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Candlestick Chart Patterns to Trade Currencies
Written by Albert Schmidt   
Tuesday, 30 June 2009 22:08
Most Forex traders today use technical analysis to analyze the price movement. Technical analysis has many different tools and techniques. One of the most widely used tools is candlestick chart patterns. In 18th century Japanese traders were using such charts to visualize the price movement. Therefore today these charts called Japanese candlestick chart patterns.
by AlbertSchmidt


Most Forex traders today use technical analysis to analyze the price movement. Technical analysis has many different tools and techniques. One of the most widely used tools is candlestick chart patterns. In 18th century Japanese traders were using such charts to visualize the price movement. Therefore today these charts called Japanese candlestick chart patterns.

Long time before candlestick charts were invented traders would use line connecting the prices over time. Bar charts substituted the line charts because a bar gives much more visual information about the price movement. Looking at the bar of certain time frame you could tell at what price it opened, closed, what was the high and low of the price for that particular period period. However a candlestick could make visualization even better.

Candlestick charts appeared in America in early 20th century when stock market trader started using them. The first man who brought these charts into stock trading was Charles Dow. Everyone knows him as a co-founder of Dow Jones company as well as a founder of Wall Street Journal.

Forming of a Candlestick Pattern

Candlestick chart consists of rectangular shaped candles with vertical lines that are called upper and lower shadows. Those candlesticks have two different color depending of the difference between open and close prices over the period of the candlestick. Usually bullish candlestick (open price is lower than close price) have a brighter color than a bearish candlestick.

The top shadow is the highest price point reached during the time period of a candle. The lower shadow is the lowest price reached by the price. The horizontal lines are the open and close prices. If it's a bullish candle then the open price is the lower horizontal line and the close price is the upper horizontal line.

Forex Trading and Candlestick Charts

Candlestick charts of shorter time frames like 15 minutes can clearly show you the trend over longer period of time. So if you see many candlesticks of the same color you may be sure that a trend is developing. For example if in your charts the rising candle is colored in green seeing green candles back to back indicate a trend development.

That's why candlestick charts can be an invaluable tool. A quick glance at the chart can tell you if market is trending or if the movement is basically horizontal without any major trend. Forex is an environment where a trader needs to make a decision in a very short time. Such chart patterns can help.

Information:

Albert Schmidt has been in the field of Forex Trading for quite some time by now. Visit his blog about currency trading where you can find step by step information on how you can learn to trade Forex.
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