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One of the interesting and effective methods of analysis is candlestick analysis or in other words analysis of combinations of Japanese candlesticks. Let me remind You the main principles of candlestick charting.
Candlesticks are created similarly to a bar chart. More often candlesticks are plotted on the daily charts as this method was created and used to analyze this very period of time. The psychological background of this method of technical analysis is based on the relationship between the closing price and the opening price of the same trading day as well as between the closing price of the previous day and the opening price of the following day.
A candlestick differs form a bar in shape. The candlestick has a wide part, which is called the "real body". This real body represents the range between the open and close. Just above and below the real body are the "shadows" that show the high and low prices of that period of time. The body of the candlestick is colored differently depending on relative positions of the closing and opening prices. The following technique is usually accepted: when the real body is black, it means the close was lower than the open. If the real body is white, it means the opposite: the close was higher than the open.
To change the type of the chart for candlesticks you can use the button  on the «Charts» toolbar (see picture 2), the key combination Alt+2 or the command of the menu «Charts -> Japanese candlesticks».
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Figure 1. Candlestick chart created in MetaTrader 4
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Figure 2. Toolbar «Charts»
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The main principle of the analysis of combinations of Japanese candlesticks lies in looking for standard patterns (of reversal or continuation of trends), and interpreting them we may predict quite accurately further price behavior.
It is necessary to remember that a reversal pattern points only to the fact that the old trend is most probably over. It means that the market may either turn flat or the opposite to the prior trend may start. As after flat trading the initial trend may resume reversal patterns serve as a matter of fact only as traffic signs that say: «Attention. The trend is changing». As a reversal pattern doesn’t guarantee the beginning of the opposite trend a new position should be open by the signal of reversal only in case if this signal is consistent with the direction of a more global trend. And it is possible and necessary to close positions according to reversal patterns.
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