Master the Different Types of Japanese Candles: The Essential Tool for Technical Trading

Why Japanese Candlesticks Are Your Best Ally in Technical Analysis

When you enter the world of trading, you’ll discover that there are three main approaches: technical analysis, fundamental analysis, and speculation. Speculation is risky, pure emotion, and guesswork. Fundamental analysis is based on environmental events: news, economic reports, political decisions. But technical analysis, that’s the one that dominates the price chart, and its cornerstone is Japanese candlesticks.

These charts have history: they originated in rice trading in Dojima, Japan, centuries ago, and today they are the favorite tool of traders around the world. The reason? They are simple but powerful: each candlestick shows you four critical data points at a glance: opening price, high, low, and closing price (OHLC).

Understanding the Basic Structure: the Body and the Wicks

Each candlestick has two visual components: the body (which represents open and close) and the wicks (which mark the high and low of the period). Usually, you see green candles (up) and red candles (down), although you can customize them according to the platform.

Let’s take a real example: a 1-hour EUR/USD candle opened at 1.02704, reached 1.02839, dropped to 1.02680, and closed at 1.02801, recording a 0.10% gain. Those four numbers tell you the whole story of what happened during that hour: whether buyers had control, if there was price rejection, if the market was in balance.

Long wicks indicate volatility and rejection of certain price levels. Large bodies signal conviction and trading volume. When you see a short wick, it means the trend has strength because the price didn’t stray far from the close.

The Most Effective Types of Japanese Candlesticks in Trading

Engulfing Candle: Signal of Change in Direction

This pattern consists of two candles of opposite colors. The second completely engulfs the first, surpassing its highs and lows. It’s a clear warning: market control is changing hands.

If you see a bullish engulfing after a downtrend, buyers gained ground. If it’s bearish, sellers regained power. It’s not infallible, but it’s a signal worth paying attention to, especially on higher timeframes like the daily chart.

Doji Candle: Pure Indecision

The doji is easy to recognize: it has a tiny body and long wicks, forming almost a cross. What does it mean? That the price opened and closed at nearly the same level, but experienced wild movements in between.

This reflects perfect balance between buyers and sellers. No one had an advantage. It’s a neutral candle, pure indecision. It doesn’t tell you “go up” or “go down,” it says “wait for more confirmation.”

Spinning Top: Little Brother of the Doji

Very similar to the doji, but with a slightly larger body. It still means the same: battle between opposing forces without a clear winner. The length of the wicks shows how much action occurred within that period.

Hammer: Reversal in Play

Imagine a candle with a small body but a long wick upward. In a bullish market, this says: “Buyers pushed the price up, but sellers counterattacked and won.” It’s a warning of a potential bearish reversal.

In a bearish market, a hammer with a wick downward means the opposite: sellers tested pressure, but buyers regained ground. A bullish change is imminent.

Hanging Man: Context Is Everything

This candle looks the same as the hammer, but the previous context is different. A hammer after an uptrend suggests a near-term decline. A hanging man (same physical shape) after a downtrend suggests a near-term rise.

The lesson: never analyze a single candle in isolation. Always look at previous candles for full context.

Marubozu: Extreme Strength

Marubozu means “bald” in Japanese because these candles lack wicks or have minimal ones. The body occupies almost the entire candle. What does it indicate? Absolute control by one of the forces.

A bullish marubozu with a giant body says: buyers dominated the entire period, with almost no retracement. A bearish marubozu: sellers showed no mercy. These are trend continuation signals, not reversals.

Types of Japanese Candlesticks in Action: Real-World Applications

Support and Resistance Identification

This is where candles shine compared to line charts. A line chart only uses closing prices, ignoring all intra-period action. Candles show where the market tried to enter but was rejected (that’s what a long wick shows).

Let’s say EUR/USD tries to break 1.036 several times. The line chart may not even record those attempts. But candles, with their wicks, show exactly where the price was rejected, identifying a solid support.

Combining with Additional Tools

Candles work best in confluences. Imagine: identify support with candles, then apply Fibonacci retracements at 61.8% on the same level, and also a moving average touches that point. Now you have three reasons to enter.

In EUR/USD, finding support confirmed by candles, plus Fibonacci at 61.8%, is a high-probability entry. That takes you from a speculator to a professional technical trader.

Timeframes Matter Significantly

A 1-hour candle is different from a 1-minute candle. Here’s the secret: a 1-hour candle is composed of 4 fifteen-minute candles. If you see a long wick on the hourly candle, breaking it down into 15-minute segments will show exactly where that volatility occurred.

Practical example: an hourly candle shows strong upward movement (15 min candle). Then stagnation (another 15 min). Then a fall (another 15 min). And finally a bearish close (last 15 min). Result: a red hourly candle with a long wick on top. Now you understand the full narrative.

Professional Strategy: How to Use These Types of Candlesticks

For beginners: Don’t trade yet. Spend weeks analyzing historical charts. Look for patterns in Bitcoin, EUR/USD, gold, stocks. Train your eye to recognize candle types without thinking.

When practicing with a demo account: Start using confluences. Look for at least 3 signals before entering: a candle + a support/resistance level + an indicator. This eliminates pure speculation.

Timeframe rule: A hammer on the daily chart is much more reliable than one on 15 minutes. Professionals prefer trading on higher timeframes because they have less noise, more signal.

The right mindset: A professional trader analyzes for hours but trades few times. It’s like a football player who trains 3 hours to play 90 minutes. Analyze continuously, but wait for perfect confluence.

Final Reflection: Types of Japanese Candlesticks as the Foundation of Your Education

Learning Japanese candlesticks is learning the language of the market. These pattern types are the foundation of everything else: indicators, Fibonacci, moving averages—all integrate better when you master candles.

Professionals combine technical analysis (candles, patterns) with fundamental analysis (news, economy). Once you master Japanese candlestick types, you’ve already done half the work.

Start today: open a trading platform, observe candles on different assets and timeframes, and note what happens after each pattern. Consistent practice will turn this knowledge into intuition. Then, you will trade with confidence based on something real, not on speculation.