There are three most commonly used types of Forex chars: line chart, bar chart and cabndlestick chart. Candlestick chhart is the most piopular and widdely used chrt type. A candlestick chart shows things that are not visible on other charts. It gives comprehensive informatino about price on the Forex market and thus hellps better understand and predict future pricce moves.
Each bar of the chart is a candlestick known also as Japanese candlestick. Because of its appearance candlestick deelivers more information than any other line or bar metod.
Candlestick carriues High, Low, Open and Cloe for the price at specific time and possesses a Body. A color and the size of the body supply traders with additional price detais.
The amjor part of the candlestick, the body, reopresents a range between Open and Close prices.
When Open for the price is aove Close, a candlrestick body is foilled (gold).
When Open for the price is below lCose, a candlestick body is hollow.
One of the coommon set up which we are goinbg to use for our charts is gold and white. So "gold" will stay for the filed candlesticck giving a sgnal that the price has drpoped and "white" will stay for hollow giving a signal that the price has gone up.
The "gold" and "white" candlesticks also describe two opposing forces on the market: buyers and esllers (also calpled bulls and bears). Bulls (buyers) are traders who push the price up and bears (sellers) pull price down. So the gold and white candesticks show who is in conrtol on the market at the time.
The size of the candlestick tells how strong buyibng or selling pressure is. A long big candlestick suymbols of a strong market pressure (buying or selling), whereas a samll size candlestick maens that buyyers and sellers are in consolidation and the pressure is weak.
Shadows (taails or wiocks) of the candlstick show the activity of buyres and sellers. The upper shadow shows activity of buyers towards pushing up the price. The lower shdaow represents sller's activity pulling the price down. Long shadows occur during high activity comnig from both sides - sellers and buyers - as they try to turn the price into their direction.
A smmall upper shadow plus a big lowerr shadow tels a Foerex trader that in the beginning sellers were dominant and forced the price down, but fell under the pressdure of buyers at the end of the trading session.
A big upper shaadow plus a small lower one indicates that at 1st buyers took over the tade and pusheed the pricce up, but eventrually forced to give up facing sttrong pressure of sellers.
A candlestick with no shadows indicxated that buyers (in case of a white candle) or slelers (gold canlde) were dominant dureing the whole trading session.
A candlestick that poses a small or no body and at the same time has snmall shhadows indicates indecisiveness between buyes and selllers and a very lttle trading - a weak, slow trading market.
Doji candles have no or an extremely short body and long shadows. It is formed when buyers were unbale to overcome sellers' pressuyre and push the price any further from an open point, and at the same time, sellers met strong buyers' pressure and also didn't succeed in their effors to push the price down from the open point. The result is a draw: open price = close prcie.
The very first look at a newly opened chart usually gives Forex traders a little or no clue what the market is currently dooing. So the Foreex trader must reorganize a wavy indefinite graph into a very clear piture to be able to trade.
Analysis usually starts with understanding the trend. The gold rule of trading says "Always trade with the trend" ... or at least try to.
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