Among the many types of technical analysis accessible to forex traders, the single most useful and widespread are presumably candlestick charts. These were in the beginning developed in Japan during the 18th century by a respected commodity trader who used them to chart the fluctuations in the price of rice. Due to this reason they are often known as Japanese candlestick charts, and most of the formations that they form have Japanese names.
Simplistic line graphs plotting the price of a commodity at standard intervals in time had been used for centuries, but traders wanted 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 beneficial and aided traders to predict future price movements in a more accurate way than line charts, but candlestick charts were even better.
They were introduced to the American stock 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 tail). The various points measure the differential in prices over a specific 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 period 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 shows 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 Currency Trading
A chart showing 5 or 15 minute candles over an interval of several hours can provide the forex trader with numerous formations on which he can base a system for determining when a trend is unfolding. For instance, when the candle body is white or green and higher than the previous candles, it indicates that investors are very bullish. When it is black or red and lower than the preceding candles, it indicates that investors are very bearish.
Being able to see these implications at a glance is vital in the fast changing currency markets where trading decisions frequently have to be made in a split second. So candlestick graphs are one of the most useful visual tools for any currency 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 money from the very beginning of your venture in the currency markets.
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Among the many types of technical analysis available to forex traders, the single most useful and popular are probably candlestick charts. These were originally developed in Japan during the 18th century by a prominent commodity trader who used them to chart fluctuations in the price of rice.
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