JAPANESE
CANDLESTICKS
In the 1600s, the Japanese developed a method of technical analysis
to analyze the price of rice contracts. This technique is called
candlestick charting. Steven Nison is credited with popularizing
candlestick charting and has become recognized as the leading expert
on their interpretation.
Candlestick charts display the open, high, low, and closing prices
in a format similar to a modern-day bar-chart, but in a manner that
extenuates the relationship between the opening and closing prices.
Candlestick charts are simply a new way of looking at prices, they
don't involve any calculations.
Each candlestick represents one period (e.g., day) of data. The
figure below displays the elements of a candlestick:
The interpretation of candlestick charts is based primarily on
patterns. The most popular patterns are thoroughly explained in
this website. The patterns are examined in three main groups as
“Bullish”, “Bearish”, and “Neutral”.
These groups are further subdivided with respect to the type of
the patterns as “Reversal”, “Continuation”,
and with respect to their reliability as “High Reliability”,
“Medium Reliability” and “Low Reliability”.
Candlestick charts are flexible, because candlestick charts can
be used alone or in combination with other technical analysis techniques.
A significant advantage attributed to candlestick charting techniques
is that these techniques can be used in addition to, not instead
of, other technical tools. In fact this system is superior to other
technical tools. Candlestick charting techniques provide an extra
dimension of analysis. As with all charting methods, candlestick
chart patterns are subject to interpretation by the user. As you
gain experience in candlestick techniques, you will discover which
candlestick combinations work best in your market.