Page 3 - Module 13 japanese Candlesticks

Module 13 – A-Z of Japanese Candlesticks

1. introduction

In the Seventeenth century, the Japanese developed a method to analyse the price of rice contracts.
This technique is called “candlestick charting”. Steven Nison is credited with popularizing the
candlestick chart and has become recognized as the leading authority on the interpretation of the
system.

It's hard to believe that Candlestick charting originated from the need to analyse the price
movements of rice in the early 1600s in Japan. Over the years it has evolved to become an
exciting, decisive form of technical analysis. It graphically displays subtle price change patterns
over time in easy to follow candlestick format. Candlesticks are relatively new to charting and
many investors are not aware of the workings of candle charts, hence the interpretations
that surround its usage. Candles provide far stronger and clearer signals once you understand the
basic logic surrounding them.

When analysing candle charting it is recommended to approach your analysis from the point of
view of buying pressure versus selling pressure, as this depicts the logic of candles. Candles
reflect the relationship between buying and selling pressure. When buying pressure exceeds
selling pressure, your candle is white and when selling pressure exceeds buying pressure, the
resulting candle is black. The sooner this basic concept is grasped, the sooner you will be able to
read and understand candle graphs.

Some Investors are attracted to candle stick charts by their mystique - Other investors are
turned off by this mystique. Regardless of your feelings about the heritage of candlestick
charting, it is strongly encouraged that you explore their use. Candlestick charts dramatically
illustrate changes in the underlying supply/demand lines.

Because candlesticks display the relationship between the open. high, low and closing prices, they
cannot be displayed on securities that only have closing prices, nor were they intended to be
displayed on securities that lack opening prices, If you want to display a candlestick chart on a
security that does not have opening prices, we suggest that you use the previous day's closing
prices in place of opening prices. This technique can create candlestick lines and patterns that
are unusual, but valid. The interpretation of candlestick charts is based primarily on patterns.

Each candlestick represents one period (eg: day) of data.

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