticks
It is true to say that Japanese candlesticks played an important role in modernizing forex trading. It was difficult for early traders to analyze prices and assets. They relied heavily on predictions and fundamental analysis. Today, forex traders have access modern tools that provide real-time insight into price movements. You don’t have the luxury of relying on fundamental news or predictions to predict price movements. Instead, you can easily predict them by analyzing Japanese candlesticks. Three reasons Japanese candles are so popular among traders today are:
- Candles are simple but provide more information than other charts.
- Candles are visually appealing.
- Even when they form patterns, candles are easy to read.
All digital forex brokers now offer Japanese candlesticks to help traders analyze the market. Candlesticks can improve technical analysis using indicators and help traders. Make informed decisions.
How Japanese Candles Work
Here’s a quick description of how candlesticks are made and the information they provide at a glance.
Anatomy of a Candlestick
There are two parts to a candlestick: the wick and its body.
- The wick can be described as one of two vertical lines that run from the body and end at either the upper or lower end. Also called a shadow, a wick is also known as a wick.
- The body of a Candlestick refers to the vertical cylindrical shape that is formed between the upper wick and lower wicks.
Japanese candlesticks are formed when an asset’s value moves within a time period. This can be anything from a minute to a year. Candlesticks are formed once the price moves even for a minute. Candlesticks indicate the asset’s opening and close prices, the range and intensity of price movements, and the range between them. Here’s what each section of a candlestick displays:
- The wick: The wick of candlesticks indicates the degree to which price changes from its opening point and where it ultimately stops within a given time period.
- The body: The candle’s body indicates the price movement intensity. The body will be thicker if more traders are involved in buying or selling.
Types of Japanese Candles
Japanese candlesticks are formed once per time. Even though only one candlestick can form in a given time, patterns are formed by several candlesticks. There are many candlestick patterns and individual candlesticks. These include:
- Spin top
- Hanging man
- Inverter hammer
These candlesticks can be combined to create a wide variety of patterns, including the Bullish Reversal Candlestick, Bearish Reversal Candlestick, and the Continuation Candlestick patterns. Understanding Japanese candlesticks will help you trade more effectively and make better trading decisions.