If you are new to Forex trading there are probably a lot of things that seem strange and new to you and candlesticks are probably one of those strange things. What these are, are drawings that will identify the high, the low, the opening and the closing prices of the different currencies over a certain amount of time. If they are to be used effectively the trader needs to understand their meaning of the candlestick shape and the significance of the different patterns that are made by the different sequences of the candlesticks.
The basic shape is a rectangular body, much like a candle with two wicks on the top and one wick on the bottom. The top and bottom represent a currency pair’s opening and closing amounts. The very tip of the wick of the candle is the highest price for the specific period of time and the tip of the bottom wick is the lowest period. If the pair happens to close high the candlestick body is going to be green and if it closed low, the candlestick is going to be red.
If you want to try and figure out the candle body, shape and color then you need to start at the highest point of the candle’s body. If there is a tall body, this means that the price has moved a lot during the trading period. If the tall body is green then it means there is an uptrend in the market and if red then there is a downtrend in the market. If there is a short candle then this means there has been an unresolved kind of tug of war going on between buyers and sellers.
Looking at the length of the wicks is important too. If you look at the wick at the closing of the period you will want to see if the wick is short or gone. If the candle is green and there is no wick or it’s short this means that the pair closed near the high point if the candle is red it means the pair closed at the lowest point of the period. If wicks happen to be long means that the prices ended up away from all of the extremes of that period and does not indicate any kind of trend.
It’s sometimes a good thing to try and have a series of candlesticks to look at. This will give you a visual idea of how well the pairs are doing over a period of time. It helps traders see what happened to their pairs during the entire trading period and this can help them decide on what to do the next time that they do their trading. It gives them a support and resistance level as a guideline. For instance some closing prices will bounce between two different price lines and the lower line would be the support and then the upper line would be the resistance the pairs had to the higher prices during the period.
Note: Before even getting into Forex trading make sure that you do plenty of research, get some online training as well as using demo sites to get an idea on how the trading actually works.
