Japanese candlesticks are basically an ancient tradition of the Chinese for keeping tabs on the rice markets. Considered by many (safe to say at this point.) to be the best way to view an asses price action. Japanese candlestick have become popular in just about every liquid market.

Candlestick charts show a trend just like any other chart but with more detail. They use a value system of open, high, low and close. There are 2 basic parts to a candlestick; the body, that is a rectangle shape either filled or hollow, and the shadows that are simply lines above and below the body.

A high is marked by the top of the upper shadow or a wick. It indicates the highest point of the day in trading. The low is marked by the bottom of the lower shadow. If a security closes higher than it opened, then a hollow body is drawn. The top line of the body itself would indicate the close and the bottom line of the body would indicate the open. If a security closes lower than the opening price, then a filled body is drawn with the top line indicating the opening and the lower one indicating the close. (See below.)

Candlestick charting is much more intuitive than any other form of chart reading once you learn some basics. A candlestick pattern can reveal price action relative to the past better than any other form of charting available. Not only do you get instant insight into current price action, but also that action relative to the past.

All candlesticks have a body and a wick or shadow, unless the open close high and low are equal to each other in which case you would have a little dash and that’s it. A white body is an empty body, and a black one is a full body. The empty/white body represents a close greater than the open, and a black/full body represents a close less than the open. The size of the body represents the distance between the open and close.

When you have a body with no shadows its called a Marubozu. I can be black or white in which case its a “black Marubozu or a white Marobozu. In each case the open and close are equal to the high and the low. With the black the open is equal to the high and the close is equal to the low. The white would be the open is equal to the low and the close is equal to the high.

Another important candlestick pattern is a spinning top. Spinning tops are represented by a long or short shadow / wick and a short real body. The short body tells us that there was a small gap between the open and close. If the shadow or wick is long it tells us that the highs and lows of the day moved hard but failed to remain strong. Whichever was long tells you of potential upcoming underlying strength.