Japanese candles: analysis of combinations, application features, types

Graphs of Japanese candles (and here, of course, do not mean Japanese spark plugs) are built on the same data as conventional bar charts, but they seem different. Their components are the opening price of the trading period and its closing, as well as the maximum and minimum prices at any chosen time interval - weekly, daily or intraday.

Using Japanese candles

The relationship between the levels of the initial price and the final forms the body of the chart. If the last price is lower than the first, then the body is painted black. Otherwise it is white. These prices are important for analysts using the analysis of Japanese candles.

Movements of prices up and down are called a shadow. Depending on how large the distance between the maximum and the minimum of the price and the body of the candle, the shadows can be long or short.

Technical analysis of Japanese candles says either about the slowdown of the market trend, or about its spread. It is important to understand that there is a relationship between reversal models of different types. For example, analysis of Japanese candles predicts the day of a key trend reversal with the help of "bull" or "bear" capture.

Traders like to work with candles, because they show the behavior of investors in a different, but simple price pattern, which is easily combined with other trading tools. Diagrams can be analyzed without time delay, and the market can be tracked relative to the price of opening, minimum, maximum and closing of each candle.

Frequently observed combinations of Japanese candles are well combined with Fibonacci trading instruments. The interested reader will find many books describing them in detail.

"Hammer" and "Hanged"

Japanese candlestick patterns are called "hammers" if they have a long shadow and a small body (black or white), located close to the daily high. At the end of the downtrend, the "hammer" is considered a signal of a "bullish" reversal.

These figures must have a sufficiently long shadow. Ideally, it is three times the length of the body. A long shadow shows that the market price fell very sharply after the opening, and then recovered by the end of the trading day. The starting and ending price should be located not far from each other, as a result of which the candle body on the chart will be small.

At the end of the uptrend, the same model is called "hanged". This figure is also an indicator of the reversal. Signals of Japanese candles for sale arise when the market price is trading below the minimum price of the "hanged man" in the following days. Sometimes it is even safer to wait until closing to make sure of this.

"Bullish" and "bearish" seizure

These are types of Japanese candles, the opening price of which is very low ("bullish") or high ("bearish"). The longer the body, the higher the probability of a trend reversal.

When the initial price of the next day is longer than the long one, it is likely that the market will go up. On the other hand, if it is lower next day, traders can expect that the market will continue to decline.

"Windows" ("gaps")

"Windows", as they are called in Japan, or "gaps", are an important concept in technical analysis. Whenever a gap is formed, that is, the current opening price does not correspond to the previous closing price, this means that in this interval there was no price and volume of trades.

The gap above occurs when the initial price of the second day is higher than the final first. Conversely, the gap below happens when it is higher. Windows can act as a resistance line with a reduction in prices and support for their growth. Often after the gap, the prices try to fill it, and then change direction and continue their movement towards the window.

"Two Crows Rising"

The "gap" at the top with two subsequent black short candles, reminiscent of crows, is a "bearish" figure. It occurs when a growing market opens with a "window", but new highs can not hold, and the market forms a black candle. The third session draws an even bigger "bearish" picture with a new high and another unsuccessful attempt to keep them until the close. If prices do not return the achieved price the next day, we should expect them to fall.

"Three black crows"

The figure consists of three consecutive black candles with falling opening prices within the body of each previous one. It speaks of a decline in the market, if it occurs with prolonged growth or in the field of high prices. There is an option when the opening price of each next candle coincides with the closing price of the previous one. It is called the three identical crows and indicates a particularly strong "bear market".

"Bearish" and "bullish" takeover

Along with single formations of "hammer", "hanged" and "capture", absorption figures for compiling a combination always require two Japanese candles. A graphical analysis of "bullish" takeover allows you to determine the turning point at the end of a downtrend. This happens if a long white body completely covers the body of the previous small black candle. It does not matter whether it absorbs the shadow of yesterday or not.

"Bearish" absorption is important at the end of the growth trend. In this case, a long black candle covers the body of the previous short white.

Figure and cross "harami"

It is formed by two candles and is the exact opposite of the previous ones. In the traditional analysis of diagrams, it is called an "internal day".

