Japanese Candlesticks Cfds and Spread Betting Are Complex Instruments and Come with a High Risk of Losing Money Quickly Due to Leverage

Japanese Candlesticks CFDs and spread betting are complex instruments and come with a high risk of losing money quickly due to leverage.

74.18% of investors lose money when trading CFDs and Spread Betting. You should consider whether you understand how CFDs and Spread Betting work and whether you can afford to take the high risk of losing all of your money.

Japanese Candlesticks...... 4 How To Read Japanese Candlesticks ...... 5 Candlestick Prices: ...... 6 Candlestick Patterns...... 7 Hammer Candles ...... 7 Inverted Hammer Candle ...... 7 Hanging Man Candle ...... 8 Shooting Star...... 8 Doji...... 9 High Wave ...... 9 Line Piercing ...... 10 Harami (Bullish) ...... 10 Harami (Bearish)...... 11 Evening Star ...... 11 Morning Star ...... 12 Tweezer ...... 12 Engulfing Bullish...... 13 Marubozu...... 14 Broadband ...... 15 Example...... 16 Large bearish broadband candle (USD / CHF, 30 min). 16 Bullish broadband candle (EUR / CHF, 30 min). . . . . 17 Summary ...... 18

Japanese Candlesticks

Japanese candlesticks are a key technical analysis tool used by traders to gauge the size of price movements. They display a market’s lowest point and highest point as well as the opening and closing prices, making them easy to analyze and more convenient compared to traditional line charts.

4 © Copyright 2020 By analyzing candlestick charts, traders can easily and conveniently identify regularly occurring patterns to quickly determine the direction of the market and forecast future price movements and adjust their positions accordingly.

Japanese candlesticks were invented in the 18th century by Munehisa Homa, a rice trader who used candlestick movements to predict price changes in the rice market. The candlestick patterns were popularized among Western traders in the 1990s by Steve Nison, an American stock broker.

How To Read Japanese Candlesticks

Japanese Candlesticks have three main components:

1. Color: Red candlesticks indicate a downward movement (bearish) in the market and green candlesticks indicate an upward movement (bullish) in the market. 2. Body: Displays the close and open prices of a candlestick period. 3. Shadow: The long line that protrudes from the candlestick body. The shadow indicates the lowest and highest price points that the market reached within a given candlestick period.

A green candlestick’s close price is indicated at the top of the body whereas the close price for a red candlestick period is indicated at the bottom of the body. As such, the open price for a green candlestick is represented at the bottom of the body whereas the open price for a red candlestick is indicated at the top of the body.

A long body on a green candlestick indicates a substantial bullish (increasing) price movement and a long body on a red candlestick indicates a significant bearish (decreasing) price movement.

The highest and lowest prices during a candlestick period are represented at the top and bottom of the candlestick shadows respectively. A shadow that is taller than the body is an indicator for a high level of volatility within the period.

High Price

Open Price Open Price

Buing Selling Candle Candle

Close Price Close Price

Low Price

Hammer Candles

A hammer shaped candle is believed to indicate an upcoming bullish movement and is characterized by a small or nonexistent upper shadow and a long lower shadow. Most traders will wait for an upward pattern in the period following a hammer candle to confirm that there is a sustained bullish movement before opening a position.

Inverted Hammer Candle

The inverted hammer candlestick is an upside down hammer candlestick and is otherwise visually identical. An inverted hammer can indicate that a price reversal is on the way and is characterized by a short body and a long upper shadow.

7 © Copyright 2020 The inverted hammer shows that buyers dominated the market and that sellers were unable to push the price down. An inverted hammer typically appears at the end of a downward trend and can be an indicator for a bullish reversal pattern. It is advised that traders wait for a bullish follow up candlestick before opening a buy position.

Hanging Man Candle

A hanging man looks like a hanging hammer and usually appears at the end of an uptrend. A hanging man is taken as a strong bearish signal and indicates that a downward trend may be imminent. A red rather than a green hanging man is considered to be a stronger indicator for an upcoming bearish pattern.

Shooting Star

A shooting star is characterized by an upper shadow that is at least twice the size of the body and a small or nonexistent lower shadow. Shooting stars appear at the top of an uptrend and are bearish indicators for a reversal in price.

