Candlestick

The rice market in Japan has operated since the 17th century. In accordance with the decisions of Tokugawa Yosimune (8th Shogun Tokugawa ), who reformed the rice trade rules, in 1730 rice exchanges began to operate - Dojima ( Osaka ), Kuromae ( Tokyo ). It is believed that for the first time a chart in the form of a sequence of “candles” was invented by rice vendor Homma Munehisa for a visual image of the price maximum and minimum for a certain period of time, as well as prices at the beginning and end of this period (opening price and closing price, respectively). Munehisa began his trading activities in 1750, 20 years after the organization of the exchanges.

"Candlesticks" are very popular due to the simplicity of the presentation of information and ease of reading. Since the 17th century, many have tried to create various charts and graphs that would help predict future market behavior. This method turned out to be the most interesting, since in one element it displayed four indicators instead of one. Japanese rice traders quickly discovered that, based on graphs, it was possible to predict future demand and price behavior with a reasonable degree of probability. This method, called KEISEN (け い 線), is widely known in Japan, and is actually a description of a large number of models that make it possible to predict possible price movements.

Also widely known are the works of Honma Munehisa, who wrote in 1755 the first book about the methods of work in the market - The Golden Source of Three Monkeys. There are no models in the works of Honma Munehis, the book tells about the work on the market: entry, exit, rest. On the management of funds. On the psychology of work in the market. About the influence of factors: bad weather, excess money (inflation), lack of money in the market , etc.

Today, "Japanese candles" - one of the most common methods of displaying market data among traders .

A “candle” consists of a black or white body and an upper / lower shadow (sometimes they say a wick ). The upper and lower limits of the shadow reflect the maximum and minimum prices for the corresponding period. The boundaries of the body reflect the price of opening and closing.

If prices have risen on the whole, the body is white (not painted over, the colors of the background, or just light, often green), the lower border of the body reflects the opening price, the upper one - the closing price. If prices have fallen, then the body is black (shaded, the reverse color of the background, or just dark, often red), the upper limit of the body reflects the opening price, the lower one - the closing price.

If the opening / closing prices coincide with the high / low, the corresponding shadow or even both shadows may not be immediately. With the coincidence of prices of opening and closing of the body may not be.

The candle does not contain direct information about price movements within the corresponding time interval. There is no indication that the maximum or minimum was reached first, how many times there was a rise or fall in prices. For example, in the presence of both shadows it is impossible to say whether the price first went up or down. To find out, you need to study the graphics of a smaller time interval.

In some countries (for example, China ) traditionally use the green color of the candle to increase prices and red - to reduce.

Simple "candles"

There are many different types of candles. Below are the names and likely assumptions for some species.

1. White candle - signals upward movement (the longer the candle, the greater the difference in price)
2. Black candle - signals a downward movement (the longer the candle, the greater the difference in price)
3. Long upper shadow - signals a bull market (the length of the upper shadow must be not less than the body, the longer it is, the more reliable the signal)
4. Long bottom shadow - signals a bear market (the length of the lower shadow must be not less than the body, the longer it is, the more reliable the signal)
5. The hammer is an important signal to turn at the base. It has a small body (white or black), located in the upper part of the price range of the session, and a very long lower shadow; cut top - a candle that has no upper shadow (a bullish signal during a recession and a bearish signal during a rise); the hanged man is an important signal of a turn at the top. The hanged man and the hammer are essentially the same candle. It has a small body (white or black), located in the upper part of the price range of the session, and a very long lower shadow. The upper shadow is small or absent. But if this candle appears with an upward trend, it becomes a bearish hangman. It shows that the market has become vulnerable, but it requires “bearish” confirmation during the next session (in the form of a black candle with a lower closing price). As a rule, the lower shadow of this candle should be twice or three times the height of the body.
6. An inverted hammer is a reversal signal at the base, however, it requires confirmation in the next session (the body can be black or white); cut base - a reversal signal at the base, but requires confirmation in the next session (without the lower shadow)
7. A shooting star is a candle with a long upper shadow, a short lower shadow (or without it) and a small body near the session lows, which appears after an uptrend. It is a bearish signal for an uptrend
8. The white top is a neutral figure, acquires value in combination with other candles
9. The black top is a neutral figure, acquires value in combination with other candles
10. Doji (doji, doji) - the opening and closing prices are the same (or almost the same), gaining value in combination with other candles, but this is one of the most important candles. In addition, they are part of the important models of candles.
11. A long-legged doji is a reversal signal at the top, when two days in a row they open with a strong “gap” (“ gap ”) up and down and the candle “hangs” above the chart. If the opening and closing prices of a long-legged doji are in the middle between the maximum and minimum, then this candlestick is called a rickshaw.
12. Dragonfly Doji - reversal signal (without upper shadow, long lower shadow)
13. The gravestone doji is a doji, the opening and closing prices of which are equal to the minimum session price. Signal reversal on top with an upward trend. It can also be a reversal signal at the base with a downward trend, but only if there is a bullish confirmation during the next session.
14. White Marubozu - bulls dominate with continued uptrend (no shadows)
15. Black Marubodzu (literally, this is a bald monk) - bears dominate while maintaining a downtrend (without shadows)

