How to Use Japanese Candlesticks in Stock Index Trading
How to Read Candles in Indices - Japanese Stock Candlestick Setups TutorialBrief History
Candles started in the 1700s. Rice trader Homma Munehisa made them. They show open, high, low, and close prices for a time frame.
The well-known rice dealer used them to forecast future prices in the market. Munehisa ultimately transferred to the Tokyo Stock Exchanges, where he utilized this analysis to amass a large trading wealth after ruling the rice industry. It is said that he executed more than a hundred successful deals in a row.
Types of charts
Three types of charts exist used in Indices: Line, bar & candles.
A line is drawn to create a continuous connection between the closing prices of indices.
Bars - These show a series of OHLC bars. OHLC means open, high, low, and close. The open price appears as a short line on the left. The close price shows as a short line on the right.
A primary drawback of bar charts is their lack of visual appeal, leading many traders to avoid them.
Candlesticks use open, high, low, and close data like bar charts. They display it as candles with wicks on each end for clear view.
How to Interpret
The rectangle section is known as body.
The high & low are referered to as shadows & drawn as poking lines.
The color may be either blue or red
- (Blue or Green Color) - Prices moved up
- (Red Color) - Prices went downwards
Most platforms such as the MT4, use colors to mark direction. Color used are green or blue: when price moves & heads upward, red: when the price moves & heads downwards.
Candles Vs. Bar Chart
Utilizing candlestick charting makes it significantly easier to discern the market's upward or downward movement compared to using bar charts.
Technical analysts use many patterns from Japanese trading methods to trade in the market, and these patterns have different ways of explaining market analysis. The most common ones are:
The reason why Japanese candles are well-liked by technical traders and why this kind of study is used so frequently in analyzing the trading market is due to the aforementioned trends. The method for analyzing the creation of these pattern configurations in stock index trade is the same as the one used in stock trading.
Drawing These Charts in MetaTrader 4
To draw these on the MT4, choose the trading charts drawing tools within the MT4 Tool-Bar - shown below.
To see this toolbar in MT4, go to "View" next to "File" in the top-left part of the MT4 program, click "View", then click "Tool Bars", and then select the "Charts" button. The toolbar mentioned above will then be displayed.
Once you open the toolbar, you can pick your favorite chart style. Click the bar tool for bar charts, the line button for line charts, or the candlestick option for Japanese candlesticks.
Check out more topics and guides
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- How Can I Draw Index Trend-Lines Bounce Analysis?
- How Can I Trade GER30 Trading Strategy?
- How to Trade Using MetaTrader 4 Practice Demo Account
- How to Trade SMI in MT4 Platform
