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Japanese Candlesticks Patterns

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

 

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

 

Types of Gold Trading Charts

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

Line charts

Line charts - line charts are plotted using a continuous line connecting closing prices of a XAUUSD, Gold metal.

XAUUSD Line Chart

 

Bar Charts

Bar charts - bar charts are displayed as sequence of OHCL bars. OHCL represents OPEN HIGH LOW & CLOSE price. The Opening price is displayed as a horizontal dash on the left and closing price as a horizontal dash on the right.

XAUUSD Bar Charts

 

The main disadvantage of bar charts is that they are not visually appealing; therefore most Gold traders don't use these charts.

Candlestick Charts

Candlestick Charts - candlestick charts use the same price data as bar charts (open, high, low, and close price). However, these charts are presented in a much more visually identifiable way which resembles a candle with wicks on both ends.

XAUUSD Candlesticks Charts

 

 

How to Interpret Japanese Candlesticks Charts

The rectangle part is called the body of the candlestick.


The high and low are described as shadows and plotted as poking lines.
The color is either blue or red

  • (Blue or Green Color) - Shows prices moved up
  • (Red Color) - Shows prices moved down

 

Most trading platforms like the MetaTrader 4, use colors to mark the direction of the candlesticks. Colors used are blue or green; when price moves up and red; when price moves down.

 

When candlesticks charts are used it is very easy to see if the price moved up or down as opposed to when bar charts are used.

XAUUSD Candlesticks Charts vs Bar Charts

 

The Japanese candlesticks charting techniques also have very many formations that are used to trade the XAUUSD Metal. These candlestick chart patterns have different technical analysis interpretation and the most common Japanese candlesticks patterns are:

  1. Marubozu & Doji candlesticks
  2. Spinning Tops candlesticks
  3. Reversal Patterns candlesticks
  4. Inverted Hammer & Shooting Star candlesticks
  5. Piercing Line & Dark Cloud Cover candlesticks
  6. Morning Star & Evening Star candlesticks

 

The above Japanese Candlesticks patterns is what makes the Japanese candlesticks charting popular among technical traders and it is why this type of analysis is the most widely used when it comes to analyzing the XAUUSD metal prices. The analysis for these candlesticks pattern formations in Gold trading is the same as that one used in stocks trading as well as Forex trading.

 

Drawing These Candlesticks Charts on MetaTrader 4 Platform

To draw these candlesticks charts on the MetaTrader 4 platform, select the charts drawing tools within the "MetaTrader 4 Toolbar" as shown below.

MetaTrader 4 Charts Drawing Toolbar

 

To view this charts toolbar on MetaTrader 4 go to "View" Next to file at the top left corner of the MetaTrader 4 Platform, Click "View", Then Click "Toolbars", Then check the "Charts" Button. The above toolbar will appear.

 

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

 

Technical Analysis