Learn to analyze charts with Japanese Candles

Welcome to the most innovative trading platform — Pocket Option!
To make your experience as comfortable as possible and to acquaint you with all the main features of the platform in a short time, we have prepared a series of training materials that will give you the basics of trading and the ability to navigate the market.

What are Japanese candlesticks?

Japanese candlesticks are a type of interval chart that displays price movement over a specified period (set by a trader from a few seconds to several days). The initial trading interface that the user comes to after registering on Pocket Option platform is displayed exactly in the form of Japanese candlesticks.

Pic. 1 Japanese candlesticks chart

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Japanese candlesticks are composed of two main elements.

1. Body

The boundaries of the candlestick body display the open and close prices for the period of the candlestick construction. The body is colored green if the closing price for the period of the candle is higher than the opening price, and red if the closing price is lower than the opening price.

2. Shadow

The upper and lower borders of the shadow represent the high and low of the price for the period of the candlestick construction.

That is, the green candlestick shows the price movement up, and the red one - the downward movement. If there is no movement (the opening price is equal to the closing price), then the candlestick body will be absent.

Pic. 2 Candlesticks elements

Important:

The drawing of the candlestick ends a little earlier than the specified duration for visual separation purposes. In this regard, “gaps” will form on the chart — visual gaps between adjacent candles, caused by a sharp jump in price in the interval between candlestick constructions.

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Types of Japanese candlesticks and their signals

1. Doji

Is a candlestick with a very small body, or no body at all (the opening and closing prices are almost equal, or the same). When Doji appears on the chart after a strong trend, it can signal a likely price reversal.

There are several types of Doji:

1.1. "Long-Legged Doji" ("Rickshaw Man") — both shadows of the candle are long. Indicates uncertainty in the market.

1.2. "Dragonfly Doji" is a candlestick with a long lower shadow and no upper shadow (the opening and closing prices are approximately equal to the maximum price). Usually signals a trend reversal upward.

1.3. "Gravestone Doji" is a candlestick with a long upper shadow and no lower shadow (open and close prices are approximately equal to the minimum price). Usually signals a downward trend reversal.

1.4. "Four Price Doji" — a candlestick without shadows (the opening and closing prices are equal to the maximum and minimum prices).

Pic. 4 Doji

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2. The Hammer / Hangman

Is a candle whose body is located in the upper part, the upper shadow is absent or very small and the lower shadow is at least 1.5 times longer than the body. However, they can be of any color.

These candles are an important signal of a trend reversal. The hammer is at the end of a downtrend and speaks of a possible upward reversal, while the Hanged Man is at the top of an uptrend and speaks of a possible downward reversal.

Pic. 5 The Hammer / Hangman

3. Inverted Hammer / Shooting Star

Like the Hammer / Hanged Man, are signals for a trend reversal, but at the same time have long upper rather than lower shadows. An Inverted Hammer is at the end of a downtrend while a Shooting Star is at the end of an uptrend.

Pic. 6 Inverted Hammer / Shooting Star

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4. Spinning Top

Is a candlestick with long upper and lower shadows and a short body. Speaks about the indecision of sellers and buyers. A spinning top can signal a trend reversal if it appears at its peak.

Pic. 7 Spinning Top

5. Marubozu

Is a candle that consists only of a body and has no shadows. Unlike Spinning Top, it speaks of the decisiveness of buyers or sellers (depending on the color of the candle) and confirms a trend reversal if it appears after Doji or Spinning Top.