CONSTRUCTION OF A JAPANESE CANDLESTICK.

CONSTRUCTION OF A JAPANESE CANDLESTICK.

It is important to gain a good understanding about how a single Japanese candlestick is constructed. Each Candlestick displays a visual representation that informs you how price is behaving during a selected time period. As such, if you can interpret them with confidence then you can deduce many features of the current performance of market price.

Each candlestick comprises four main components. They are its high price, closing price, low price and opening price. The range between the closing and opening prices is termed the ‘Real Body’ of a candlestick. When the color of the ‘Real Body’ is white, then this represents trading situations whereby price closed higher than its opening value. This is considered a bullish result. The following diagram depicts a bullish Candlestick.

Bull Candle

In addition, the distance between the closing price and the high price is called the ‘wick’, whilst the distance between the opening price and the low price is named the ‘tail’.

When the Real Body is black, then the candlestick is displaying a bearish action because price closes lower than its opening value. The following diagram illustrates a bearish candlestick.

Bear Candle

Single Candles Shapes:

The shape of a single candlestick can take many variations, each with its own interpretation. Here are some of the most well-known:

Shaven Head has a small body, no wick but long tail. Suggests a bullish reversal.

Spinning Tops possess small bodies with little or no tails and wicks. Spinning Tops indicate market indecision as little movement has been made in the period.

Marubozu has no wick or tail but a long body. This candle shows strength in the trend as on a bullish candle (white) the high is at the close of the period while on a bearish candle (black) the low is at the close of the period. This indicates one side is in strongly in control and the trend will continue.

The Doji exhibits no real body just a horizontal line. This is indicative of market indecision as the bulls and bears battle it out for control with equal strength.

Happy Trading !!