The Doji candlestick is an indicator of indecisiveness and uncertainty in the market. The Doji candle is characterized by a closing and open price that are equal or nearly identical as evidenced in the small size of the body. A doji candlestick is considered to be an indicator for a trend reversal -if a doji candle appears at the end of an uptrend a downtrend is expected and vice versa.

High Wave

The high wave candlestick has a small body and long upper and lower shadows, indicating strong volatility in the markets. Whether the candle itself is bullish or bearish, a high wave candlestick is a possible indicator for a reversal in the direction of the price in the market as it is a sign of high price pressure and uncertainty.

A line piercing pattern indicates a potential for a short-term price reversal from a downtrend to an uptrend. The pattern consists of two candlesticks, the first one being bearish and the second one being bullish.

Harami (Bullish)

The term ‘Harami’ comes from the Japanese word for pregnant as the large candlestick followed by a small candlestick is said to resemble a pregnant woman. A bullish harami pattern typically has small shadows and always appears at the end of a downtrend, which can be a signal for the beginning of an uptrend.

A bearish Harami candlestick is characterized by a large green candle with small shadows followed by a smaller red candle. A bearish candlestick is an indicator for an impending downtrend in the market. In both a bullish and bearish harami pattern, the smaller the second candlestick, the stronger the strength of the indicator.

Evening Star

The evening star pattern consists of three candlesticks: A large bullish candle followed by a small bodied candle and ending with a large bearish candle. The evening star is the candlestick that appears in the middle of the pattern and must have an upper shadow that is longer than the shadows of the preceding and following candlesticks. An evening star indicates the top of a price uptrend and is used by traders as a signal for an upcoming bearish price movement.

Unlike an evening star, the morning star pattern comes at the end of a downtrend. It consists of three candlesticks: A large bearish candle followed by a small bodied candle and ending with a large bullish candle. The lower shadow of the small bodied morning star should be longer and lower than the shadows of the preceding and following candles. A morning star pattern is an indicator for an upcoming bullish price movement.

Tweezer

A tweezer pattern appears at the end of a clear bull or bear market and is characterized by two opposing candlesticks (one green and one red) with the first candlestick matching the previous trend. Tweezers are considered to be a sign of an incoming reversal in the market.

In a bullish engulfing pattern, a smaller bearish (red) candlestick is followed by a larger bullish (green) candlestick in the opposite direction. A bullish engulfing pattern appears at the end of a downtrend and is taken as an indication that there is positive momentum in the market if the second bullish candlestick is substantially larger and ‘engulfs’ the bearish candle.

Engulfing Bearish

A bearish engulfing pattern can appear at the end ofan uptrend and is represented by a bullish (green) candlestick followed by a bearish (red) candlestick. If the second bearish candlestick is substantially larger and ‘engulfs’ the bullish candle, it is taken as a potential sign for upcoming negative momentum in the market.

Marubozu is a term that comes from the Japanese word for ‘bald’ and describes a candlestick that is absent of both a lower and upper shadow. A red marubozu shows that bearish sentiment dominates the market and is an indicator that the downtrend will continue if it appears as part of a downtrend or could be an indicator that a reversal is imminent if it happens following an uptrend. The green marubozu indicates the exact opposite: Bullish sentiment is dominant and therefore an uptrend could continue or a reversal is imminent if it follows a downtrend.

Broadband candles are long candlesticks that are at least 2-3 times longer than the other candlesticks in a trading period. They often are the result of important political or economic developments although this is not a necessary requirement.

Broadband candlesticks indicate strong momentum towards an upward or downward trend and may indicate that there is little buying interest in the case of a broad red candle and little selling interest in the case of a broad green candle.

If there is a broadband candlestick during a trading period, it is a signal to stay out of the market and could be an indication that the price direction of the market will not hold.

Summary

Japanese candlesticks are one of the most popular, accurate and easy to use technical analysis tools, and can be applied for analysis of various financial instruments. Candlesticks enable traders to visually read and make calculated predictions on a price movement of stocks, forex and commodities through different models and time frames.

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