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Why Forex Traders Need To Know Candlesticks

Candlestick Charts

Forex Traders are quite familiar with seeing candlestick charts but do they know what it actually means. Candlestick bars show more information than most charts such as lines and bars. This is because it includes open and close prices in a visual representation.

Each part of the candle stick show different prices of an asset at different points in time. A green candlestick is formed when the price closes higher than it opens and a red candle will display when the candle closes lower than the open.

Candlestick definitions:

  1. High: The highest point the price reached in a single candlestick.

  2. Open: The price the candle started from.

  3. Low: The lowest point a candle price dropped.

  4. Close: The price at which a single candlestick finished forming.

Candlestick shadows are also known as "wicks"

Advantages of candlestick charts:

  1. They are easy to interpret once you learn the psychology behind them.

  2. Candlesticks can be used in conjunction with other candles to create formations which may or may not have a higher significance in your analysis.

  3. Candlesticks are good at showing market strength, large wicks show how certain sides of the candle have had more power than others.

Learning the formations and patterns are all good but what Forex traders really need to learn is why they make those formations.

The red candle on the right shows a few things. One of the reason candle is this shape is because buyers were able to push the price much higher than the open price, but before the candle could finish forming sellers were able to push the price way further down the same as the buyers but more. This shows how sellers have pumped more money into the market selling the asset at this point. If you use this type of analysis in conjunction with other factors such as the logicStrategy it could be a profitable strategy.

If you only know the definitions of candlesticks, take a step back and think of why they are that shape and continue with your analysis.

Candlesticks can be used as insight on market psychology.

Keep up to date with our education, analysis and research at the info centre.

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