Financial Candlesticks: Is the direction changing?

Japanese Candlesticks are a well-established method for tracking trends in financial markets. Each candlestick indicates the open, close, high and low values during a particular period of time, and the color indicates whether the net movement has been positive (white) or negative (dark).

This chart shows at a glance how key candlestick features can signal a reverse in the direction of the price action. The yellow circles draw attention to the feature of interest. The three-headed arrows show that the direction of movement is likely to change (the large red or green arrows), but may also stay at that level (gray arrow), or even continue in the original direction (small green and red arrows). The organization of the 6 graphs allows the student to see that all 6 features can potentially lead to a direction change in both ascending and descending series.

The Powerpoint version of this slide includes animation. The instructor could, for example, (1) introduce the cases one by one, to show how the knowledge builds. Or (2), the slide could serve as a summary and test chart, where each arrow is presented after the class has been polled, to provide visual feedback.

This work was done in collaboration with an organization that trains equity, commodity, and foreign exchange traders.