Japanese Candlestick

Japanese candlestick charts originated in the 1700s when Japanese rice trader Munehisa Homma developed a method to track rice prices. The technique was introduced to Western traders by Steve Nison in his 1991 book "Japanese Candlestick Charting Techniques," and it quickly became the dominant charting method worldwide.

Each candlestick shows four price points: open, high, low, and close. The body represents the range between open and close, while the wicks (shadows) show the extremes. What makes candlesticks powerful is that individual candle shapes and multi-candle patterns carry predictive information about future price direction — at least in theory.

Common patterns include the doji (open equals close, showing indecision), hammer (small body at top with long lower wick, suggesting buyers are stepping in), engulfing patterns (a large candle that completely covers the previous one, signaling a potential reversal), and morning/evening stars (three-candle reversal patterns). While no pattern is reliable in isolation, they add context to your overall analysis.