I just reviewed my notes on technical analysis and realize that many traders still don’t understand how Japanese candlesticks work well. It’s interesting because this tool has almost 400 years of history, originating from rice markets in 17th-century Japan, but it remains one of the most powerful tools for reading the market.

What I like about Japanese candlesticks is that they simply show four key data points on a single chart: where the price opened, where it closed, the high, and the low during a period. That’s all, but with that information, you can understand a lot about what’s happening in the market.

There are two basic types you need to memorize. If the close is above the open, you have a bullish candle (usually green). If the close is below the open, it’s bearish (red). The body of the candle shows that difference, and the shadows (the thin lines above and below) tell you how far prices reached during the period.

Now, where it gets interesting is in the patterns. I’ve seen the hammer pattern work incredibly well, which is a candle with a small body and a long lower shadow. When it appears after a strong decline, it often indicates that sellers are running out of steam. The hanging man is the opposite: similar in shape but appears after upward moves, suggesting exhaustion of buyers.

Another pattern that has worked for me is the engulfing pattern. Imagine two candles in a row where the second completely engulfs the body of the first. If the second is bullish, that can be a strong signal that the trend is about to reverse upward. If it’s bearish, the opposite.

Why Japanese candlesticks matter in trading is because they give you momentum. You can see how strong the move was by the size of the body. Long shadows tell you there was indecision in the market, a lot of volatility. And when you start seeing these patterns repeat, you have reference points to anticipate trend changes.

The truth is, it’s not an exact science, but after trading with Japanese candlesticks for years, you realize that the market has certain predictable behaviors. It’s worth spending time learning how to read them well.