One of the unique charting tools that Forex users use is the candlestick chart. The candlestick was used by Japanese rice traders and have only recently become popular with the Western world. Candlestick charts are popular because of their visual representation.
Candlestick charts are given their name because the chart has long rectangle boxes and vertical lines above and below the boxes. Upon looking at the chart, it looks like a candlestick with a wick above the candle and a wick below the candle. This chart tells you the high, low, open, and close of a currency. The period can be anything from 15 minutes to daily; whatever you set it at.
Can a candlestick tell you what to buy or sell? Not by itself, it won’t. However, add it to other indicators or signals and you have a strong idea of what the trend is doing and going to do. Imagine a fight going on between bulls and bears. The candlestick will tell you how the battle came out; who won. If the candle is green (depends on your software) and the price is higher than when it opened; the bulls are winning. If the candle is red and the price is lower; the bears are beating the bulls.
Even the shadow of the candle can tell you things you wouldn’t expect. If the shadows are long, both upper and lower, but the candle remained small, then the bears and bulls took the price as far as each could go but neither could hold the price and it returned to normal. If enough of these candles with long shadows is apparent, the market is not going to change unless some outside stimulus happens.
Candles come in many forms as well. Each of the different candles can tell you a very interesting story. Ignore the information at your peril. Learn to read and understand all the different types of candles and you will strongly reinforce your Forex trading strategy. Candlestick charts have been gaining in popularity over the last few years as more traders in the Forex market have begun to realize how they can enhance other signals and indicators to give them an edge.
Candlestick charts should not be ignored. Add them to your current repertoire of signals and you can change the odds to be more in favor for you.
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