Japanese Candlestick Charts

The Japanese candlestick method is one of the most popular methods used for viewing price charts, providing a clear visual representation of price action.

One single candlestick displays four key points of the price movement during a given time frame:

  • Open
  • High
  • Low
  • Close

Candlestick Components

  • The Shadow or Wick: This component shows the distance between the highest and the lowest price points reached.
  • The Body (Real Body): This component measures the distance between the opening price and the closing price.

Sentiment Indication by Color

The color of the body reflects the market sentiment based on the relationship between the open and close prices:

  1. Positive Sentiment (White Body): When the closing price is higher than the opening price.
  2. Negative Sentiment (Black Body): When the closing price is lower than the opening price.

Candlestick Patterns: The Hammer

There are many different shapes and sizes of candlesticks, and the patterns they form all have special names. One of the simplest and most popular patterns is the Hammer.

  • Structure: The Hammer consists of just one candle. It features a long lower shadow and a short body with tiny or no shadow on the top.
  • Classification: It is a type of bullish reversal candlestick.

Detailed Summary

Japanese candlestick charts are a highly popular method for visualizing price action, displaying four critical price points (Open, High, Low, Close) within a specific time frame. Each candlestick consists of a Body (measuring the difference between open and close) and a Shadow or Wick (showing the range between high and low). The color of the body indicates market sentiment: a white body signifies positive sentiment (close > open), while a black body signifies negative sentiment (close < open). The text also introduces a simple, popular pattern called the Hammer, which is a single-candle bullish reversal pattern characterized by a long lower shadow and a short body.

Key Takeaways

  • Japanese candlestick charts are a leading method for viewing and understanding price action.
  • A single candlestick displays four key price points: Open, High, Low, and Close.
  • The Shadow or Wick represents the distance between the highest and lowest prices reached.
  • The Body (Real Body) measures the distance between the opening and closing prices.
  • Positive Sentiment (White Body) occurs when the closing price is higher than the opening price.
  • Negative Sentiment (Black Body) occurs when the closing price is lower than the opening price.
  • The Hammer is a popular, single-candle pattern.
  • The Hammer pattern is classified as a bullish reversal candlestick.
  • The Hammer features a short body and a long lower shadow, with little to no upper shadow.