This article looks at the use of candlestick charts on the forex market.
In order to be an effective trader one must employ the use of various analytical tools. This will assist in a more detailed overview of the forex markets movements. One of the most common forex chart type is that of the candlestick chart. The charts popularity may be due to its simplicity. However, the popularity may also be due to the fact that most trading platforms have this type of chart as an integrated feature.
The Use of Candlestick Charts
This chart style originated in Japan and was developed by a futures trader named Homma in the 1700s. While Homma was charting the price of rice at the time the principles he created became the basis of candlestick chart analysis.
Most people are used to seeing line charts in their everyday life and assume that this is the chart they will use for forex trading. This is actually true as the candlestick chart is a variation of the line chart. The candlestick chart has been in existence for approximately 300 years and gives you more information than the regular line chart.
The Use of Candlesticks with Forex Trading
When used in forex the candlestick chart provides traders with valuable information about the trading range of any given period. The wide bar located on the vertical line of the chart is a visual representation of the opening and closing if the currency. The values represented on the chart are the currency open value, high value, low value and close value.
The wide part of the candlestick is known as the real body and this is the area that represents the open and close of day trading. These charts are often coloured and these colours actually have some meaning to the forex trader. If the real body is coloured or black then the close for that period is lower than the opening. If the real body is not coloured or empty then the close is higher than the opening.
The lines above and below the real body are known as the shadows. The shadows are the part of the chart that indicates high and low prices for that day’s trading. For example, if it was a down day the upper shadow is shorter than the opening value of the day was closer to the high of the day. The look of the candlestick chart is determined by the relationship between the opening, closing, high and low values of the currency for a particular day of trading.
It is important that a trader knows how to read different charts. While there are various types of charts, it is the candlestick chart which is most important. You must not only know the chart but also be able to decipher the data represented on the chart. With this knowledge you will be able to determine what the chart is telling you and how this will affect your trading.
It is important that you know about the charts that you use with forex trading. When you know about this you will be able to trade effectively.
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