Japanese Candlesticks are much more than simple eye candy. Yes they do look good on your charts, but they offer so much more. If you are a serious trader of any kind, then you owe it to yourself to take them seriously and learn more about their power.

I am sure that most of you who have been trading for a while at least understand candlestick basics, but if not, I will give a brief overview here. The body of the candle signifies the area between the open and the close of the trading day and the wicks extend to the highs and lows respectively. If your looking at a bullish candle (or a candle that denotes an increase in price from open to close), the bottom of the candle will be the open and the top will be the close, with the top wick being the high for the day and the bottom wick being the low for the day.

If you are looking at a bearish candle (or a candle that shows a price decrease from open to close), reverse the order on the open and close. So the top will be the open and the bottom will be the close. The wicks will of course still show the high and low in the same fashion.

Japanese rice traders are the ones who created these candlesticks because they show much more information than a simple line chart. They had a complex method involving light boxes and lanterns to back-light the paper for their charting purposes. We are lucky to day to have personal computers and laptops that can update candles in real time.

Once you understand the basics, you should understand that the candlestick’s true power comes from patterns. These patterns are of course called “Candlestick Patterns.” Most traders are intimidated by these patterns because there are hundreds of them; however, they fail to realize that there are only a handful of patterns that they really need to know which produce consistent profitable results for those who know how to use them.

They are simple too. Most of these patterns involve three or four candles and are named according to their appearance. An example would be the shooting star pattern. It is a bearish reversal pattern that only has three candles in it, two long candles to the left and right of a smaller candle in the middle. If you knew about candlestick patterns then you would know upon seeing this that there is a good chance that price would reverse at that point.