Japanese candlestick charts are a traditional form of technical analysis that originated in 18th century Japan for rice trading and display price information using candlestick-shaped bars showing open, high, low, and close prices for each time period. Each candlestick’s body represents the trading range between open and close prices, while wicks (shadows) show the full high-low range. Different colors indicate whether prices closed higher or lower than they opened.

Japanese candlestick patterns provide insights into market psychology and potential price reversals through formations like doji, hammer, engulfing patterns, and morning/evening stars. These patterns are believed to reflect the collective emotions of market participants and can signal potential trend changes when combined with other technical indicators. Modern traders worldwide use candlestick analysis across all financial markets.

Real-world example: A trader identifies a bullish engulfing candlestick pattern in EUR/USD at a key support level, indicating potential reversal from the previous downtrend, and enters a long position expecting upward price movement.