In the Tokugawa era, a man named Munehisa Homma, a rice merchant from Sakata, was said to had first incited the idea of Japanese Candlestick which is now used for futures market analysis. It was then used to predict the price of rice in the Ojima Rice market in Osaka.
Later on a man named Steve Nison, a technical analyst, made a study on it which also pave to its graphical representation.
The Japanese Candlestick chart is made up of individual candlesticks that connotes certain actions that the trend may take. Each candlestick is molded up by 4 attributes namely; Open price, Close price, Low price, and lastly High price. A candlestick is made up of a real body and shadow.
The candlesticks comes in different sizes of the body and the shadows that accompanies it. Each type indicates unique behaviors of the market.
Long Body – long body but with a short shadow
Short Body – short body with a short shadow
Marubozu – candlestick without a shadow. It gives a good confirmation signal of an upward or downward trend
Doji – a candlestick that almost have no body. It is a result of the equal opening and closing price.
Long legged doji – a subtype of doji that have a long shadow of the same length. It shows the strength of the bull and bear are equal and a new trend will soon emerge.
Dragonfly doji – another subtype of doji with a long lower shadow that denotes that there is an impending down falling trend.
Grave stone doji – looks like an inverted dragonfly doji that makes an opposite remark – an evident uptrend may soon occur.
Spinning top – a type of doji that posses a long shadow that signifies that uncertainty encompasses the market. The longer the shadow is, the higher the possibility of a new trend formation.
Hammer or Hanging man – also another type of doji whose name depends on the trend that it belongs. It has a medium size body accompanied by a long lower shadow.
Inverted Hammer or Shooting star – the opposite of hammer and hanging man.
There are certain patterns that may be observed when 2 or 3 candlesticks are merged.