Candlestick Charts For Forex Traders - Basic Facts About The Most Important Technical Analysis Device In Currency Trading







Among the lot of kinds of technical analysis accessible to forex traders, the single most practical and popular are most likely candlestick charts. These were initially developed in Japan during the 18th century by a well-known commodity trader who applied them to chart the alternations in the price of rice. Due to this reason they are often mentioned as Japanese candlestick charts, and many of the formations that they form have Japanese names.

Simplistic line graphs plotting the price of a commodity at standard periods in time had been used for ages, but traders required something that could plot more variables within a two dimensional chart. The bar chart showing the opening, high, low and closing prices of a commodity was helpful and aided traders to predict future price trends in a more accurate way than line charts, but candlestick charts were even more sophisticated.

They were introduced to the American equities market and from there to the worldwide financial markets by Charles Dow at the beginning of the 20th century. Dow was the founder of the Wall Street Journal and co-founder of the Dow Jones company.

Candlestick Formation

The graph is made up of a series of 'candlesticks' which normally have a chunky body with vertical lines stretching up from the top (the upper shadow or wick) and bottom (the lower shadow or tail). The various points indicate the differential in prices over a specific time range, which might be 5 minutes, 15 minutes or longer, up to one month.

The top of the wick is the highest point reached during the time interval and the lowest point of the lower tail is the low. The top and bottom of the body are the opening and closing prices. If price rose during the period the body will be white (or green or blue if colored). The bottom of the body indicates the opening price and its top marks the close. If the price fell during the period the prices are the other way around and to show this at a glance the body will be black (or red if colored).

How To Apply Candlestick Charts To Currency Trading

A chart showing 5 or 15 minute candles over an interval of several hours can provide the currency trader with several formations on which he can base a system for concluding when a trend is developing. For instance, when the candle body is white or green and higher than the previous candles, it indicates that investors are very bullish. When it is black or red and lower than the previous candles, it signals that market participants are very bearish.

Being able to see these implications at a glance is extraordinarily important in the fast moving foreign exchange markets where trading decisions frequently have to be made in a split second. So candlestick graphs are one of the most valuable visual devices for any currency trader.

It may take several years to master the art of candlestick chart reading. If you want to shorten the learning curve and start making profits right away, find a reliable forex signal provider. A forex signal is a market forecast and trading recommendation. Using such forex signals would help you to understand candlestick charts and provide you with the opportunity of making money from the very beginning of your venture in the currency markets.

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