Forex Price Action Basics - Lesson 2: Japanese Candlesticks
Previous lesson, What is Price Action Analysis?
Japanese candlesticks are a way to display price data when studying Forex price charts. As the name suggests, Japanese candlestick charts originate from Japan - they were originally used for tracking the price of rice!
During the 1990's, candlestick charts started to grow in popularity. Today they are widely used in Forex trading analysis as well as stock and commodity analysis.
What are Japanese Candlesticks?
Below is a screenshot of a Japanese Candlestick Chart. In fact, it is the same AUD/CAD chart used in the previous lesson. This time price data is displayed using a candlestick chart instead of a line chart.
Line charts simply display the closing price of a Forex pair for a specified duration. Whereas Japanese Candlesticks display opening and closing price, as well as the high and low of price for a specified duration.
Candlesticks open and close at a specified time. If you were to choose a 1 hour price chart, each candlestick would represent 1 hour worth of price action (how price acted/behaved during that hour). After every hour, a candle will close and another candle will begin. This is the same for any specified time-frame - 15 minute charts display a new candle every 15 minutes, 4 hour charts every 4 hours, daily charts every 24 hours and so on.
Each candlestick consists of a candle body and candle wicks.
The candle body displays the opening and closing price of the candle. The illustrations below should help.
Japanese Candlesticks don't just show the opening and closing price by using candle bodies, they also show the high and low of price by using candle wicks.
Each candlestick can have an upper wick and a lower wick. The lower wick will show the low of price throughout the candlestick duration, the upper wick will show the high of price throughout the candlestick duration.
Doji candles appear in the Forex market when a candle has the same (or very similar) opening and closing price. Below are some illustrative examples of doji candles.