Learn Forex Trading Lesson 10-An Introduction To Candlesticks

Filed under: Learn Forex Trading |

By now you will be comfortable with the fact that Forex trading uses graphs to track the movements of a currency.   However, just looking at a graph alone can be bewildering for the most experienced of traders, let alone the novice.   Hence the concept of a Candlestick is used in graphs to help the trader like you and I to make sense of what is happening to the currency and also to give us some data that we can start to make decsions about how we want to trade.

eForex Candlestick

Formation of a Candlestick

So what is a candlestick? as the name suggestd a candlestick is a figure that looks like a candle on a stick, and captures the market data such as the opening price, highest price, lowest price and closing price of a particular instrument within a given time frame. This diagram shows how a candlestick is formed. The interaction between the four price definitions of open, high, low and close determine how a candlestick is formed.

A candlestick can have a hollow or filled portion, which is the candlestick “body”. On either end of the body you will find long thin lines which represent the high/low range and are known as “shadows”.  The top of the upper shadow is the high, and the bottom of the lower shadow is the low.

If the currency pair closes higher than its opening price, a hollow candlestick is formed with the bottom of the body representing the opening price and the top of the body representing the closing price.

If the currency pair closes lower than its opening price, a filled candlestick forms with the top of the body representing the opening price and the bottom of the body representing the closing price.

eForex Candlestick Charts

Candlestick Charts

Compared to the bar chart and line charts (the other two kinds of charts available on forex, candlesticks are more visually appealing and easier to interpret.

When you see a hollow candlestick on a chart, it indicates buying pressure. When you see a filled one, it indicates selling pressure. If you want to make a success of your eForex trading career then it will be essential that you understand, recognise and be able to action these types of candlestick on charts when they form.

As a key guide:

  • Long hollow candlesticks are an indication of strong buying pressure
  • Long filled candlesticks are an indication of strong selling pressure
  • Short candlesticks are an indication of indecision on both the buying and selling side, which is a sign of market consolidation.

What I wanted to do with this lesson is introduce the concept of candlesticks, as they will form an important part of your trading armoury.   In the next lesson I will look at candlesticks further.   In this lesson we will start to explore their additional features, learn how to read the key signs and how to action them.

One Response to Learn Forex Trading Lesson 10-An Introduction To Candlesticks

  1. Hi,

    I registered a couple of months ago but have not received parts 5,8 and all parts after 10.

    Have been away and the subject was getting interesting.

    Kind regards
    Joh Collinson

    John Collinson
    March 24, 2013 at 5:46 pm
    Reply

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