The "harami" has a small body (of any color) that fits completely into the previous longer one. It does not matter whether the given condition is satisfied for the shadow. The figure is important in the event that at the end of the downward trend, today's body is small in size white, and the long previous candle is black. The turn signal is even stronger when today's body is very small. After a downtrend, the figure may be a "bullish" signal, and at the end of the ascending trend it is "bearish".

Cross "harami" is a special kind of this figure, when today's body of a candle is extremely short, that is, the initial and final price of a trading day almost coincide.

"Doji"

The figure "doji" determines when the momentum of the markets slows down. Candles "doji" have a very short body (the initial and final price is almost the same), above or below which is a long shadow.

These are Japanese candles, the analysis of combinations of which is interesting only at the end of prolonged ups and downs. They are important when they form a figure of absorption.

Penetrating line

This figure looks the same as the "bullish" absorption model, and operates only at the end of a downtrend, while in the last a long white today's candle covers the previous short.

The signal of the penetrating line occurs when today's large white candle covers at least 50% of the previous black one. With the increase in the percentage of overlapping of the black body, the strength of the trend change also increases with white.

"Curtain of dark clouds"

These are Japanese candles, the analysis of combinations of which allows you to get a trend reversal signal at the end of the growth period. In this case, the long black should cover at least half of the white formed the day before. With the increase in the share of coverage, the probability of a trend reversal will also increase.

"Star"

The figure is formed when a small body (of any color) is separated from the long candle formed the day before, by the price gap. The body can touch the previous shadow, but not the body. If the "star" is not short, but there is "doji" (equality of the initial and final price), the candle is called the "doji star". It signals an inevitable trend change.

"Morning Star"

"Stars" are Japanese candles, the features of which are as follows. The morning star is the figure of the lower turn formed by three candles. The first has a long black body, since it is part of a downtrend. The second - a star with an extremely short body, located below the previous one, not connected with it. A long white third covers at least half of a long black body two days old. Ideally, the third body should be traded in isolation from the "star" of the previous day. In case the 3rd candle is encompassing, it just as clearly signals a change in the trend.

"Evening stars"

These are Japanese candles, the analysis of combinations of which predicts a trend reversal after a strong ascendant. They also consist of three candles. The first one is a long white one. The next one is a "star" with a black or white body without connection to the previous one. The third has a black long body covering at least 50% of the first. The "star" and the last black long body must also have a gap. If there is a "bearish" takeover, then this constellation is also a sure signal of the trend reversal.

"Falling star"

It is a strong signal that the price increase will drop abruptly. This figure should be sought after a long rise, ending with a candle with a black short body. "The shooting star" clearly shows that the market pauses to think about the current price increase.

Japanese candles: application features

Figures allow you to visualize the acceleration and deceleration of trends or indicate their change.

• "Hammer" often appears at the end of a downtrend and is considered a signal of a "bullish" reversal. This indicator of Japanese candles speaks about the need to buy at the high of the previous day. The stop order is set below the minimum value of the previous day.
• "Hanged" corresponds to the "hammer" at the end of the uptrend. It is necessary to sell at occurrence of this figure if it is punched by its minimum. Stop order in this case is set to the maximum price of the "hanged".
• "Bullish" absorption is often found at the end of a downtrend and points to its reversal. The use of Japanese candles is to buy at a high of the day with a long white body. The stop order is set below the minimum of the big or small candle, depending on which one is the smaller.
• "Bearish" absorption most often occurs at the end of the upward trend. The sell signal is at the minimum of a long black Japanese candle. The stop order is set above the maximum value small or large, depending on which of them is larger.
• "Harami" - Japanese candles, the analysis of combinations of which allows you to determine the changes at the end of an upward or downward trend. The figure is not related to the current market conditions. At the end of the downtrend, the signal to buy will be a breakdown of the maximum of the candle with a white long body. A stop order is placed at the minimum of this day. If the minimum of a candle with a black long body is punched, this is a signal for sale at the end of the upward trend. Stop order is set at the maximum of this particular day.
• "Morning Star" indicates the movement of an uptrend in the market. You should buy at the maximum of the right candle with a long white body. A stop order is placed on the minimum of the small candle in the middle of the figure.
• "Evening Star" indicates a tendency to decline. Should be sold at the minimum of the right black candle. The stop order is placed at the maximum of the small, located in the center of the figure.