Japanese Candlestick Charting Techniques: How to Trade Them

Watch our video on the importance of Japanese candlestick charting techniques. These are the most popular type of candlesticks and a huge part of building your foundation as a trader!

What Is Japanese Candlestick Charting Techniques?

  • Japanese candlestick charting techniques is the modern day version of how to read a stock chart. Bar charts and line charts have become a bit antiquated. Candlesticks have become a much easier way to read price action and the patterns that they form tell a very powerful story when stock trading.

Japanese candlestick charting techniques are the absolute foundation of trading. They tell the important story of support and resistance and that’s the most important part of trading. Buy low and sell high. This video shows the importance of candlesticks when trading.

Do you want to learn about Japanese candlestick charting techniques? I’m not going to go into too much detail on the basics of candlesticks. We’ve got that covered in our free candlestick e-book and in our blog.

However, what I am going to show you today is my three favorite money-making Japanese Candlestick Charting Techniques. Because we all want to make money right?

Doji’s: Japanese Candlestick Charting Techniques

In my opinion, the Doji candlestick is one of the most important Japanese candlestick patterns there is. And when you see one you can almost be certain, a reversal in price action is imminent.

Typically they form after a bullish or bearish trend. With an extremely small body due to the same opening and closing price and long shadows, they’re hard to miss.

japanese candlestick charting techniques

As you can see in the example above, the opening and closing prices are the same. This is a signal that the market doesn’t know which direction to take. There is indecision between buyers and sellers.

It means the prior trend is losing its strength and no one is in control of the market. Most often or not, if you see this after a strong upward or downward trend, the market is likely to reverse.

We discuss any Japanese candlestick charting techniques in our trading room.

Trading the Doji Candlestick

Put simply, if the previous candles are bullish, you can anticipate the next one will be a bearish reversal. Alternatively, if the previous candles are bearish then the doji will probably form a bullish reversal.

As you can see in the example below, there was a strong bullish upward trend. Which means the buyers are in control of the market. After four candles the buyers were no longer able to keep pushing the price higher, indecision hit in the form of a doji, the sellers came in and we see the wash in price moving down.

Japanese candlestick charting techniques

How Do You Read Japanese Candlesticks?

  1. Simple steps on how to read Japanese Candlesticks:
  2. Determine whether the pattern is bullish or bearish
  3. Look at the opening and closing price
  4. If closing price is higher than open it’s bullish
  5. If closing price is lower than open then it’s bearish
  6. When opening and closing price are the same then it’s a doji or indecision candle
  7. Look at the bigger overall patterns such as cup and handles, triangles, head and shoulders etc
  8. Make sure to look for patterns within patterns such as flags and pennants
  9. Look for reversal patterns such as doji’s, hammers, and shooting stars
  10. Study candlestick patterns before entering any trade
Candlesticks Charts E-Book

Favorite Pattern 1: Japanese Candlestick Charting Techniques

Shorting Stocks That Go Parabolic

Stocks that go parabolic are ones that have massive moves in the same day. We often see stocks massively gap up after positive news or vice versa due to negative news.

In some cases, this could be due to a merger or positive results in a cancer trial. More often than not, these spikes happen right out of the gate on the market open and last for about 30 minutes.

Take the stock GlycoMimetics (GLYC) for example. On May 19th it opened at $12.15 and within 24 minutes, it shot up to $14.64. This was due to news regarding positive clinical trials for treating leukemia.

Japanese candlestick charting techniques

Notice the doji candle that formed at $14.64; coincidentally that was the peak of the stock price for the day. Why? Because typically anything that moves rapidly upwards, the market will correct it. In this instance, the doji was the signal that a reversal may be taking place.

Sure enough, the next one minute cancel peaked at $14.45 and formed a new lower high. This is where you would enter your short position. You could ride this all the way down as the stock washed to $11.40, finding new lower highs along the way.

Favorite Pattern 2: Japanese Candlestick Charting Techniques

Shorting Late Day Fades

Switching gears, let’s take a look at stocks that fade late in the day. We typically see late day fades in stocks that slowly grind up throughout the day. And like clockwork, they wash somewhere between 2:00 pm and 4:00 pm.

What I like so much about late day fades is their ease of predictability. And some days I can’t get to my laptop until the afternoon which means I miss the opening runners.

That’s ok because I know what goes up, must come down. So, I simply do a quick scan of stocks that moved up, draw my support and resistance lines and short it if the indicators are right.

Japanese candlestick charting techniques

Let’s look at the ticker ATI which belongs to Alleghney Technologies Incorporated, a metal fabrication company. On May 19th it opened at $15.11, moved up, consolidated, then had a late day push up to $16.15. Then you can see the doji forming at around 3:00 pm followed by the wash.

Favorite Pattern 3

Dip Buying The Morning Panic Sell Off

Another favorite pattern of mine to trade is buying the dip after a panic sell-off on the open. Sometimes after hours negative news hits, investors get nervous, panic and sell off their positions.

Or, the wash on open simply could be due to short sellers covering their positions in a stock that gapped up pre-market. Alternatively, stocks that are good candidates for dip buys are those that are overextended.

When stocks have multiple green days usually three they will sell off. If the selloff is quick and has a lot of volume then the probability that a bounce play will occur increases. Take our swing trading course.

Japanese Candlesticks

Take the stock ZENO above. It was overextended on the 5-day, 5-minute chart and sure enough, sold off. On the 13th, ZENO had a morning panic and sell off. Why? Because the chart was overextended.

ZENO washed to $1.40, found support then moved up to $2.20. This would have been a great move to get in on.

What Is the Best Candlestick Charting Book?

  1. The Candlestick Course by Steve Nison
  2. Japanese Candlestick Charting Techniques by Steve Nison
  3. Technical Analysis From A-Z by Steven Achelis

You can buy these books here and also check out a list of the most popular stock market books.


Money can be made if you take the time to learn the different candlesticks and their associated patterns. The importance of learning how to read candlestick charts can’t be stressed enough.

Because of this, the Bullish Bears trading service felt it was necessary to create a Candlesticks E-Book and two candlesticks courses.

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