How to Use Japanese Candles in Indices Trading
How to Read Candles in Indices - Japanese Stock Candle-stick Setups TutorialBrief History
Candles were created in the 18th century by the legendary rice trader called Homma Munehisa to give an overview of the opening, high, low and closing market price over a specified period of time.
They were used by legendary rice trader to predict future market trading prices. After he dominated the rice market, Munehisa eventually moved to the Tokyo exchanges where he gained a huge trading fortune using this trading analysis. He is said to have made over a hundred consecutive winning trade transactions.
Types of charts
There are Three types of charts used in Indices: Line, bar and candles.
Line - plots a continuous line connecting closing prices of indices.
Bars- displayed as sequence of OHCL bars. O-H-C-L represents OPEN HIGH LOW and CLOSE. Opening price is displayed as a horizontal dash to the left & the closing price as a horizontal dash to the right.
The main disadvantage of a bars is that it is not visually appealing, therefore most traders do not use them.
Candlesticks - these use the same price data as bar charts (open, high, low, & close). However, they are displayed in a much more easily identifiable way that looks like a candlestick with wicks on both its ends.
How to Analyze
The rectangle section is known as body.
The high & low are described as shadows & plotted as poking lines.
The color is either blue or red
- (Blue or Green Colour) - Prices moved up
- (Red Color) - Prices went down
Most platforms like the MT4, use colours to mark direction. Colors used are blue or green: when the price moves up, red: when the price moves down.
Candlesticks Vs. Bar Chart
When candlesticks are used it is very easy to see if the price headed up or down as opposed to when bars are used.
The Japanese strategies also have very many formations that are used to trade the market. These patterns have different technical analysis explanation and the most common are:
The above patterns is what makes the Japanese candlesticks popular among technical traders and it is why this type of analysis are most often utilized in analyzing the trading market. The analysis for these pattern setup formations in trade is the same as that one used in stock trading.
Drawing These Charts in Meta Trader 4
To draw these on the MT4, choose the trading charts drawing tools within the "MT4 Toolbar" - shown below.
To view this tool-bar in MetaTrader 4 navigate to "View" Next to file at top left corner of the MT4 Platform, Click "View", Then Click "Tool bars", Then check the "Charts" Button. The above toolbar will appear.
Once the above toolbar, pops up you can then select the type you want to convert to, If you want to view using the bar chart format, click the bar tool button key as shown above, for line format click the line tool button, for Japanese candlesticks format click the "candlesticks tool button key".
