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How to Read Candlestick Charts

Candlestick charts are a great choice for technical Forex traders.  They are able to provide information and insight that traditional bar charts or line charts are not able to provide.  The perspective that candlestick charts give Forex traders can really help form a trading strategy that works once a trader learns how to analyze the data that these charts provide.  Candlestick charts help you identify types of price action you would not see on other charts. This type of chart has been used in Forex trading for about 300 years.

The candlestick is a thin vertical line that shows traders the range within the trading period.  A wide bar on this vertical line shows the difference in price between open and close.  The reason it is called a candlestick chart is that the wide bar takes the shape of a candle and the extreme points become the wicks.  On these charts the red candles represent the price going down and the blue candles show when the price goes up.

The wick of the candle is a straight line at the day’s open, high point, low point and closing price.  This is also referred to as the shadows.  These lines are thinner than the candle itself and therefore appear like a wick.  There is a bottom wick and a top wick.  When the top wick on a day where the price went down, or appears in red, is short, it indicates that the high for the day was close to the opening price.  If it appears short on a day when the price went up it means that the high was close to the price at close of business for the day.

The look of the candlestick will show you the relationship between the open, high, low and close.  This can be very beneficial to traders when forming a Forex trading strategy.  Daily traders look closely at these charts to decide how to proceed.   With a quick look, a trader can see whether a currency pair closed higher than it opened, what was the high price and low price of the day and what the open and closing prices were.

A series of candlesticks offers a trader even more information.  Many candlesticks over a period show a trend and can let a trader know the direction in which a currency pair has been moving

Candlestick charts alone are not enough for a Forex trader to use to form a plan of when to buy or sell a currency pair but they certainly can indicate a market direction and give an idea of the trends of the market over that period of time.  Understanding candlestick charts is one of the basic ways to start to understand Forex trading and how Forex traders make their decisions.  Once a Forex trader understands the basics of how to read candlestick charts, the next step is to look over past patterns in these charts in order to understand what the candlestick chart is implying for the future.