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Among the numerous types of technical analysis available to forex traders, the single most practical and popular are probably candlestick charts. These were in the beginning developed in Japan during the 18th century by a famous commodity trader who applied them to chart the fluctuations in the price of rice. For this reason they are often mentioned as Japanese candlestick charts, and many of the patterns that they form have Japanese names.
Simplistic line graphs plotting the price of a commodity at regular periods in time had been used for centuries, but traders were in need of 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 useful and aided traders to predict future price movements in a more reliable way than line charts, but candlestick charts were even more sophisticated.
They were introduced to the American stock 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 chart 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 wick). The various points measure the differential in prices over a certain 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 period and the lowest point of the lower wick 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 Use Candlestick Charts In Currency Trading
A chart showing 5 or 15 minute candles over a period of several hours can provide the currency trader with many patterns on which he can base a system for concluding when a trend is developing. For example, when the candle body is white or green and higher than the previous candles, it indicates that traders are very bullish. When it is black or red and lower than the previous candles, it indicates that buyers are very bearish.
Being able to see these implications at a glance is extraordinarily important in the fast moving forex markets where trading decisions frequently need to be made in a split second. So candlestick charts are one of the most practical visual aids for any forex 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 profits from the very beginning of your venture in the currency markets.
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