What are candlesticks? Well, I’m sure you know, but if you don’t, you need to know! Candlestick graphs are one of the key tools for any online forex trader. Look at the image to the right. Those are candlesticks.
Candlestick charts were invented by the Japanese who used them to trade rice in the 1600s. Charles Dow from the US adapted the technique at the start of the 20th Century into something similar to the charts that currency traders (and traders generally) use all over the world today.
In this section, we’ll be running through the main types of candlestick patterns (like the Doji and stars) that you are likely to come across so that you can hone your market forecasting technique. Throw away that glass ball and start poring over those charts!
We’ve tried to design this section as an easy reference guide so that you can flip through the various candle formations and patterns.
Candlestick charts are an ingenious way of displaying complex price information on a 2D chart. They are used to track open, high, low and close values for a given time period and they come in black and white and colour. We recommend that you skip straight to colour- as they are easier to read.
Candles have a red or green body, depending on whether the price was moving up or down in the time period. The top and bottom of the body repersents the opening and closing prices. If the candle is red- the price was moving down, the bottom of the body is the closing price. If the candle is green, and the price was moving up- the closing price is the top of the body.
Forex candlesticks also have “shadows” or “wicks”: thin lines that extend out of the top and the bottom of the bodies. These represent the high & low price that was reached in the time period- the tide mark if you like. and are called “shadows” (also referred to as “wicks” and “tails”). The high is marked by the top of the upper shadow and the low by the bottom of the lower shadow.
The longer the body is, the fiercer the buying or selling (such as Marubozus) . And the shorter the candlesticks are, the more indication that the market is taking a breather (although this could be the “calm before the storm”).
Have a look through our candlestick pattern flash cards and start learning the various formations such as Spinning Tops. See if you can the spot them on a real time chart and apply them to your trading. As always, with all of these forex analytical tools, we recommend that you use more than one tool (as well as some fundamental analysis) to help you map out your trades.