It may be a strange term, but ‘Japanese Candlestick’ makes a lot more sense once you know what it is. The term originated in, strangely enough, Japan. Who would have thought? Anyway, this term was coined by Japanese people back in the day to serve as a technical evaluation of rice trading. Which may seem a bit silly, but it makes sense that such a staple food, especially for their country, would define the economy so much.

It was brought to the consciousness of American brokers thanks to a man by the name of Steve Nison, by way of a Japanese broker with whom he was acquainted. Following his “discovery” of this technique, he began to spend much of his time focusing on it.

What are Japanese Candlesticks?

The utilization of Japanese candles as a visual metaphor is useful, as they can be used to measure any length of time. Here, they are used to illustrate how the price fluctuates across a certain period. It does not matter whether this period covers seconds, minutes, hours, days, or even longer, it can do it. They are formed using the open, low, high, and close of said period.

 

A green or hollow candlestick is used to illustrate that things closed above the open, while a red or filled candlestick is meant to show the reverse. These can be called the “real body” or simply “body,” while the lines protruding from the top and bottom of the body are called shadows or wicks (high and low respectively). These lines are meant to show the high and low ranges of the period being covered by the proverbial Japanese candlestick.