Candlestick Charts For Currency Traders - Fundamentals About The Most Vital Technical Analysis Tool In Forex Trading
by Chris on February 15, 2010
Among the lot of kinds of technical analysis accessible to forex traders, the single most useful and popular are probably candlestick charts. These were initially developed in Japan during the 18th century by a respected commodity trader who applied them to chart the alternations in the price of rice. Because of this reason they are often known 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 standard periods in time had been used for ages, but traders required something that could plot more variables within a two dimensional graph. 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 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 typically 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 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 marks 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 an interval of several hours can provide the currency trader with numerous formations on which he can base a system for determining when a trend is developing. For example, when the candle body is white or green and higher than the previous candles, it indicates that market participants are very bullish. When it is black or red and lower than the previous candles, it signals that market players are very bearish.
Being able to see these implications at a glance is vital in the fast moving forex markets where trading decisions frequently need to be made in a split second. So candlestick graphs are one of the most valuable visual tools for any foreign exchange trader.
It may take several years to master the art of candlestick chart reading. If you want to cut 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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