And which ones have not yet been adopted in the West?
When discussing financial trading, we take many technical tools and indicators for granted. Did you know that many of your beloved trading tools originated from Japan?
Let’s list some of the most famous tools and chart types that are everyday parts of financial trading created in Japan.
Table of Contents
Major financial indicators and tools from Japan
Let’s list and briefly overview major trading tools from Japan, which are the backbone of modern financial trading. All these tools are available with advanced trading platforms like MetaTrader 5, which is super popular in Japan. MT5 is absolutely free, and every broker offers a demo account to access markets and use all the tools mentioned in this guide.
Candlesticks
Let’s start with candlesticks. Candles are chart types that provide core information about the price. It shows open, close, high, and low prices in one candle where the body shows the price action from opening to closing, while shadows show the highest and lowest price during the period the candle encompasses.
For example, a 5-minute candle’s upper end shows the highest price during the 5 minutes, the lowest end shows the lowest price, while the body shows opening and closing prices.
Candlestick charts are enormously popular among retail traders and have been included in all major and popular trading platforms, such as MetaTrader 4, MetaTrader 5, cTrader, TradingView, and more. Candlesticks were developed by Munehisa Homma in the 18th century and were used primarily for rice trading.
Candlestick patterns
Surely, almost all candlestick patterns originate from Japan and bear Japanese names. Key patterns include:
- Doji – Doji indicates indecision in the market, meaning no one controls momentum. Doji is a candle where the opening and closing prices of the candle are almost the same, or, in other words, the body of the candle is almost a line.
- Engulfing – Signals reversal is when the body of the candle is bigger than the previous candle and is a different color.
- Hammer – Hammer is when the body is small and the shadow is long, indicating a bullish reversal.
There are many more candle patterns, but the overall idea is that the majority of candlestick patterns originate from Japan. As with every other pattern and indicator in the financial markets, candles are not enough to properly predict price movements. Traders should combine different tools to increase their accuracy.
Ichimoku Kinko Hyo (Ichimoku cloud)
The Ichimoku cloud is another popular Japanese technical indicator that provides complex information about the market and indicates support and resistance zones where traders should be careful when entering the trade. It was developed by Goichi Hosoda in the 1930s.
Components of the Ichimoku cloud include:
- Kumo (Cloud) – identifies support and resistance levels
- Tenkan-sen and Kijun-sen – Identifies and measure the short-term and long-term trends
- Chikou Span – Tracks price momentum
As we can see, using the Ichimoku indicator, traders can observe the whole situation of the price at one very flexible glance.
Renko charts
Renko is derived from the Japanese word “renga” (brick). It focuses only on price movements and completely ignores time, meaning new candles only form after the price moves a certain distance (pips). Renko is used by traders to remove all the noise and focus only on the major trend. When time is removed from the equation, it is easier to see key trends and reversals.
Heiken-Ashi (Average Bar)
Heiken Ashi, pronounced ‘heiken asahi’ is a modernized form of candlestick charts. It smoothes price action and makes it much easier to see where the price is moving or heading. It is used for better visualization of trends and to reduce false signals, especially in volatile markets. Heiken Ashi candlesticks are especially popular among trend traders as they are effective for trend-following strategies.
Importance of Japanese indicators in modern trading
All the tools mentioned above enable traders to analyze markets with higher accuracy and identify trends and reversals effectively. Tools like Heiken Ashi and Renko charts are especially powerful for trend-trading. They also reduce market noise, which makes them super useful during volatile markets.
Candlestick patterns and Ichimoku clouds have become essential in cross-market analysis and are widely used by financial traders. Candlesticks are popular worldwide, while the Ichimoku Cloud is more popular among Japanese investors.
