Forex trading has been hugely impacted by the accessibility of the internet. Not only have financial institutions been able to get more accurate and up-to-date information, but the amateur forex trader has been able to access the same information with a few mouse clicks. It is therefore vital to use the best tools for the job and candlestick charting undoubtedly are one of the best tools available.
Candlestick charting was introduced initially by the Japanese within the rice industry, however, over the last couple of decades they have lit the imagination of forex traders all over the world and have almost become a universal standard. As someone once said “You can’t do today’s job with yesterday’s methods and be in business tomorrow.” Candlestick charting is definitely the most powerful tool available today.
Structure of a Candlestick
It is true that candlestick charts hold the same information that bar charts do i.e. a high price, a low price and the opening and closing prices. The actual body of the candlestick shows the opening and closing prices. In the early days of candlestick charting, if the body was black then opening was higher than the closing. If it was empty then the opening price was lower than the closing. Nowadays candle bodies are coloured, green for upward movement and red for downward. The use of colours makes the charts much easier to read.
Candlesticks show high and low prices for a given time period by using vertical lines which appear above or below the candlestick body. These lines are also known as shadows
So what are the main features of candlestick charting that separate them from other charting methods? Listed below are the two main features.
This is one of the most important features. At a glance, the trader can quickly understand what is going on within a particular forex market. No matter what the time scale being used, the trader will be able to see the market movement and whether it is the sellers of the buyers who have dominated a given session.
Any trader who has mastered the basics of candlestick charting will quickly be able to identify the opening and closing price for a given currency pair. Candlestick chart show the same information as a bar chart, but in a prettier, graphic format. It is very important to be able to use the support and resistance levels together with the opening and closing prices.
Other advantages of candlestick charting include the following:
- Trading patterns change over time. That is why no system will always work. But candlestick patterns are not a system hence candlestick patterns always work.
- Candlesticks get you into price action much earlier than the majority of indicators. This means that the traders using candlestick patterns can enter trades earlier than those traders relying on indicators.
- Candlesticks are the fastest form of price prediction there is.
- Candlestick trading is very reliable. Providing that the patterns are properly picked, and
- the poor ones weeded out, the probability of success is extremely high.
Anyone who seriously investigates the use of candles will learn that there are many patterns and candlestick formations that provide very useful information for traders.
The forex market is extremely volatile so it is important to remember the words of Warren Buffet said “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”
Mastering candlestick charting is undoubtedly one of the most important skills that a forex traders needs to possess. This single tool will do more than any other to improve success for those who put in the effort to learn how they work and implement them into your