Welcome to our course on Japanese Candlesticks. Please download the quick reference guide in the materials tab and press play to get started:
What are Japanese Candlestick Patterns?
Japanese Candlestick Patterns are the interpretation of patterns created using the candlestick chart type – we introduced this in the course Getting Started with Charts.
They are considered the ABCs of technical analysis – they are the building blocks all serious technical traders need to have a grasp of.
How traders use them
By finding recognisable, repeatable candlestick patterns in markets we’re trying to understand the psychology of the market – and therefore the sentiment – at that point in time. In an actively traded market the buyers and sellers are constantly battling each other. Remember our descriptions from How Traders Interact with the Markets:
Buyers want to buy low and sell high.
And sellers want to sell high and buy low.
Both sets of market participants are trying to make a profit. A market’s price is a reflection of the outcome of this constant battle – trader’s analysing candlestick patterns are trying to obtain an insight into the psychology of the market with a view of themselves using this insight to make profits.
There are many different types of candlestick pattern, each tells us certain things about the market but essentially traders use them to identify trend reversals.
How to use candlestick patterns
We think candlestick pattern analysis works best when used with other forms of analysis.
- Traders analyse candlestick patterns to alert themselves to changes in market psychology.
- Essentially traders use the analysis to help identify trend reversals.
- Candlestick pattern analysis works best if supported by other types of technical analysis.
Once you’re finished with this lesson please click ‘Mark Complete’ to move on.
