Educational Zone

History of Candlesticks

The culture of investing and trading goes back centuries in Japan , also candlesticks terminologies return to the long term war and conflict in Japan in 16th and17th century .

Yodoya Keian : One of the prominent merchant who influenced the price of rice in Japan and the first rice exchange was in his yard in late 17th century and was named Dojima rise exchange , but all his assets was taken from him by the government .

By 1710 the rice storage houses were issuing receipts called '' rise coupons'' also called '' empty rice coupons '' fixing the price of rice , and this become the first form of rice future contract.

By the mid of 18th century trading on the rice futures was formulized and the first appearance of the candlesticks by the hand of" Homma" , also called Sakata , was called the God of the market , because he was the most successful trader of the time. He began searching and correlating price movement and weather conditions , recognize a repetitive pattern in trading rice , the entire Japanese philosophy in trading and investing on exchanges was based on his observations .

In western world , candlesticks have been used in charting and technical analysis only since 1989 when Steve Nison , the first modern analyst and the pioneer of candlesticks charting outside Japan introduced the candlesticks school to the west , even when candlesticks were introduced they were perceived as difficult to understand and little interesting .

Today candlesticks are not foreign, complex or mystical , they have become the mainstream charting tool for the technician for the most price analysis.

Candlesticks attributes

The attributes of every candlestick are defined in three areas:

1.Opening and closing prices :

opening and closing prices are found at the two borders of the rectangle, this rectangular box is called the real body.

White candle:

The opening price is at the bottom of a rectangle and the close is at the top of the rectangle.

Black candle:

 The opening price is at the top of the rectangle and the closing is at the bottom of the rectangle.

when the opening and closing price are identical or very close , the real  body is replaced by a horizontal line and this session called a Doji candle.

2. Trading range from high to low:

The full trading range for each session is represented by the upper and lower shadows of the candle.

Upper shadow:

Represented by the upper extension from the real body of the candle .

Lower shadow :

Represented by the lower extension from the real body of the candle.

 

3.Direction of movement :

One of the most powerful visual attributes of candlestick charting is the ability to immediately see the overall direction that price is moving. A white candlestick reveals that the session moved upward, and a black candlestick reveals a downward moving session.

The importance of long candlesticks

The longer the real body , the more dominance for buyer in long white and  more dominance for the sellers in long black candle. So long candlesticks often signal continuation or reversal .

When the long body appears in the same direction as the existing trend (long white in uptrend or long black in downtrend ) it indicates continuation in the existence trend , specially when this long white candle break through resistance and when long black candle break through support .

When the long candle in opposite color to the prevailing trend, (long white after a downtrend  or long black after an uptrend ) it often serves as a signal of reversal , either by itself or as part of a multisession reversal pattern .

The Doji session ‎

The Doji session is one in which the real body is so narrow that it consists only of a horizontal line because opening equal the closing price.

A Doji might look like a cross specially with both long upper and lower shadows. This shape of the Doji indicates a strong struggle between buyers and sellers , and the market lose its sense of direction which could lead to a reversal in the prevailing trend.