How to Use Japanese Candlesticks in Stock Index Trading
How to Read Candles in Indices - Japanese Stock Candlestick Setups TutorialBrief History
Candles were created in the 18th century by a legendary rice trader named Homma Munehisa to give an overview of the opening, high, low and closing price over a specified period of time.
They were used by the famous rice trader to predict the future market market prices. After he dominated the rice market, Munehisa eventually moved to the Tokyo Stock Exchanges where he gained a huge trading fortune using this analysis. He is said to have made over a hundred consecutive winning trades.
Types of charts
There are Three types of charts used in Indices: Line, bar & candles.
Line - plots a continuous line connecting closing prices of indices.
Bars- displayed as sequence of OHCL bars. OHCL represents OPEN HIGH LOW & CLOSE. Opening price is illustrated as a horizontal hyphen on the left and the closing price as a horizontal dash to the right.
Main disadvantage of bars chart is that it is not visually appealing, hence most traders do not use them.
Candlesticks - these use the same price information as bar charts (open, high, low, & close). However, they are displayed in a much more easily identifiable way that resembles a candlestick with wicks on both its ends.
How to Interpret
The rectangle section is known as body.
The high & low are referered to as shadows & drawn as poking lines.
The colour is either blue or red
- (Blue or Green Color) - Prices moved up
- (Red Color) - Prices went down
Most platforms such as the MT4, use colors to mark direction. Color used are blue or green: when price moves up, red: when the price moves down.
Candles Vs. Bar Chart
When candlesticks are used it's very easy to see if the market price headed up or down as compared to when bars are used.
The Japanese strategies also have very many formations which are used by technical analysts to trade the market. These patterns have different trading analysis explanation & the most regular are:
The above patterns is what makes the Japanese candles 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 formation formations in Stock Index trade is the same as the 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 Tool-Bar" - shown below.
To view this tool bar in MT4 navigate to the "View" Next to file on top-left corner of the MT4 Software, Click "View", Then Click "Tool Bars", Then check the "Charts" Button. The above tool bar will appear.
Once the above toolbar, pops up you as a stock indices trader can then choose & select the type you as the trader want to convert to, If you as a trader want to view using the bar chart format, click the bar tool button as is shown above, for line format click the line tool button, for Japanese candlesticks format click the "candlesticks tool button".
Get More Topics and Guides:
- How to Place Accumulation Distribution Indicator on Stock Index Chart
- 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
