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The Japanese Candlestick is an ancient method of analysing markets. This method was originally used to trade rice in Japan many centuries ago, however, at the end of the 20th Century it started to be used in the western world. Japanese Candlestick analysis is now one of the top methods that newcomers to Forex trading need to get under the belts.

Perhaps the first thing that we should cover with regards to the Japanese Candlestick is how to form them. Whilst it is a difficult method, don’t worry, it isn’t too hard to do. Ideally you would carry out a bit more research than what I tell you right here though.
A Forex Japanese Candlestick can be drawn for any time period that you wish. For example, you can draw it over the period of a day, a month, or even one hour (although of course you need to be quick if you do it like that!). This is how you go about drawing a Forex Japanese Candlestick.

The first thing you will need to draw on your chart is a line for the opening and your closing price on the market. Connect these up to form a box. If the opening price is lower than the close price then leave the box ‘hollow’, if it is the opposite way around then make it shaded.

The next stage is to draw a line out of each end, not just any line though! At the top of the candlestick you will need to draw a line which leads to the highest price for that day. Out of the bottom you will need to draw a line down to the lowest price. You should be left with a pretty picture, however, that isn’t going to benefit your trading is it? Instead we will need to learn how to analyse your Japanese Candlestick Charts.

If you have a small body (the box in the centre) but lines which extend pretty far in either way then you have what is known as a ‘spinning top’. This isn’t an ideal candlestick chart because it shows during the period that you are measuring that traders couldn’t decide which way the market was going to trade. Not ideal as it indicates instability. I recommend not trading when this occurs.
The next type of candlestick that could be formed is known as the Marubozu. This occurs when there is no lines extending out of either the bottom or the top of the candlestick. This indicates that either buyers or sellers are in control of the session (depending on whether you have a black or white body), it is your decision as to how to best proceed with this trade. Read up more about this type of candlestick to find more about it.

Doji’s are a Japanese Candlestick Chart which is without a doubt the most complex to ‘define’. This occurs when the opening and close price is almost (or is) exactly the same. However you will have lines extending either side of the chart. You will need to look at the previous charts to see what is happening here. I won’t go into depth on this as it won’t be a pattern you notice much, although you do need to be aware of it.

This is just a highlight of the basics of Japanese Candlesticks. If you are using Japanese Candlestick Analysis there is so much more you need to learn, particularly with regards to other types of candlesticks that you can draw. It is absolutely vital you learn this information though, otherwise you won’t have any real success when you trade Forex.

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