Candlestick Charting

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Introduction to Candlesticks Charting

 

In the Forex market, there are two ways of analyzing the price of the currencies; fundamental analysis and technical analysis. Fundamental analysis utilizes fundamental attributes associated with economic statistics while technical analysis deals more with psychological component of traders which sometimes is influenced by emotions. Candlestick charts are one of the most effective means of gauging the sentiments of other traders in the market.

 

What is candlestick charting? Candlestick charts are commonly used as a display method for showing currency prices on a Forex chart. The chart contains price bars that conveys low, high, open and close price for a particular Forex currency pair over the time frame that one candlestick represents; it can be 1hr, daily, weekly and the list goes on.

 

Even though bar charts and candlestick charts present the same data, they differ. Candlestick chart is a visual display of plethora candlesticks that make up the price movement across a given time frame for the specific currency pair being analyzed. The unique visual contrast helps traders to spot repetitive price action setups in an easier and enjoyable way as compared to using line charts or standard bar charts.

 

Forex candlestick charts use red and blue colors in the display. There is usually a dramatic color variation between bullish and bearish bars. This makes spotting using candlestick charts easier than using standard bar charts of the same color. When you look at candlestick charts and bar charts side by side, you will realize that bar charts are plain and thus, do not hold your interest and attention as long as dynamic and colorful Forex candlesticks charts do.

 

Line charts are not so good tools for price action investors. This is because they only show one piece of data; open, close, low or high instead of four pieces of data shown by candlestick charts. It is worth mentioning that line charts are just good for trend identification.

Ways of Using Forex Candlestick Charts

 

There is a myriad of different candlestick patterns that traders need to know about. But for effective and efficient trading, a trader should just use few core candlestick patterns that will do an exemplary job of providing the trader with profitable trading strategies in the Forex market.

 

Trading using candlestick patterns can be simple and effective way to evaluate and analyze the Forex market. However, there can be complexity if the trader uses over-lay numerous lagging indicators on their charts. The use of numerous lagging indicators diminishes the power of the candlesticks. If you have to use indicators, it is advisable that you make use of several indicators. A couple of moving averages can do to help in identifying dynamic support and resistance areas. This will help you to analyze and trade a Forex price chart with a high degree of accuracy.

 

Candlestick charts make price action signals easier to spot and this makes the trading in currencies more fun. The main types of candlestick patterns in the Forex market are:

 

Reversal Candlestick Patterns

 

These are charts that are used to confirm the reversal of the former Forex market trend. Reversal candlestick patterns are usually formed after extended market trend downwards or upwards and the market is ready to reverse. For instance, head and shoulders and reverse head and shoulders patterns, double tops and double bottoms patterns and the list goes on.

 

Continuation Candlestick Patterns

 

These patterns show continuation trend in the direction of prior market trend. Continuation candlestick chart patterns are usually formed when the Forex market is taking a break before continuing with its movement in the same direction. Examples bear flag/pennant, ascending and descending triangle patterns, bull flag/pennant and so forth.

 

Bilateral Candlestick Chart Patterns

These types of charts form when the market is taking a break before changing to a different direction.

 

Therefore, Forex traders should make use of Forex candlestick patterns in their trading in the Forex market to enhance their profits.