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Japanese Candlestick Bar Explained

admin on July 27th, 2009

Almost all Forex analysts, mentors and common traders speak in the terms of the Japanese candlestick charts. When they present the example chart, it’s usually comprised of the small candles with weird lines and colors. A person that is not acquainted with the Japanese candlestick bars can be easily confused with such charts. That’s why it’s important to understand this most popular chart data representation. You’ve probably already seen something like this:

On the image you can see a Japanese candlestick chart fragment consisting of 13 bars, of which 6 are bearish and 7 are bullish.

Each Japanese candlestick bar has a set of parameters that characterize the price in a given time period. Let’s look at the bullish candlestick bar:

As you see there are following parameters:

1. High — the highest price during the period this bar is representing.
2. Low — the lowest price during the period.
3. Open — the price at the beginning of the period.
4. Close — the price at the end of the period.
5. Body — the part of the candle that stretches from Open to Close price levels. The length of the body is Close-Open.
6. Upper Shadow — the part of the candle that stretches from Close to High. The length of the upper shadow is High-Close.
7. Lower Shadow — the part of the candle that stretches from Open to Low. The length of the lower shadow is Low-Open.

The bearish candlestick bar is similar to its bullish brother but has some differences:

As you can see, it’s of an opposite color and the Open/Close levels are inverted compared to the bullish candlestick bar. The parameters of the bearish candle are the same but are calculated differently:

1. High — the highest price during the period this bar is representing.
2. Low — the lowest price during the period.
3. Open — the price at the beginning of the period.
4. Close — the price at the end of the period.
5. Body — the part of the candle that stretches from Open to Close price levels. The length of the body is Open-Close.
6. Upper Shadow — the part of the candle that stretches from Open to High. The length of the upper shadow is High-Open.
7. Lower Shadow — the part of the candle that stretches from Close to Low. The length of the lower shadow is Low-Close.

Now you know the basics of the Japanese candlestick charting and can easily interpret the charts that are represented by candlestick bars. Japanese candlesticks is a great tool to use in trading and the charts that use them are usually easier to read and many traders find it’s easier to build strategies on them.