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Among the several kinds of technical analysis available to currency traders, the single most practical and popular are presumably candlestick charts. These were firstly invented in Japan during the 18th century by a famous commodity trader who used them to chart the alternations in the price of rice. For this reason they are frequently mentioned as Japanese candlestick charts, and many of the formations that they form have Japanese names.
Simple line charts plotting the price of a commodity at regular intervals in time had been used for ages, but traders were in need of something that could draw more variables within a two dimensional chart. The bar chart showing the opening, high, low and closing prices of a commodity was beneficial and assisted traders to predict future price fluctuations in a more reliable way than line charts, but candlestick charts were even better.
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 sequence 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 tail). The different points show the differential in prices over a certain period of time, 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 tradin session 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 Apply Candlestick Charts To Foreign Exchange Trading
A graph showing 5 or 15 minute candles over a period of several hours can provide the forex trader with several patterns on which he can base a method for concluding when a trend is developing. For instance, when the candle body is white or green and higher than the former candles, it signals that traders are very bullish. When it is black or red and lower than the former candles, it signals that buyers are very bearish.
Being able to see these implications at a quick sight is absolutely necessary in the fast moving currency markets where trading decisions often must be made in a split second. So candlestick charts are one of the most important visual devices for any forex trader.
It may take several years to master the art of candlestick chart analysis. 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 money from the very beginning of your venture in the foreign exchange.
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