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A Candlestick is a visual tool used to analyse data from a technical perspective. Typically, this data will be financial in origin, stocks, currencies, commodities, etc. Candlesticks measure data that is constantly fluctuating, a single candle will represent a certain amount of time and will show you a few key pieces of information for that timeframe.
Japanese Candlesticks are comprised of 4 main components, the Open price, the High price, the Low price, and the Close price. These are shortened simply to OHLC.
The Open price is the price in which the instrument you are analysing enters your chosen timeframe. If you are on an Hourly chart, this will be the price that the instrument will have been at precisely on the hour. If you are on a Daily chart, this will be the price of the instrument at the very start of the day. On a bullish candle, this will be the lowest part of the wider section (real body) of the candlestick, and on a bearish candle, this will be the highest part of the wider section (real body) of the candlestick.
The High price is the highest price that the instrument reached during your selected timeframe, it is represented as the tip of the thin line that protrudes from the top of the candlestick.
The Low price is the lowest price that the instrument reached during your selected timeframe, it is shown as the bottom of the thin line that protrudes from the bottom of the candlestick.
The Close price is the price in which the instrument you are analysing exists your chosen timeframe. If you are on an hourly chart, this will be the price that the instrument will have been at a moment before moving into the next hour. If you are on a Daily chart, this will be the price of the instrument at the very end of the day. On a bullish candle, this will be the highest part of the wider section (real body) of the candlestick, and on a bearish candle, this will be the lowest part of the wider section (real body) of the candlestick.
As you can see from the image, the ‘Real Body’ is referring to the wider section of the candlestick, this section shows you the difference between the Open and Close prices of the instrument you are analysing, depending on your chosen timeframe.
Wicks, or shadows, refers to the thin lines that protrude from the top and bottom of the candlestick. These show the total movement of the instrument you are analysing, with the tip of the upper wick/shadow showing the High price, and the bottom of the lower wick/shadow showing the Low price.
Japanese Candlesticks are a useful tool when it comes to technical analysis. They provide 4 points of information as opposed to the single point you would get with alternative charting formats such as the line graph. However, there is only so much information you can get from these candlesticks.
The way we see them at Platinum is not exclusively from a technical perspective, we also see them from a psychological perspective. Human beings are the variable in the equation; market movements are based mostly on the sentiment of your fellow traders, even those with the most market-moving power that sit in some of the largest financial trading institutions in the world are human.
Japanese Candlesticks themselves are emotionless elements, tools for us as traders to use to better understand the information we are looking at. They have no thoughts, no feelings, no soul. But what they do have, is influence. Candlesticks influence our decisions, and human beings are superstitious, and habitual.
Time is a construct of humanity; therefore, timeframes are also a construct of humanity. The importance we give to the minutes, the hours, and the days is entirely within the human psyche. Sure, the night and day cycle are a natural phenomenon, but we as people have decided where and when the hours fall, we decided on 24 hours in a day, we decided on 60 minutes in an hour, and we decided that these elements were important.
So how does this tie into Candlesticks?
Simple. We as people inherently care where the price of an instrument might be when the clock ticks over to the next hour, or the next day. There is no natural reason for us to care outside of our own psychological predisposition. The price an instrument happens to be at when that clock ticks over has no importance in and of itself, WE give it that importance.
Once you realise this concept, you start to understand that your fellow traders, your fellow human beings, your fellow servants of superstition, are what drives the power of these candlesticks and their patterns.
The patterns themselves are just a summary of price movement, sure you may be able to determine strength in either direction or a loss of momentum, but these can easily change regardless of the candlestick patterns themselves. What often gives these candlestick patterns the power to move the markets is the belief in them, the thousands of traders that see them and ACT.
If you understand how your fellow traders see these patterns, you will also begin to understand how your fellow traders will potentially affect the momentum or direction of the markets themselves as they begin to place their trades.
A bullish Marubozu candlestick pattern indicates that there is so much buying interest in the instrument that market participants were willing to buy it at every price point during the session, so much so that it closed near its high point of the day.
A bullish Marubozu is a single candlestick pattern with no upper or lower wicks or shadows. One should watch for the full Marubozu candlestick to form before drawing any conclusion. The general expectation is with the change in market sentiments and a surge of bullishness, the trend is likely to continue for the next few trading sessions.