Comparison between a standard bar chart and a Japanese Candlestick chart:
- Scaling is same.
- Overall shape is same.
- Both the charts can be used in conjunction to study other technical analysis tools such as moving averages, oscillators and other methods.
- Range of high and low is same for each period.
- Different types of patterns develop in both the charts that can help to identify the market trend.
- There is only one difference. How the opening and closing prices are displayed.
Advantages of Japanese Candlestick chart over the standard bar chart:
- Visual analysis is much easier and hence the traders can read the price action much faster.
- Comprehension of market sentiments can be done in a better way.
- Many traders believe that the Japanese Candlestick charts provide a better depth of information over the traditional bar charts.
- Traders find it easy and quick to analyze the trend reversal, trend continuation and other patterns. Identifying the pattern is usually considered as one of the most difficult part of technical analysis.
Patterns of Japanese Candlestick chart:
Candlesticks can take variety of shapes depending upon the relationship of OHLC. Shape of each Candlestick represents different interpretations such as extremely bullish, extremely bearish, bullish, bearish, neutral, turning period and end of the trend. Besides the shapes of individual Candlestick, various patterns develop on the Candlestick chart. Major patterns are Bullish Reversal, Bearish reversal and Continuation.