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What are Japanese candlestick patterns? This is certainly a term that newcomers to the market may not be familiar with. In this article, we will provide you with a more general overview of this model.
WHAT ARE JAPANESE CANDLESTICK PATTERNS?
Japanese candlesticks are a tool that represents price fluctuations over a specific period, helping users identify market trends. Each candlestick carries a specific meaning. In markets such as Forex or Crypto, Japanese candlesticks are also used in technical analysis. To predict market trends, you can observe the candlestick patterns that form.
Candlestick consists of a body and shadows. The price types that make up a Japanese candlestick include: open price, close price, highest price, and lowest price. Typically, Japanese candlesticks come in two dominant colors: green and red. A green candlestick indicates a price increase (close price higher than open price), while a red candlestick shows a price decrease (close price lower than open price).
HOW TO READ JAPANESE CANDLESTICK
To analyze a candle, you need to pay attention to both the candle shadow and the candle body. When the candle shadow is short and the candle body is long, this shows that buying pressure from the buyers (bulls) is pushing the price up. Conversely, if the candle’s shadow is long and the candle body is short, this shows that the buyers (bulls) are experiencing selling pressure from the sellers (bears), indicating the failure of the bulls to maintain high prices.
WHAT IS A JAPANESE CANDLESTICK CHART?
Japanese candlestick charts consist of many candles combined together. Each candle represents price fluctuations within a certain time frame. For example, if you look at a D1 chart, each candle will show the opening price, closing price, high price and low price of a day. Simply put, each candle represents a trading session that day. In addition, you can also choose other time units such as W1 (one week), H4 (4 hours), H1 (one hour)… which will help you have a broader view of the price trend.
REVERSAL PATTERN
The reversal pattern can appear in two main forms: first, it can represent a change from a downtrend to an uptrend, providing a Buy signal to traders. Or it can also be a sign of a downtrend, showing that the price is trending down and providing a Sell signal.
SOME BULLISH REVERSAL PATTERNS
What are Japanese candlestick patterns? Below are bullish reversal patterns for your reference:
BULLISH ENGULFING CANDLESTICK PATTERN
The bullish engulfing candlestick pattern is when the price is in a downtrend and there is a green candlestick that is higher than the red candle ahead. This green candle has an opening and closing price higher than the highest and lowest prices of the previous red candle. Visualize this pattern simply as this green candle engulfing the red candle ahead.
HAMMER CANDLESTICK PATTERN
The hammer candlestick pattern occurs when a candlestick appears with a long wick at the bottom and a small hammer-shaped body, which can be red or blue. To ensure the authenticity of this pattern, one can wait for the next candle for confirmation. The confirmation candle is green and the closing price is higher than the opening price of the hammer candle.
DOJI MORNING STAR CANDLESTICK PATTERN
The Morning Star Doji pattern includes a red candle, a Doji candle, and a green candle. Doji candles are candles with small bodies, in which the closing price is close to the opening price and have two long candle bodies. This characteristic often indicates market indecision.
If the blue candle has a long body and the closing price is more than half the length of the red candle’s body, then the Doji Morning Star pattern is confirmed. The reliability of the pattern increases when the green candle closes above the middle level of the red candle.
POPULAR BEARISH ISLAND MODELS
What are Japanese candlestick patterns? You can refer to the popular models below:
BEARISH ENGULFING CANDLESTICK PATTERN
The bearish engulfing candlestick pattern is the opposite of the bullish engulfing candlestick pattern. A sell signal appears when an engulfing red candle appears after a green candle. This shows that the sellers are dominant over the buyers. The sell signal is formed when a red candle engulfs a green candle. This signals that the bears are overwhelming the bulls.
DARK CLOUD COVERING PATTERN
In an uptrend, when there is a strong bullish candle (long green candle), then a red candle appears with the closing price at least 50% higher than the body of the previous green candle. This creates a sell signal, and the trader can choose to sell immediately or wait for another red candle to confirm the reliability of this pattern.
METEOR JAPANESE CANDLESTICK PATTERN
In contrast to the Hammer pattern, the Shooting Star pattern appears in the context of a downtrend and often occurs at the top of an uptrend. This pattern forms when a candle with a long wick appears. The Shooting Star pattern signifies that, after the buyers tried to push the price higher, the sellers took control and the price began to go down.
CONCLUDE
Hopefully through this article from COINSTRATEGISTS, you will have more knowledge what are Japanese candlestick pattern? If you have any questions, please leave a comment below. Thank you for reading this article and good luck in your investing!
