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§5.3 Bars and Japanese candles

These patterns are widely used amongst traders. The bar represents a little vertical line with two little horizontal stripes. The upper point of the bar is a maximum price and the lower point is a minimum price for the hour. In turn, a little stripe to the left of the bar marks the hour’s opening price and a little stripe to the right of the bar marks the hour’s closing price. Apart from the hourly bar there are minutes, 6 hour, daily and weekly bars.

In fact, Japanese candles are almost the same as the bars but more visual. Instead of two little stripes, it has a rectangular shape which angles mark opening and closing prices. If the closing price is above the opening price, then body of the candle is filled in white color; if it is below it, then it is filled in black color; if the prices are at the same level, then the rectangle turns into a little horizontal line. The so-called “wick” represents a straight line drawn from the hour’s high to its low through the center of the rectangle.  

Japanese candles can send the following signals:

– A white candle in itself is a sign of rising prices. The longer the candle and its extension are then the stronger the trend will be. The black candle is a sign of declining prices.

– A long “wick” is a sign that the price tried but failed to go in the direction where the “wick” is drawn. That’s why if the “wick” is longer than a candlestick then we can suppose that the price is going down. The longer the “wick” is then the higher the probability that this will happen.

– A “hammer” and “inverted hammer”. The pattern is similar to the previous one – a long “handle” or “wick” and a very small body. “Hammer” is a signal of an uptrend and “inverted hammer” is a signal of a downtrend.

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– “spinning top” and

– “spinning top” and “doji” are neutral figures which have similar upper and lower shadows or don’t have shadows at all. It takes on significance in relation to other candles. Apart from separate candles, their combinations can provide us with useful information such as “dark cloud cover” which is a sign of a downtrend and “piercing pattern” which is a sign for an uptrend. Because these patterns are, in fact, similar to double tops we will not go over them in detail here. We should be aware that bars and Japanese candles are not just poetic names but simple and convenient market signals for traders to use in making decisions quickly and efficiently.

§5.4 Indicators→