It is important that before you start trading using the robotic trading software that trades using technical analysis, you first understand the basics of technical analysis and the chart type that is used. Learn more about it here.
The Japanese candlestick charts are popularly used in technical trading. This pattern traces its origin to Japan and it was in the 18thcentury that this kind of chart was first used by Homma Munehisa who was a rice merchant in Japan.
This chart pattern has been in existence for a very long time and they are the oldest way to analyse price. But it was introduced to the western world very late. It was sometime in the 1980’s when a trader named Steve Nison happened to discover about these charts. He then introduced this method to the whole world. The first book written by him, Japanese Candlestick Charting Techniques, is still very popular among traders.
When you do technical trading you will also observe that some of the patterns still use the Japanese names.
The anatomy of a candlestick chart is simple. In a bar chart the open and the close points are indicated as a tick on the left and the right side of the bar. In a Japanese chart the open and the close is represented by a rectangular body.
The other advantage of this chart is that it uses colours to classify the bullish and the bearish candles. The bullish candles are usually in blue, green or white colours and the bearish candles in red and black colours. You can also customise the colours to your choice when you use any technical analysis software.
The bars are made using three components. These are the central real body which is rectangular in shape. This connects the open and the close price. It has an upper shadow and a lower shadow. The upper shadow connects the high to the close and the lower shadow connects the low to the open.
The bearish candlestick also has 3 components. The central body is rectangular and it connects the open and the close price. Here the open is higher and at the top and the close price is at the rectangles bottom end. The upper shadow is drawn to connect the open to the high and the lower shadow connects the close to the low point.
It is important to know the way these are plotted as it makes it easy to understand the patterns. These candlesticks are then plotted on time series.