Master Japanese candlestick patterns: The foundation every trader must know

When you start with technical analysis, you will quickly discover that there are multiple ways to study the market. There is fundamental analysis, which focuses on reports, economic and political situations; speculative analysis, which is more emotional and risky; and technical analysis, based exclusively on charts and indicators. If you decide to be a technical analyst, one thing is certain: Japanese candlestick patterns will be your main tool.

The origin and structure of Japanese candlesticks

Japanese candlesticks have a fascinating name: they originate from rice trading in Dojima, Japan, and were later adopted in the West to analyze financial markets. Basically, each candlestick is a graphical representation of the price in a specific period.

The structure is simple but powerful: each candlestick contains a body and wicks, and within them, 4 essential data points are condensed, represented in OHLC (open, high, low, close). The color generally indicates direction: green for bullish, red for bearish, although this varies depending on the platform.

What’s interesting is that, although visually they seem simple, these candlesticks reveal much more than a line chart, which only considers the close. The wicks show the market’s attempts to go in opposite directions, which is often invisible in other graphical representations.

The main Japanese candlestick patterns and what they reveal

Engulfing Candle

This is one of the first Japanese candlestick patterns you should recognize. It forms with two candles of opposite colors, where the second completely engulfs the first. It generally suggests an upcoming trend reversal. In a real example of EUR/USD or gold, when you identify an engulfing on higher timeframes, it often marks an important reversal point.

Doji: The market’s indecision

The doji candlestick is fascinating because it represents a perfect balance between buyers and sellers. It has a tiny body and long wicks on both sides, meaning the price moved significantly up and down but closed almost where it opened. It’s not a definitive signal, but a warning that something is about to change.

Spinning Tops

Very similar to the doji, spinning tops also indicate indecision, but with a slightly more pronounced body. The length of its wicks reflects how much the market moved and how many investors participated during that period. They are commonly seen during consolidation phases.

Hammer: The change it announces

This is where candlestick patterns become more predictive. A hammer has a small body and a very long wick on one end. If you see a hammer after an uptrend, it’s signaling that buyers lost strength, the price rose but was rejected, and now the market could turn bearish.

Hanging Man

This pattern is almost identical to the hammer, but the context is different. It appears after a downtrend and suggests that although sellers tried to continue, they were rejected, and the market could rise. The appearance is the same; what changes is what was happening before.

Marubozu: Unquestionable strength

“Marubozu” means “bald” in Japanese, and it makes sense: these candlesticks have no wicks or very few. A marubozu indicates that a trend is strong and there was little resistance. If bearish, sellers had total control. If bullish, buyers dominated without anyone stopping them.

Applying candlestick patterns in real trades

The true power of these patterns arises when you combine them with other tools. In EUR/USD, for example, you can identify support using the wicks of the candlesticks (much more precise than a line chart) and then apply Fibonacci retracements at that level. If you also find a hammer or an engulfing, you have confluence, and that’s where it’s really worth entering.

The key is not to trade with just one pattern. The best results come when you identify at least 3 signals confirming your analysis: a candlestick, a support/resistance level, a moving average touching that point.

Details that make a difference

Long wicks suggest rejection, a failed attempt to continue in a certain direction. Large bodies indicate volume and conviction. A pattern on higher timeframes (daily, weekly) is much more reliable than one on 15 minutes.

Additionally, here is the detail many beginners overlook: when you fragment a candlestick into a lower timeframe, you see exactly what happened inside. A 1-hour candle is formed by 4 of 15-minute candles. This is crucial to understand why a wick is long; maybe it initially moved a lot upward, but then everything bought was sold off.

The path of the technical trader

If you want to master this, you need to practice constantly. It’s not enough to read about candlestick patterns; you must see hundreds of them in historical data, train your eye to identify them in real time. A demo account is perfect for this without risking money.

The best traders don’t operate every day. They analyze, wait for confluences, and when the right signal arrives, they close a successful trade and wait again. It’s like a professional player who trains hours to play 90 minutes: dedicates a lot of time preparing for few moments of action.

Combine this knowledge with fundamental analysis if possible, and you will have covered most of what you need to make informed decisions in the market. Candlestick patterns are the foundation; everything else is built upon this.