Candle combinations

Despite the simplicity of the above species, there are also more complex cases. Long-term observations of candlestick charts allowed Japanese traders to mark certain signals consisting of two, three or more candles. However, as a rule, most of the most famous combinations contain 2-3 candles. Among such models can be noted "a veil of dark clouds", "bull absorption", "tears of tasuki", "three black crows", "stepped bottom", "abandoned baby" and many others.

“Japanese candles” reflect not only price, but also its volatility - “price spread”, when buy / sell orders on the market go in huge quantities in both directions at once. The reasons for which the price was unstable, it turns out later, when everything is finished. Therefore, bidders keep track of the days when an unexpectedly large “price spread” begins for a security. As a rule, at this point the volume of trade increases sharply and then falls.

“A danger signal, often a signal that a deal should be closed immediately, was a one-day turnaround - price fluctuation at the end of a long-term move. One-day turnaround occurs when the highest point of this day is higher than the highest point of the previous day, but the closing level of the current day is lower than the closing level of the previous day, and the trading volume of the current day is higher than the volume of the previous day. Such a scenario for Livermore was a screaming alarm. ”

“Candlesticks”, “prices” hanging above the chart, correspond to the state when supply and demand in the market do not allow to establish the final price. There can be four ratios of these indicators on the exchange for any achieved value of the price and any trading volume :

1. Those who want to buy more than those who want to sell - demand exceeds supply - price rises
2. Wanting to sell more than wanting to buy - supply exceeds demand - price drops
3. Those who want to buy as much as those who want to sell - supply and demand are equal - the price does not change, the "side trend"
4. The state of uncertainty is a “turning point” after which the owners of securities begin to “dump” them at any price.

The fourth state arises when those who could sell shares do not want to sell them, as they are still confident that there will be further growth, but those who could buy shares do not want to buy them, because they know that no growth will not be. This state is unstable: any external event can push prices in any direction. As a rule, at this point the volume of trade decreases, and when the price reverses, it increases again.

And finally, together with a constant large trading volume, “candles” can suggest the most likely direction of price movement. When the body of the “candle” is white, bidders are not afraid to buy stocks until the end of the exchange day. Because of this confidence, quotes can continue to grow the next day. For the black "candle" the opposite is true.

• Steve Nison . Candlesticks: a graphical analysis of financial markets.
• Filipe Tudela "The Secret Code of Japanese Candles"
• Gregory L. Morris "Japanese candles. Method of analysis of stocks and futures, time-tested. "
• Thomas Bulkowski "Encyclopedia of candlestick patterns."
• Honma Munehisa "Golden Source of the Three Monkeys" (in Japanese).
• Honma Munehisa "Sanmiden" (in Japanese)
• Honma Munehisa "Secrets of skill" (in Japanese).
• Gusev V.P. “Japanese candles. Collection of models.