Master Technical Analysis: The Complete Guide to Japanese Candlesticks You Need

When you start trading, you’ll quickly realize that there are three paths: fundamental analysis, speculation, or technical analysis. Many beginners make the mistake of speculating without a solid foundation, which is purely emotional and risky. Fundamental analysis studies reports, economic and political data. But technical analysis is different: it relies 100% on charts, patterns, and indicators that allow you to observe historical behavior and project it into the future. And guess what is the most important to master technical analysis? Japanese candlesticks.

Where do Japanese candlesticks come from?

Surprisingly, these candles have roots in the Dojima rice market in Japanese cities centuries ago. They were later adopted by the West to analyze financial markets. Today, they are the fundamental tool for any serious technical trader.

The basic structure: Simpler than you think

A Japanese candlestick is simply the graphical representation of prices over a specific period. Each candle has two main components: the body and the wicks. But here’s the interesting part: these two elements give you access to four crucial data points known as OHLC (Open, High, Low, Close).

On most platforms, green candles indicate bullish movements and red candles indicate bearish movements, although you can customize these colors to your preference.

Let’s take a real example. In a 1-hour EUR/USD candle, you might observe: open at 1.02704, high at 1.02839, low at 1.02680, close at 1.02801, representing a 0.10% gain. The body of that candle shows the open and close, while the wicks indicate the extremes reached during that period.

The key patterns you should recognize

Not all Japanese candlestick patterns are equal. Some are more reliable than others, but remember: none are 100% infallible. Here are the main ones:

Engulfing: A two-candle pattern where the second completely engulfs the first. Indicates a potential trend change. If you see a bearish candle followed by a larger bullish candle that engulfs it, you might be witnessing a shift from bearish to bullish.

Doji: A single candle with long wicks and a tiny body that looks like a cross. The open and close prices are practically identical. This represents total indecision in the market, a balance between buyers and sellers with no one holding the advantage.

Spinning Top: Similar to a doji but with a slightly more pronounced body. Also signals market uncertainty, showing that investors are unsure of where the price will go.

Hammer: A candle with a small body and an extremely long wick in one direction. If you see this after an uptrend with the wick pointing upward, it means buyers lost strength. Sellers regained control. A probable trend reversal.

Hanging Man: Visually identical to the hammer, but the context is different. Previous candles are in a downtrend rather than uptrend. It also suggests a change, but from bearish to bullish.

Marubozu: A candle with a huge body and almost no wicks. “Marubozu” means “bald” in Japanese, referring to the absence of wicks. Indicates a strong trend and continuation of movement. A bullish marubozu after testing support suggests buyers have full control.

How these candles transform your market reading

This is where many traders discover real magic. If you used line charts, you would only see the closing price. But Japanese candlesticks reveal everything that happened during that period.

In EUR/USD, you could identify support at 1.036 thanks to the wicks of the candles. On three occasions, the price tried to break that lower barrier but rebounded. With a line chart, you wouldn’t even see that support because lines only connect closes.

Now imagine this: you use those supports and resistances identified with candlesticks, combine them with Fibonacci, moving averages, and indicators. Suddenly, your tools become significantly more precise. Finding confluences among multiple indicators is the key to quality trades.

In-depth analysis: Zoom in and zoom out

Here’s something fascinating. A 1-hour candle is composed of four 15-minute candles. Each of those has three 5-minute candles. And so on.

Observe a Bitcoin 1-hour candle with a long wick upward but that closed lower. It seems confusing. But when you break it down into 15-minute segments, everything makes sense: the first 30 minutes saw (buyers in control), the last 30 minutes fell sharply (sellers took control). The result? A bearish candle with a huge bullish wick. Buyers had control of the market, but sellers crushed them with such force that they continued pressing downward for the next 5 hours.

This hierarchical analysis is what separates casual traders from professionals.

Confluences: The art of finding confluences

You should never trade based on a single candlestick pattern. It’s an analytical suicide. Instead, look for at least three aligned signals.

In EUR/USD, you identified support at 1.036 with candles. Now you mark Fibonacci levels on a retracement. Do they match? Is there a moving average nearby? Perfectly aligned? That’s confluence. When buyers gathered orders at that support level (61.8% Fibonacci) was the trigger to place a sell order. Almost perfect.

What experts want you to know

A long wick suggests exhaustion. Sellers or buyers are losing strength. The market is about to turn. A short wick? A strong, consolidated trend.

A large body indicates significant trading volume. More conviction. Fewer doubts.

Candles work on all assets (forex, cryptocurrencies, commodities, stocks) and across all timeframes. But here’s the secret: a signal on a daily chart is much more reliable than one on a 15-minute chart.

The path to mastery

If you’re just starting out, spend hours analyzing historical charts without trading real money. Observe patterns. Visualize how each asset behaved. Train your eye.

When professionals can predict what will happen just by observing a candle, it’s because they have spent thousands of hours studying. Your initial goal is not to trade constantly. It’s to analyze deeply, find solid confluences, and then? Open a trade and wait patiently for it to develop.

Think of it this way: a professional football player trains 3 hours daily to play 90 minutes on the weekend. You should continuously analyze to execute quality trades with low frequency.

Mastering Japanese candlesticks is not just about knowing the patterns. It’s about understanding the psychology behind each move. It’s about recognizing where buyers lost strength, where sellers regained ground. It’s about seeing the market clearly.

Now you have the foundation. Japanese candlesticks are your gateway to professional technical analysis.