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How To Read Candlestick Chart

Article by James Alejandro

Today article I will be sharing with you the fundamental of forex charting. I will explain on how many types of charting are there available, and what is the popular chart used by professional in current market.

Let’s quickly go through the available chart. There are basically 3 types of chart used today, and here’s the short explanation on their differences.

3 Types of charting in forex trade:

1) Line Chart

The chart is plotted by using the closing day value. By connection all the value together, you get a visual looks on how the price has moved.

2) Bar Chart

When compare with line chart, bar chart give you more information. As it show you the:

a. Opening day value

b. How much it has goes up or down in value,

c. And the closing day value.

3) Candlestick Chart

Both the bar chart and candlestick chart has many similarities. Both have opening, body and closing value. Candlestick are however easier to read as compare to bar chart.

Compare with the 3 chart mention above, candlestick chart has more competitive advantage when using in forex trading. Why is that so? Let us first understand the history and basic of candlestick.

Candlestick are developed in the 16th century by Japanese rice trader to analyze the price of rice contracts, it was subsequently introduced to the Western world and popularized to many people and since then candlestick has become one of the important tools to use in forex trading.

The key advantage of using candlestick is the clear display of the day opening, highest and lowest, and the closing price value as compare with bar chart or line chart. Whether if you put them in a groups or standalone, candlesticks form a pattern that if accurately translated, it can give a great deal of insight knowledge to a trader or investor the psychology of the market.

How do you study a candlestick?

1) Every new candlestick will have an opening value. And this opening value means the starting point of how this partially candlestick going to be form.

2) As you can see, candlestick is form by people trading in the market, these people will try to push the price movement either up or down depending on market sentiment. And this movement creates the highest or lowest point in a candlestick. The gap between the “open” and “high” are call Upper Shadow, same goes to the gap between the “close” and “low” as Lower Shadow.

3) When the candlestick reached the closing value, a complete candlestick is form. And the part between “open” and “close” is call the Body.

4) Candlestick chart are represented by two color. Usually black and white depending on which platform you are using.

If the “open” price is above the “close” price this is represents by black color candlestick which mean more seller are trying to push the price down.

If the “open” price is below the “close” price this is represents by white color candlestick which mean more buyer are trying to push the price up.

There are many different shapes in a candlestick, and when put together a same candlestick can give different meaning. Candlestick charting is a unique skill and there are courses that teach purely on candlestick charting.

In my next articles I shall share with you more details about candlestick reversal, continuation & consolidation pattern.

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About the Author

James is a full-time forex trader and he spend majority of his time learning and gathering new information and tactics to improve his trading method and to stay relevant in today market. He has a great passion to share what he knows to everybody under his readership.