How to Read Japanese Candlesticks

The most important thing to know about Japanese candlesticks is how to read them. Japanese Candlesticks usually come in two different colors. One color which represents an up day, and a second color which represents a down day. Most trading programs allow you to change the color of your bull and bear candles at will. Below are two different colored candles, in this example the black candle represents a down day and the white one an up day.

As you can see in a black candle’s real body, the open is above the close. This means that the market opened higher than it closed in price. Traders call these candles bear candles, or bearish candles. The white candle is the exact opposite with the open way above the close representing a rise in price for that instrument. Both candles also have lines drawn above and below them, which represent the highs and lows for the trading period.

Now for an example of Japanese candlesticks in use. Examine this unlabeled chart and see if you can spot any patterns.

All pictures in this post are credited to Steve Nison, author of Japanese Candlestick Charting Techniques 2nd Ed.