How to Read a Japanese Candlestick Chart | PRICE ACTION COURSE

Want to learn how to read a Japanese candlestick chart properly? Before we go further into this price action series, we need to make sure we’re building on a good foundation.

Many traders overlook the importance of shadows in price action trading.  The shadows tell a story just as

the open, close, and real body do.

Not sure what some of these terms mean? Don’t worry.  In this article, I’m going to explain the basics of

reading a Japanese candlestick chart, and why shadows are an important part of price action trading.

In the image below, you can see an examples of what the real body, open, close and shadow(s) of a

Japanese candlestick are.

How to Read a Japanese Candlestick Chart CorrectlyAs you can see from the picture above, the shadows tell us a story just like the real bodies of these

candles do.  In this case, the shadows are showing us areas of support and resistance – or levels in price

that the market is currently rejecting, among other things.

Another example of how shadows play a determining role in price action trading is “long-tailed”

candlestick formations.  These formations, whether they are long-tailed dojis, morning/evening stars,

hammers, shooting stars, etc…, are more telling when it comes to the direction of price.

Example:  The longer the tail is on a shooting star or hammer (also known as pin bars by some), the

more likely it is that price will reverse direction.

In the image above, you can see a spinning top followed by a long-tailed shooting star.  As the long tail

(shadow) of our shooting star suggests, their is strong rejection of value above this point.  The fact that

this formation followed a spinning top makes it more potent, as spinning tops/dojis signify neutrality in the

market.

I learned most of these price action techniques from Steve Nison.  I’ve tried a few price action courses

before, including Nial Fuller’s price action system, but I highly recommend Steve Nison and his Strategies

for Profiting with Japanese Candlestick Charts DVD course.

Steve Nison is credited with introducing the western world to candlestick charts.  He is THE expert on

price action.

Steve Nison’s methods are excellent on their own; when combined with a good indicator based trading

sytem, like Top Dog Trading, these techniques give you the ability to become a double threat in the

market.

The great thing about price action techniques is that you can add them to just about any currenttrading

system or method.  Price action is great for spotting entry and exit points, and can be dangerous in the

hands of a good scalper.

Now that you know how to read a basic Japanese candlestick chart, we can move on to some more

advanced stuff.  Check back soon or subscribe to keep up with this price action series.