Japanese Trading Candlesticks Patterns Explained
Understanding Candles in Commodities Trading - How to Read Candles in Commodities Trading - Japanese Trading Candle-stick Pattern Setups ExplainedBrief History
Candlesticks were developed in the 18th century by the legendary rice trader called Homma Munehisa to give overview of the opening, high, low and closing market commodities trading price over a given time period.
They were used by the legendary rice trader to predict future market prices. After dominating trading the rice market, Munehisa after that eventually moved to Tokyo Exchange where he gained huge fortunes using this analysis method. He is said to have made over one hundred consecutive winning trades.
Types of Commodity Trading charts
There are Three types of charts used in Commodities: Line, bar and candlesticks.
Line - plots a continuous line connecting closing commodities prices of a commodity.
Bars- displayed as sequence of OHCL bars. O-H-C-L represents OPEN HIGH LOW and CLOSE. The Opening commodities price is highligthed as a horizontal dash on the left & closing commodities price as a horizontal dash on the right.
The main disadvantage of a bars is that it's not visually appealing, therefore most traders don't use them.
Candlesticks - these use the same trading price data as bar charts (open, high, low, and close). However, they in a much more visually identifiable way which resembles a candle with wicks on both ends.
How to Interpret
Rectangle section is called the body.
The high and low are described as shadows & plotted as poking lines.
The color is either blue or red
- (Blue or Green Color) - Commodities Prices moved up
- (Red Color) - Commodities Prices moved down
Most platforms like the MT4, use colors to mark the direction. Colors used are blue or green: when commodities trading price moves up, red: when commodities trading price moves down.
Candlesticks Vs. Bar Commodities Trading Chart
When candlesticks are used it's very easy to see if the price moved up or down as opposed to when a bar Charts are used.
The Japanese methods also have very many setups that are used to trade the market. These patterns have different analysis explanation & the most common are:
The above patterns is what makes the Japanese candlesticks popular among technical traders & it is why this type of analysis are the most widely used when it comes to analyzing the market. The analysis for these setup formations in commodities trading is the same as that one used in stock trading.
Drawing These Charts on MT4 Platform
To draw these on the MT4, select the trading charts drawing tools within the "Meta Trader 4 Toolbar" - shown below.
To view this tool bar on MT4 go to 'View' Next to file at top left corner of MT4 Platform, Click 'View', Then Click 'Toolbars', Then check 'Charts' Button Key. Above tool bar will appear.
Once the above tool bar, pops up you can then select the type you want to convert to, If you want to view using the bar format, click the bar tool button as shown above, for line format click the line tool button key, for Japanese candlesticks format click the "candlesticks tool button".
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