Japanese Candlesticks - Charting & Techniques

Posted by Dilkash Shaikh on


Japanese Candlestick charting technique is the modern way of how to read a stock chart. Bar charts and line charts have become a bit outdated. Candlestick is a much simpler way to read price action and the patterns and with the help of the patterns, we can create a compelling story. Japanese candlestick charting techniques explain the most important part of trading i.e. support and resistance. How to buy low and sell high. Many traders prefer these three money-making techniques.


1. Shorting Stocks That Go Parabolic: The stocks that go parabolic are then ones that face massive moves in the same day. Many times we see a massive gap up after the positive or negative news. This could happen due to a merger or positive results in a cancer trial. You can see these spikes right out of the gate on the market open and last for about 30 minutes. Take the stock Serum Institute for example. On October 15th it opened at $14.15 and within 24 minutes, it shot up to $16.78 due to news regarding vaccine trials for treating Covid-19.

2. Shorting Late Day Fades: This technique fades late in the day. Here, the stocks slowly grind up throughout the day. They wash somewhere around 2-4 pm. One of the biggest advantages of the late day fade is their ease of predictability. Some days you may not be able to open the laptop until afternoon, but that will be okay as you can do a quick scan of stocks that moved up. You can also draw support and resistance lines and shorten them if the indicators are right.

3. Dip Buying The Morning Panic Sell-Off: Another favorite pattern of the traders is buying the dip after a panic-sell off on the open. At times, when negative news hit about the stocks, investors get nervous and panic and sell off their position. Or the selling off may be due to short-sellers covering their positions that gapped up pre-market. Alternately, stocks that are good candidates for dip buys are those that are overburdened. When a stock goes through multiple green days, usually three, they will sell-off. If the selloff is too fast and has a  huge volume, then the probability that a bounce play will occur rises.


If you want to read Japanese candlestick, first determine whether the pattern is bullish or bearish. The candles with trendlines or candles with oscillators need to be studied well. Look at the bigger overall pattern such as falling three, Rising three, Three inside down, Three inside up, Three black crows, Three white soldiers, Evening star, Morning star, Tweezers, Homing pigeon, Harami cross, Harami, Engulfing, Shooting star, Hanging man, Inverted hammer, Hammer, Doji, Red marubozu, Green marubozu, and spinning top. Money can be made if you take out the time to learn different candlestick patterns.