Japanese candlesticks were first created in Japan to assist rice traders with their analysis. This type of candlestick measures and provides a visual representation of each trading session open, high, low, and close.
Each candlestick is composed of a body, and an upper and lower shadow, also referred to as a wick.
The upper shadow represents a trading session’s high, while the lower shadow represents the low. The top of the candlestick body or the bottom represent the open and close respectively.
How these candlesticks open, close, and their highs and lows can provide signals about the upcoming price action ahead. Certain candlesticks closing within a sequence forming a pattern, can also act as a signal for future price action.
Because there is so much information contained in each candlestick, or series of candles, an entire lesson is required to do these important tools justice.
Japanese candlesticks can be bearish or bullish, depending on the color of the candle and its formation.