Japanese Velas in Trading: Everything You Need to Know About Market Pattern Analysis

Why Mastering Japanese Candlestick Analysis is Fundamental

When you decide to venture into technical trading, you need to master an essential element: Japanese candlesticks. This graphical component is the foundation upon which you will build your ability to read financial markets. Without understanding it, you will be trading without a compass.

Many beginner traders make the mistake of relying solely on speculation or superficial analysis. The correct path is different: you need to base your decisions on real data. This is where technical analysis comes into play, which is 100% supported by the graphical representation of prices through Japanese candlesticks.

Origins and Basic Structure of Japanese Candlesticks

These graphical representations originated in the rice trading of Dojima during the Japanese feudal era, and were later adopted in Western financial markets. Today, they are indispensable on any trading platform, whether in Forex, cryptocurrencies, commodities, or stocks.

Each candlestick contains four fundamental data points that traders call OHLC (open, high, low, close):

• Opening price
• Highest price reached
• Lowest price recorded
• Closing price

A candlestick consists of two visual elements: the body (which represents the open and close) and the wicks or shadows (which mark the highs and lows). The color depends on your platform, but generally green indicates bullish movement and red indicates bearish movement.

How to Read and Interpret OHLC Data

Let’s take a practical example. In EUR/USD with a 1-hour candle: open at 1.02704, high at 1.02839, low at 1.02680, close at 1.02801, recording a gain of 0.10%. These four values tell a complete story of what happened during that period.

The size of the body reveals intensity: a large body indicates greater transaction volume and conviction in the direction of the movement. Long wicks suggest price rejection at certain levels, showing that although there was an attempt to go up or down, ultimately the market retreated.

Main Candlestick Patterns

Engulfing Candle

This pattern is formed by two candles of opposite colors. The second candle completely engulfs the body of the first, indicating a potential trend change. If you were trading gold at 1700 USD, a daily engulfing pattern would have alerted you to a market reversal, offering an excellent entry point confirmed by additional confluences.

Doji and Spinning Tops

Both patterns represent indecision. The doji has a minimal body and long wicks (shaped like a cross), while the spinning top is similar but with a slightly larger body. The opening and closing prices are practically the same in both cases.

In Bitcoin, we observe daily doji on May 11 and August 12, signaling moments where buyers and sellers were in perfect balance, with no one taking control.

Hammer and Hanging Man

These patterns have identical structures (small body with long wick), but their context changes everything. A hammer after an uptrend suggests a bearish reversal: buyers pushed the price up but lost control, allowing sellers to regain ground.

The hanging man occurs after a downtrend, showing the same shape but predicting an upward movement. Although visually similar, their implications are opposite depending on which candles preceded them.

Marubozu

Literally “bald” in Japanese, this pattern lacks wicks or has minimal ones. The body is extensive, indicating clear strength in the trend. A bearish marubozu shows absolute control by sellers; a bullish one demonstrates dominance by buyers. They frequently appear after testing support and resistance levels.

Practical Application: From Theory to Trading

Identifying Support and Resistance Levels

Japanese candlesticks far surpass simple line charts. While a line chart only considers closing prices, candlesticks show the entire action of the period. In EUR/USD, we identified support at 1.036 through the wicks of three candles that tried to break that barrier and bounced back. With a line chart, that level would never have been visible.

This detail is critical: your indicators like Fibonacci and moving averages will work with greater accuracy when you work with Japanese candlesticks instead of line charts.

Multi-Timeframe Analysis

A 1-hour candle is composed of four 15-minute candles; each of these contains three 5-minute candles. This highlights the importance of understanding wicks in higher timeframes.

Let’s observe an 8:00 AM candle in local time: long wicks upward but close below the open. Breaking it down into 15-minute segments reveals the truth: 8:00-8:15 rose, 8:15-8:30 continued upward (marking the hourly high), then 8:30-8:45 fell sharply. Result: a 1-hour bearish candle with an extended upper wick, indicating that sellers regained strength after initial buyer dominance.

Confluences for Entry Points

Never trade based solely on a pattern. In EUR/USD, we found confluence between the Fibonacci retracement level 61.8%, the historical support at 1.036, and a bullish pattern. That multiple signal intersection was where we placed a sell order, resulting in an almost perfect entry.

Developing Your Skills as a Technical Analyst

Training is Key

Spend daily hours reviewing past charts, identifying patterns across multiple assets. Training your “technical eye” is like preparing for a professional match: football players train 3 hours daily to play 90 minutes. You should analyze for hours to correctly identify when to trade.

Use demo accounts with virtual money. You don’t have to trade immediately; analysis without trading is invaluable practice. Eventually, you will recognize patterns just by observing a single candle in assets where behavior is repetitive.

Differentiation by Timeframes

Remember that signals on higher timeframes (daily, weekly) are exponentially more reliable than on shorter timeframes (5, 15 minutes). A hammer on a daily candle has much greater validity than one on a 15-minute chart.

Professionals combine technical analysis through Japanese candlesticks with fundamental analysis. This greatly expands your predictive capacity. A well-analyzed trade could be the only one you need per week; quality surpasses quantity.

Recurring Patterns in Your Favorite Assets

After months of analyzing Japanese candlesticks, you will discover that certain currency pairs, cryptocurrencies, or commodities follow specific patterns. Bitcoin tends to behave similarly at key levels; EUR/USD shows predictable patterns at certain times.

Once you master this, you will make decisions based on statistical probability, not emotion. That is professional trading.

Summary: Your Learning Path

Japanese candlestick analysis accounts for 50% of the technical analysis journey. Understanding them opens doors to: identifying reversals with hammers and engulfing patterns, recognizing balance with doji, detecting continuations with marubozu, and precisely locating support and resistance levels.

Start today with a demo account, study historical patterns, apply Fibonacci and moving averages on real candles, and gradually develop the necessary experience. The best traders are not those who trade the most; they are those who read the market best by observing its candles.