Classififying japanese candlesticks
There are various types of Japanese candlesticks and they can take on many forms.
Here are the main ones:
Standard line are candles that are characterized by a long central body and short shadows. These candles usually indicate a continuing trend. If the body is white, it is an upward trend, if the body is black, then it is a downward trend.
A “long white line” and a “long black line” have a very long body, meaning there is a significant difference between the opening and closing prices.
They indicate a signal that is very positive or very negative.
Short Line A “short white line” and a “short black line” have, instead, a short body, meaning there is a minimal difference between the opening and closing price. The shadows are also reduced in length and this all indicates that the price is in a state of congestion.
Upper Shadow We talk about a “white upper shadow” and a “black upper shadow” when the body is situated at the lower end of the bar and the candle has a very long upper shadow with a very short lower shadow. This indicates a phase of indecision in the market.
Lower Shadow A “white lower shadow” and a “black lower shadow”, however, are where the body is situated at the upper end of the bar and the candle has a very short upper shadow and a very long lower shadow. This also indicates a phase of indecision in the market.
This candle has a small central body, where the minimum and maximum are distant from the body, giving the short body comparatively long shadows. The longer the shadows, the greater the indecision of the market.
Doji Lines We have a “doji” candle when the opening price is the same as the closing price. The shadows are long and the body is practically non-existent. There are different names for the doji candles depending on where the body is positioned along the vertical bar.
Long Legged Doji – this candle has a very small body, due to the opening and closing prices coinciding, and both upper and lower shadows are long. It indicates a high level of indecision.
Gravestone Doji – or the doji line that is in the form of a tombstone, has a small body and a long upper shadow, indicating a change in the trend. If this is found at the top of an upward trend, it indicates the end of that trend.
Dragonfly Doji – has coinciding opening and closing prices and a long lower shadow. This can signify the change to an upward trend if it is found at the end of a downward trend.
Four Priced Doji – appears when all four prices coincide; opening, closing, maximum and minimum.
Hanging Man e Hammer are two figures that indicate an inversion. They both involve candles that have a small body (regardless of the color) at the upper end of the bar, a lower shadow that is at least twice as long as the body and an upper shadow that is almost non-existent. If we see this candle during a bearish phase of the market it is called a “hammer”, whereas if we see it during a bullish phase it is called a “hanging man”. Therefore, a “hanging man” is a candle we find at the end of an upward trend, signifying an inversion to a downward trend and a “hammer” is a candle that appears at the end of a downward trend signifying an inversion to an upward trend.
Inverted Hammer e Shooting Star
These two candles take on the same form, both have the body on the lower end, a small shadow underneath and a long upper shadow. This signifies that the price, during the period that is being analysed, will become much higher than the opening price, but will then close at a lower level. The “shooting star” is a Japanese candlestick that identifies a downward inversion at the end of an upward trend. The “inverted hammer” is, instead, a candle that we see at the end of a downward trend, indicating the inversion to an upward trend.
Marubozu We have a “marubozu” candle when the maximum and minimum prices coincide with the opening and closing prices, thereby having no shadows. The “white marubozu” has a white body, indicating that the minimum price is the same as the opening price and the maximum price is the same as the closing price. The “black marubozu” has a black body and tells us that the maximum price coincides with the opening price and the minimum price with the closing price.
Japanese Candlestick Patterns
Here we have described the various types of single candle formations. There are also patterns formed by candle sequences (two or more candles). We will delve further into the analysis of candlestick patterns in a dedicated session.