Before you start quizzing us as to what candles and wax have to do with Forex trading, let’s clear this up right away. A Japanese Candlestick is a formation on a chart that can be used as a tool for trading. The cool thing about these candlesticks is that they may look a lot alike but in reality they differ quite a bit from one to another.
The Long And The Short Of It
When drawn on a chart, Japanese candlestick form different size bodies. One is called a long body and the other is called a short body. The size of the body can have a bearing on what you may wish to do with a particular trade. For example, long bodies indicate a high buying or selling activity. The more intensity that accompanies the buying or selling pressure is shown in the longer the candlestick body is. A long body shows you that buyers or sellers were strong and actually took control over the circumstances. A long white body shows there was strong buying pressure while a long black candlestick points to strong selling pressure.
With Forex offering an infinite series of opposites, what do you think short bodies on Japanese candlesticks are all about? Short bodies indicate not much of anything, really. In Forex trading a short bodied Japanese candlestick says that buying or selling activity was minimal. Virtually zilch. In other words, dull. Uneventful. The complete opposite of a long candlestick body.
The Shadow Knows!
As tempting as it is to start reciting scripts from the classic radio program, shadows do actually reveal something interesting in Forex trading. The shadows that appear above or below a Japanese candlestick can give you some additional information that can assist with your trading experience. The upper shadow (above the candlestick) shows the position of the highest price during the trading session. The lower shadow marks the session low price. So, once you are able to read all the data from a single candlestick, you will able to identify a great deal of information from a single graphic.
There’s also information that comes from the length of the shadows. A long shadow will tell you that trading activity was heavy long after the open and close. Short shadows point to the fact that most of the trading activity took place closer to the open and close of the session.
The Science Is Not Always There
As we’ve been telling you all along, what you know about the data that you choose to follow in Forex will guide you somewhat. However, it is far from an exact science. Regardless, reading and understanding Japanese candlesticks will help you a great deal if only to identify certain circumstances during a particular session. Sometimes that alone is the information you will need that can lead you into another session with confidence. They may not always burn brightly, but you can certainly expect a Japanese candlestick to light up your data and go out when it has served its purpose.