How to Use Japanese Candles in Indices Trading
How to Read Candles in Indices Trading - Japanese Stock Indices Candlestick Patterns TutorialBrief History
Candlesticks were created in the 18th century by the legendary rice trader called Homma Munehisa to give an overview of the opening, high, low & closing market stock indices price over a given period of time.
They were used by legendary rice trader to predict future market indices trading prices. After he dominated the rice market, Munehisa eventually moved to the Tokyo exchanges where he gained a huge trading fortune using this trading analysis. He is said to have made over a hundred consecutive winning trades.
Types of Indices charts
There are 3 types of charts used in Indices: Line, bar and candles.
Line - plots a continuous line connecting closing indices prices of indices.
Bars- displayed as sequence of OHCL bars. O-H-C-L represents OPEN HIGH LOW & CLOSE. The Opening stock indices price is displayed as a horizontal dash on left & closing stock indices price as a horizontal dash on right.
The main disadvantage of a bars is that it is not visually appealing, therefore most traders don't use them.
Candlesticks - these use the same stock indices price data as bar charts (open, high, low, & close). However, they are displayed in a much more visually identifiable way which looks like a candlestick with wicks on both its ends.
How to Analyze
The rectangle section is known as body.
The high & low are described as shadows & plotted as poking lines.
The color is either blue or red
- (Blue or Green Color) - Indices Prices moved up
- (Red Color) - Indices Prices moved down
Most trading platforms like the MT4, use colors to mark the direction. Colors used are blue or green: when stock indices price moves up, red: when stock indices price moves down.
Candle Sticks Vs. Bar Chart
When candles are used it is very easy to see if the stock indices trading price moved up or down as opposed to when bars are used.
The Japanese techniques also have very many formations that are used to trade the Indices Trading market. These patterns have different technical analysis explanation and the most common are:
The above patterns is what makes the Japanese candlesticks popular among technical traders & it is why this type of analysis are the most widely used when it comes to analyzing the stock indices trading market. The analysis for these pattern formations in indices trading is the same as that one used in stocks trading.
Drawing These Charts on MT4
To draw these on the MT4, choose the charts drawing tools within the "MT4 Toolbar" - shown below.
To view this tool-bar in MetaTrader 4 navigate to "View" Next to file at top left corner of the MT4 Platform, Click "View", Then Click "Tool bars", Then check the "Charts" Button. The above tool bar will appear.
Once the above tool-bar, pops up you can then select the type you want to convert to, If you want to view using the bar format, click the bar tool button key as shown above, for line format click the line tool button, for Japanese candlesticks format click the "candlesticks tool button key".
