Candle Stick
Posted On at by Forex Knowledge
What is a Candlestick?Back in the day when Godzilla was still a cute little lizard, the Japanese created their own old school version of technical analysis to trade rice. A westerner by the name of Steve Nison “discovered” this secret technique on how to read charts from a fellow Japanese broker and Japanese candlesticks lived happily ever after. Steve researched, studied, lived, breathed, ate candlesticks, began writing about it and slowly grew in popularity in 90s. To make a long story short, without Steve Nison, candle charts might have remained a buried secret. Steve Nison is Mr. Candlestick.
Candlestick Charts
Candlestick charts show the same information as a bar chart, but in a prettier, graphic format.Candlestick bars still indicate the high-to-low range with a vertical line. However, incandlestick charting, the larger block in the middle indicates the range between theopening and closing prices. Traditionally, if the block in the middle is filled or colored in,then the currency closed lower than it opened.
In the following example, the ‘filled color’ is black. For our ‘filled’ blocks, the top of the
block is the opening price, and the bottom of the block is the closing price. If the closing
price is higher than the opening price, then the block in the middle will be “white” or
hollow or unfilled.
Candlesticks are formed using the open, high, low and close.
• If the close is above the open, then a hollow candlestick (usually displayed as white) is drawn.
• If the close is below the open, then a filled candlestick (usually displayed as black) is drawn.
• The hollow or filled section of the candlestick is called the “real body” or body.
• The thin lines poking above and below the body display the high/low range and are called shadows.
• The top of the upper shadow is the “high”.
• The bottom of the lower shadow is the “low”.
Candlestick charts show the same information as a bar chart, but in a prettier, graphic format.Candlestick bars still indicate the high-to-low range with a vertical line. However, incandlestick charting, the larger block in the middle indicates the range between theopening and closing prices. Traditionally, if the block in the middle is filled or colored in,then the currency closed lower than it opened.
In the following example, the ‘filled color’ is black. For our ‘filled’ blocks, the top of the
block is the opening price, and the bottom of the block is the closing price. If the closing
price is higher than the opening price, then the block in the middle will be “white” or
hollow or unfilled.
Candlesticks are formed using the open, high, low and close.
• If the close is above the open, then a hollow candlestick (usually displayed as white) is drawn.
• If the close is below the open, then a filled candlestick (usually displayed as black) is drawn.
• The hollow or filled section of the candlestick is called the “real body” or body.
• The thin lines poking above and below the body display the high/low range and are called shadows.
• The top of the upper shadow is the “high”.
• The bottom of the lower shadow is the “low”.
Just like humans, candlesticks have different body sizes. And when it comes to forex trading, there’s nothing naughtier than checking out the bodies of candlesticks!
Long bodies indicate strong buying or selling. The longer the body is, the more intense the buying or selling pressure. Short bodies imply very little buying or selling activity. In street forex lingo, bulls mean buyers and bears mean sellers.
Long white candlesticks show strong buying pressure. The longer the white candlestick, the further the close is above the open. This indicates that prices increased considerably from open to close and buyers were aggressive. In other words, the bulls are kicking the bears’ butts big time!
Long bodies indicate strong buying or selling. The longer the body is, the more intense the buying or selling pressure. Short bodies imply very little buying or selling activity. In street forex lingo, bulls mean buyers and bears mean sellers.
Long white candlesticks show strong buying pressure. The longer the white candlestick, the further the close is above the open. This indicates that prices increased considerably from open to close and buyers were aggressive. In other words, the bulls are kicking the bears’ butts big time!
Long black (filled) candlesticks show strong selling pressure. The longer the black candlestick, the further the close is below the open. This indicates that prices fell a great deal from the open and sellers were aggressive. In other words, the bears were grabbing the bulls by their horns and body slamming them.
Mysterious Shadows
The upper and lower shadows on candlesticks provide important clues about the trading
session.
Upper shadows signify the session high. Lower shadows signify the session low. Candlesticks with long shadows show that trading action occurred well past the open and close.
Candlesticks with short shadows indicate that most of the trading action was confined near the open and close. If a candlestick has a long upper shadow and short lower shadow, this means that buyers flexed their muscles and bided prices higher, but for one reason or another, sellers came in and drove prices
Sounds like some kind of voodoo magic huh? "I will cast the evil spell of the Marubozu on you!" Fortunately, that's not what it means. Marubozu means there are no shadows from the bodies. Depending on whether the candlestick’s body is filled or hollow, the high and low are the same as it’s open or close. If you look at the picture below, there are two types of Marubozus.
A White Marubozu contains a long white body with no shadows. The open price equals the low price and the close price equals the high price. This is a very bullish candle as it shows that buyers were in control the whole entire session. It usually becomes the first part of a bullish continuation or a bullish reversal pattern. A Black Marubozu contains a long black body with no shadows. The open equals the high and the close equals the low. This is a very bearish candle as it shows that sellers controlled the price action the
whole entire session. It usually implies bearish continuation or bearish reversal.
Doji
Doji candlesticks have the same open and close price or at least their bodies are extremely short. The doji should have a very small body that appears as a thin line. Doji suggest indecision or a struggle for turf positioning between buyers and sellers. Prices move above and below the open price during the session, but close at or very near the
open price. Neither buyers nor sellers were able to gain control and the result was essentially a draw. There are four special types of Doji lines. The length of the upper and lower shadows can vary and the resulting candlestick looks like a cross, inverted cross or plus sign. The word "Doji" refers to both the singular and plural form.
When a doji forms on your chart, pay special attention to the preceding candlesticks. If a doji forms after a series of candlesticks with long filled bodies (like white marubozus), the doji signals that the buyers are becoming exhausted and weakening. In order for price to continue rising, more buyers are needed but there aren’t anymore! Sellers are licking their chops and are looking to come in and drive the price back down. Keep in mind that even after a doji forms, this doesn’t mean to automatically short. Confirmation is still needed. Wait for a bearish candlestick to close below the long white candlestick’s open. If a doji forms after a series of candlesticks with long hollow bodies (like black marubozus), the doji signals that sellers are becoming exhausted and weakening. In order for price to continue falling, moresellers are needed but sellers are all tapped out! Buyers are foaming in the While the decline is sputtering due to lack
of new sellers, further buying strength is required to confirm any reversal. Look fora white candlestick to close above the long black candlestick’s open.
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