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How to Use Japanese Indices Candlesticks in Indices Trading


How to Read Candlesticks in Indices Trading - Japanese Stock Indexes Candlestick Patterns Tutorial

Brief History

Candlesticks were developed in the 18th century by the legendary rice trader called Homma Munehisa to give an overview of opening, high, low and closing market stock indexes price over a given period of time.


They were used by the legendary rice trader to predict future market indices prices. After dominating the rice market, Munehisa eventually moved to the Tokyo exchanges where he gained a huge fortune using this analysis. He is said to have made over 100 consecutive winning trades.


Types of Indices charts

There are 3 types of charts used in Indices: Line, bar and candlesticks.


Line - plots a continuous line connecting closing indices prices of indices.

Line Indices Trading Chart in Indices Trading



Bars- displayed as sequence of OHCL bars. OHCL represents OPEN HIGH LOW & CLOSE. The Opening stock indexes price is displayed as a horizontal dash on the left and closing stock indexes price as a horizontal dash on the right.

Bar Indices Trading Chart in Indices Trading



The main disadvantage of a bars is that it is not visually appealing, therefore most indices traders don't use them.


Candlesticks - these use the same stock indexes price data as bar indices charts (open, high, low, and close). However, they in a much more visually identifiable way which resembles a candle with wicks on both ends.



How to Interpret

The rectangle part is called the body.

The high and low are described as shadows and drawn as poking lines.

Trading Indices Candlesticks Trading Chart Patterns


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The color is either blue or red


  • (Blue or Green Color) - Indices Prices moved up

  • (Red Color) - Indices Prices moved down


Most trading platforms like the MT4, use colors to mark the direction. colors used are blue or green; when stock indexes price moves up, red; when stock indexes price moves down.


Stock Indexes Candlestick Vs. Bar Indices Trading Charts

Candlesticks Vs. Bars


When candlesticks are used it is very easy to see if the stock indexes price moved up or down as opposed to when a bars are used.


The Japanese techniques also have very many formations that are used to trade the Indices Trading market. These patterns have different technical analysis interpretation and the most common are:

Marubozu Indices Candlestick Pattern and Doji Indices Candlestick Pattern
Spinning Tops
Reversal Patterns
Inverted Hammer Indices Candlestick Pattern and Shooting Star Indices Candlestick Pattern
Piercing Line Indices Candlestick Pattern and Dark Cloud Cover Indices Candlestick Pattern
Morning Star Candlesticks and Evening Star Candlesticks


The above patterns is what makes the Japanese candlesticks popular among technical traders and it is why this type of analysis are the most widely used when it comes to analyzing the stock indexes trading market. The analysis for these pattern formations in indices trading is the same as that one used in stocks trading.


Drawing These Charts on MT4

To draw these on the MT4, select the charts drawing tools within the "MT4 Toolbar" - shown below.


MT4 Line, Bar, Candlestick Indices Trading Chart Drawing Tool Bar


To view this toolbar on MT4 go to "View" Next to file at the top left corner of the MT4 Platform, Click "View", Then Click "Toolbars", Then check the "Charts" Button. The above toolbar will appear.


Once the above toolbar, appears you can then select the type you want to convert to, If you want to view using the bar format, click the bar tool button as shown above, for line format click the line tool button, for Japanese candlesticks format click the "candlesticks tool button".

 

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