Candlestick Charts For Foreign Exchange Traders - Fundamentals About The Most Essential Technical Analysis Device In Forex Trading

Among the numerous kinds of technical analysis available to forex traders, the single most useful and favored are presumably candlestick charts. These were originally invented in Japan during the 18th century by a famous commodity trader who applied them to chart the alternations in the price of rice. For this reason they are often known as Japanese candlestick charts, and the majority of the formations that they form have Japanese names.

Simple line charts plotting the price of a commodity at regular periods in time had been used for ages, but traders were in need of something that could plot more variables within a two dimensional graph. The bar chart showing the opening, high, low and closing prices of a financial instrument was beneficial and helped traders to predict future price trends in a more reliable 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 chart 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 tail) and bottom (the lower shadow or tail). The different points indicate 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 interval 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 marks the opening price and its top indicates 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 Forex Trading

A graph showing 5 or 15 minute candles over a period of several hours can provide the currency trader with numerous patterns on which he can base a system for determining when a trend is going on. For instance, when the candle body is white or green and higher than the preceding candles, it signals that traders are very bullish. When it is black or red and lower than the previous candles, it signals that buyers are very bearish.

Being able to see these implications at a glance is vital in the very volatile currency markets where trading decisions often must be made in a split second. So candlestick charts are one of the most practical visual tools for any forex 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 earning money from the very beginning of your venture in the forex markets.

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