How To Read And Interpret Japanese Candlestick Charts (Introduction)

Candlesticks are one of the most common chart types. They visually show the high, low, open, and close prices for a given time frame. When the price moves up, the candle is white or green, when the price moves down the candle is red or black. Learn how to read and interpret this chart type, and how to utilize it in your trading.


Japanese Candlestick Chart Colors

Japanese Candlesticks show the high, low, open, and close price of an asset, as well as highlight whether the pair finished higher or lower, over a specific period. Candlesticks are used on all timeframes—from a 1-minute chart right up to weekly and yearly charts.

Candlesticks use two colors, such as green and red, blue and red, or white and black. The charts on TradingView use a green and red color scheme for the Japanese Candlesticks. You are free to change these colors to whatever you like. Just right-click on the chart>Settings>Symbol>and then select your Body, Wick, and Borders colors.

Charts provided by TradingView, the charts I personally use.

candlestick chart example AAPL

Figure 1. Example of Candlesticks on Daily Chart

Red and green has become a default for many charting platforms, although a white or blue up candle is also common, as is a black down candle.


How Japanese Candlesticks are Created

Color is important in Japanese Candlesticks. A green bar (sometimes blue or white) indicates the price closed higher than the open price of that time period. A red bar indicates the price closed lower than the open price of the time period. The candles can also be colored based on how they closed relative to the prior close.

To understand how this works, let’s look at how each bar is constructed.

example of up and down candlestick, and how candlesticks are constructed

Figure 2. Example of How Japanese Candlesticks are Constructed and Colored

Each candle provides information on the open, close, high, and low of an asset’s price. Each candle reflects the time period you’ve selected for your chart. For example, in figures 1 and 2, a daily chart is used, which means each candle shows the open, close, high, and low price information for a one-day period. When the day is finished or closes, the bar is “complete” a new daily candle starts when the market opens again. The same process occurs whether you use a 1-minute chart or a weekly chart.

The open and close are marked by the “fat” part of the candlestick. This is called the real body, and represents the difference between the open and close. If the close is higher than the open the candle is green; if the close is lower than the open the candle is red.

The open and close aren’t necessarily the high or low price points of the period. The high and low prices for the period are marked by a “tail” or “upper shadow” and “lower shadow.” The high point of the upper shadow shows the highest price the asset traded at during that period, and the low point of the lower shadow shows the lowest price the asset traded at during that period.

1 2 3 4
View single page >> |

Disclaimer: Nothing in this article is personal investment advice, or advice to buy or sell anything. Trading is risky and can result in substantial losses, even more than deposited if using ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.