Decoding the Market: A Practical Guide to Japanese Candle Types for Traders

Why Mastering Japanese Candlestick Patterns Is Your First Step

When you start trading, you’ll discover there are three ways to read the market: technical analysis, fundamental analysis, and speculative analysis. Speculative analysis is pure instinct and emotions—guessing the next move without basis. Fundamental analysis relies on external data: earnings reports, political events, economic trends. But technical analysis lives on charts, specifically, Japanese candlesticks. These visual patterns are the trader’s compass, the most accessible tool to anticipate how the price will behave in the future.

The types of Japanese candlesticks are not just decorative lines. They represent a battle between buyers and sellers, captured visually. Mastering them means learning to read what the market doesn’t say with words, but with movement.

Basic Anatomy: What Each Candle Tells You

A Japanese candlestick is a rectangle with two thin lines. Its origin dates back to rice trading in Dojima (Japan), but today you find them in any market: cryptocurrencies, currencies, stocks, commodities.

Each candle contains four vital data points known as OHLC:

• Open (Open): price at the start of the period
• High (High): highest point reached
• Low (Low): lowest point touched
• Close (Close): price at the end of the period

The central body of the candle (thick rectangle) shows the open and close. The thin lines—called wicks—reveal the highs and lows. Colors vary by platform, but generally green means it closed higher than it opened (bullish) and red the opposite (bearish).

Main Patterns: Types of Japanese Candlesticks You Need to Recognize

Engulfing Candle: when the trend reverses

This pattern consists of two consecutive candles of different colors. The first is small, the second completely engulfs it, penetrating its opening price. The engulfing is one of the clearest reversal signals—indicating the market has abruptly changed its mind.

A bullish engulfing (green engulfing red) suggests sellers lost control. A bearish (red engulfing green) indicates buyers were overwhelmed. This is why many traders see engulfing as an opportunity, especially on higher timeframes.

Doji: when the market is undecided

The doji candle symbolizes balance. It has a tiny body and long wicks on both sides, like a cross. Opens at 1.02704 and closes at 1.02710. What happened? A lot of movement, but no clear winner.

The doji represents pure indecision. Buyers and sellers tested the price in both directions, but neither prevailed. It doesn’t predict what will happen next, only indicates that the market is pausing, hesitating. Analyzing previous candles is necessary to understand the context.

Spinning Top: doji’s close relative

Very similar to the doji but with a slightly more visible body. Both wicks are long, indicating multiple investors tried to move the price without success. It also signals indecision, although the slightly larger body suggests slightly more activity than a pure doji.

Hammer: reversal from the bottom

This candle has a small body and a very long wick in one direction. Imagine an uptrend. Suddenly, a hammer appears with the body at the top and a long wick downward. What does it mean? Buyers pushed the price up, but sellers rejected it violently, bringing it down almost all the way back.

This rejection is hope. If sellers can’t keep the price down, buyers will return and the trend will continue. The hammer is a warning that a reversal is near.

Hanging Man: same candle, different context

A hanging man looks like a hammer, but previous candles are in a downtrend, not uptrend. Here, the long wick downward shows someone tried to break support, but buyers stopped it and pushed the price up. Same visual pattern, opposite meaning.

Marubozu: the signal of pure strength

“Marubozu” means “bald” in Japanese, referring to candles without wicks or with tiny wicks. The body is huge, occupying almost the entire period. A bullish (green, wickless) marubozu indicates that buyers had total control: they opened, bought, and never lost position. A bearish (red) marubozu shows the same but with sellers.

These candles are powerful signals of trend continuation. After touching support or resistance, a marubozu confirms that the trend is alive and strong.

How to Use Patterns: From Theory to Real Trades

Recognizing a pattern doesn’t guarantee profits, but it identifies opportunities. The best practice is to look for confluences: three or more signals pointing to the same price.

Practical example: support, resistance, and Fibonacci

In EUR/USD, the price respected a support at 1.036 three times—tried to break it and bounced each time. How did we see it? By observing the long wicks of the candles, not just the closes.

With that information, we draw Fibonacci levels from the low to the high. The 61.8% retracement level coincided exactly with our support. We placed a sell order there. Three confluences: established support + turned resistance + Fibonacci at 61.8%. Almost perfect entry.

With a line chart (that only shows closes), we would never have seen that support, never identified Fibonacci correctly, and missed the opportunity.

Multi-timeframe readings

A 1-hour candle appears to close bearish with a long wick upward. Confusing. Let’s split that hour into 15-minute candles. Now we see: first 15 minutes bullish, second also, third begins to fall, last 15 minutes close bearish. The 1-hour candle captured all that drama.

This demonstrates why long wicks on higher timeframes are so valuable: they summarize rejections and movements that closes alone would never show.

Golden Rules for Technical Analysts

Japanese candlestick types are more informative than simple lines. A line only shows where it closed; a candle shows the entire battle.

Higher timeframes are more reliable. A hammer on a daily chart is a much stronger signal than on a 15-minute chart. Professionals ignore short-term noise.

Never trade based on a single pattern. Look for at least three confirmations: candle pattern + technical level (support/resistance) + additional indicator (moving average, Fibonacci, RSI).

Train your eye first, then trade. Use a demo account. Analyze historical charts for weeks. Visualize patterns across multiple assets: Bitcoin, EUR/USD, gold. When you recognize patterns without doubt, then open real trades.

Fewer trades, better analysis. A professional trader is like a soccer player: practices 3 hours daily but plays 90 minutes on weekends. Constantly analyze the market, trade only when confluences are clear. Wait for each trade to fully develop before seeking the next.

Most professional traders combine technical analysis (reading candles) with fundamental analysis (understanding the environment). Mastering candlestick patterns isn’t everything, but it’s the essential foundation.

Next steps:

1. Choose a trading platform
2. Open a demo account
3. Start analyzing—without trading yet