Forex Trading with the Candlesticks Method

By Paul Bryan

Candlestick charts are claimed to be the oldest type of charts used for price prediction. It all started around 1700s, when Munehisa Homma in Japan became a legendary rice trader for predicting rice prices using Candlestick Charts.

Candlestick chart patterns are exceedingly popular in forex trading because of their dynamic features and versatility. On all charts, users can toggle between line, bar and candlestick chart view. Candlestick Charts are usually very colorful charts as compared to conventional charts.

Different colors are used to indicate different nature of price movement. Four prices are of utmost importance in constructing the Candlestick Chart- High, Low, Open, and Close.

Each candle consists of two parts: the body and the shadows. The body reflects the open and closing price for the certain period. If the candle body is black the close price is below the open, and white if the close is higher than the open for the period. On the other hand, candlestick shadows reflect the intra-period high and low prices of forex in a market.

In candlestick charting the periods used are 5 minutes, 15 minutes, 1 hour, daily and weekly. A long shadow reflects that the trading extended well beyond the opening or closing price, while a short shadow, shows that trading was confined closely to the open or closing price.

Each element in a candlestick pattern in forex predicts certain trends. Long white candlesticks predict strong buying pressure. The longer the white candlestick, the further the close is above the open. This indicates that prices advanced significantly from open to close and forex buyers were aggressive.

There are various patterns of candlesticks charts, which are employed in forex. Doji, for example is a candlesticks pattern that is generated when the body of the candle is minimal as market's open and close are virtually equal.

There are others like Hammer, Inverted hammer, Gravestone, Shooting star, Three white soldiers, Three black crows, Marubozu Black and White and many more. These candlesticks do not have upper or lower shadows and the high and low are represented by the open or close.

Candlestick charts are much more visually appealing than any other two dimensional bar charts used in forex prediction. They convey market price information in a quicker and easier manner. Candlestick Chart became famous and acceptable to the forex traders by its amazing success story initially in the commodity market.

If you think that the candlestick charts are difficult to comprehend you are wrong. All you would need is to learn the means of represent ting the charts in the forex market. Few tips for candlestick charts and their interpretation in the forex market can be:

A Black Candlestick -- when the close is lower than the open.

A White Candlestick -- when the close is higher than the open.

A Shaven Head -- a candlestick with no upper shadow.

A Shaven Bottom -- a candlestick with no lower shadow.

A Spinning Tops -- an equilibrium between the bulls and the bears (either white or black).

A Doji Line – a very close Open and Close

Some of the benefits of candlesticks in forex are:

· Ease of reading – as the charts are composed of four price readings: open, high, low, close.

· Not only shows the direction of a trend, also shows the strength of a move in a particular time frame.

· Can be used in conjunction with other technical indicators.

· Provides the earlier reversal signals.

To learn more about currency trading techniques please visit Candlesticks and Forex
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