As early as the 17th century, the Japanese started using a form of technical analysis to trade rice. While it differs much from what we know now, they set the bar for the underlying principles.
What are the facts (price movement over time)
Buyers and sellers move the market based on expectations (harvest, drought,…) and emotion (fear, greed, …)
Price may not reflect value
Candlesticks have been around for almost 2 centuries, dating back to around 1850. Accredited with much of the origin of candlesticks is a rice trader named Homma from the town of Sakata. His ideas where probably modified and refined over all those years but resulted in the system we use today.
So, what is a candlestick?
A candlestick is the representation of price movement in a given timeframe. Candlesticks can be drown in timeframes of 1 minute up to 1 month. Each candle is made up out of a body and potentially has thin lines above or below it. Those are the “wicks” or “tails” of the candlestick. They are made with all trades taking place in the given timeframe (We’ll get to the importance of timeframes and which you should use in a later article). Every candle has an Open, Close, Low and High. A traditional way of displaying the candles is in white or green for a “hollow” or rising candlestick, and black or red for a “filled” decreasing candlestick. “Hollow” or “rising” means the price goes up, so our candlestick closes higher than our open. If the price closes lower than our open, it is “filled” or “decreasing”.
One of the great advantages about candlesticks is that they become very easy to read when you get to know them. They’re also easier on the eyes. With one look at any candle, you can tell what the price did in the given timeframe. This gives a trader the opportunity to find out if there’s buying or selling pressure.