Introduction to Technical Analysis

Introduction to Technical Analysis

Candlestick Chart

In forex trading, candlestick charts have become the most popular.  Candlestick charts offer everything bar charts do and more; using them is a win-win situation because you can use all the trading signals typically used on bar charts with the added clarity and additional signals generated by candlesticks.

There is a big difference between candlestick charts and using candlesticks to make trades. Reading candlesticks and understanding candlestick patterns is a bit more complicated

Candlestick charts have enjoyed continued use among traders because of the wide range of trading information they offer, along with a design that makes them easy to read and interpret.

This centuries-old charting style was developed in the rice markets of Japan. The style’s name refers to the way a rectangle represents each period, with lines coming out of the top and the bottom. This shape resembles a candle with a wick. The Japanese market watchers who used this style referred to the wick-like lines as shadows.

On the chart, each candlestick indicates the open, high, low, and close price for the time frame the trader has chosen. For example, if the trader sets the time frame to five minutes, a new candlestick will be created every five minutes. For an intraday chart like this one, the open and close prices are those for the beginning and end of the five minutes, not the trading session.

The area between the open and the close prices of a period is known as the body. The projections outside the body of the candle at the top and the bottom are called ‘shadows or wicks.”

With default settings, a candle may be either filled with white/black or red/green color or unfilled and hollow.

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