Japanese Candlesticks

Candle structure

A Japanese candle is structured with an OHLC (Open-High-Low-Close) structure — basic but crucial knowledge to master.

• The body (Jittay in Japanese) combines the opening price with the closing price and is represented by the widest, colored part of the candle.
• The wicks (also called Kage or Shadows) connect the maximum and minimum price reached to the body with a line — where the price spiked before closing.

Thus, we have:

• Upper shadows (Uwakage)
• Lower shadows (Shitakage)

Candle strength

A larger candle without shadows represents strong pressure, which gradually decreases as the shadows become more present.

This ties into another concept: if there are more buyers than sellers, the buyers do not have anyone they can buy from. The price then increases until it becomes so high that the sellers once again find it attractive to get involved.

At the same time, the price is eventually too high for the buyers to keep buying. This concept applies also to the sellers, generating the requirements for a market to thrive.

Candlestick patterns — are they worth it?

In the world of trading, it's easy to get caught up in the romance of candlestick patterns. Plenty of names get passed around — Doji, Hammer, Morning Star, Engulfing, and others — as if they hold some mystical key to market timing.

But let's be clear: they don't.

These names may feel familiar, even comforting, but they're largely unnecessary. In fact, they can become a crutch that stops you from developing real market awareness. The truth is simple: it's not about what a candle is called, it's about what it shows.

Every candle on a chart represents a struggle between buyers and sellers. The open, high, low, and close are the data points; the story lies in the body, the space between the open and close. The size of that body reflects the pressure behind the move. A large candle body tells you that one side dominated. That pressure is what pushes price, not the shape or the label.

When you focus on names, you start looking for textbook patterns — a hammer here, a shooting star there — and you try to predict moves from isolated shapes. The market moves because of conviction. For example, a "Bullish Engulfing" pattern means nothing if it forms without context. A "Doji" at the top of a rally isn't a reversal signal unless you understand the shift in energy behind it.

The hard truth is that candles only matter when you understand the intent behind them. A long-bodied bullish candle breaking through a level with momentum and volume speaks more than ten labeled patterns.

Instead of memorizing dozens of patterns and their names, learn to read what the candle is saying. Is there force behind the move? Is the market hesitating? Is this candle rejecting a key level, or exploding through it? Are traders committing, or waiting? That shows up in the size, speed, and placement of the candle, not in its name.

Engulfing

The engulfing pattern is very appealing in terms of price action because it shows that the previous force (buyers or sellers) are getting "wiped out" by the opposite force.

A bullish engulfing occurs when a small bearish candlestick is immediately followed by a much larger bullish candlestick whose body completely engulfs the body of the previous one. This formation suggests a potential shift in momentum from sellers to buyers.

The second candle must open below the close of the first and close above its open, demonstrating a complete overtaking of the previous session's price action (absorption).

The same concept applies in reverse for a bearish engulfing pattern.

Closures

If you're confused on the short timeframe, extend it: if the 1H chart confuses you, look at the 4H. If the 4H still confuses you, switch to the 1D, and so on.

Importance of candle closures

Closures above/below significant levels are a start, but one of the biggest mistakes is not considering the highs or lows of them to assess powerful closures.

When a closure overcomes a swing high or swing low on higher timeframes it means the dominant side has, in that context, overcome the other — so they can continue to progress toward more "strategic positions." Every successful closure implies participants on the wrong side are stressed; eventually the other side can take control.

That's why closures matter: they tell you who's winning the battle in that specific timeframe so you can act accordingly depending on your strategy.

Validity of a candle close

There are multiple aspects to consider when evaluating whether a closure is solid. Generally, one main rule: pay close attention to the relationship between the body and the wicks — it says a lot about strength and sentiment.

• A strong closure is when the body makes up at least 2/3 of the entire candlestick's range. Little rejection in the form of wicks. A bullish candle with a strong close near its high suggests buyers dominated; a bearish candle closing strongly near its low suggests sellers had control.

• A moderate closure: body is at least 1/2 of the total range, but wicks are more noticeable — momentum with some friction; often wait for extra confirmation.

• Weak closures (body less than 1/3 of the range): wicks dominate — indecision; often stay flat or wait. A breakout attempt with a weak closure is not trusted the same way.

The only common "name" exception called out here is Marubozu — strong directional pressure with little/no wicks, often leaving substantial liquidity.

When analyzing:

• For a strong breakout, want a strong closure beyond the last swing high/low to confirm follow-through.
• Moderate closures → remain cautious, seek confirmation.
• Weak closures → market still undecided; avoid jumping in prematurely.

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Educational content — not personalized financial advice.