Candlesticks
Technical
analysis and candlestick charts go together as pepper and salt at the Forex.
Forex charts almost always use candlesticks because they display the most forex
information.
It is by
far the most common way of plotting prices nowadays. The method was invented by
Japanese rice traders in the seventeenth century, so this method is not that
young at all. :). The beauty of the candlestick is that it perfectly reflects
what has happened to the price within a certain period of time. In addition,
there are all kinds of candles - doji candle, long - legged doji candle,
gravestone doji etc - and patterns - harami, hammer, dark cloud cover, three
black crows, three white soldiers etc. - that have a lot of value in predicting
future market sentiment. One thing is for sure: if you want to become a
successful trader you have to learn to recognize these patterns. Can you
deliver a lot ..... oh, enne, blue / green be good, red be bad!
Red is a
lower close than open (ie a falling course, "bearish movement",
downtrend).
Green is a higher close than open (rising course,
"bullish movement", uptrend). The small sticks above and / or under
the body are called the shadows
Black is a so-called doji; a candle with only shadows,
and therefore no (red or green) body.
What would a doji show? Exactly, a piece of indecision in
the market. There has been trade (just look at the shadows), but the closing
price of the period is very close to the opening. In fact, very little has
happened.
A number of specific
candlesticks
Three white soldiers are three green candles in a row.
This means that there is a strong uptrend and good chances that this will
continue. A good rule of thumb is that the longer a trend is already present,
the greater the chance that it will continue for a while. But of course this is
not a law of the Medes and Persians.
Three black soldiers Are three red candles. What goes for
the white soldiers also applies to the black soldiers, but vice versa.
The Hammer is a candle with a small trunk and a long
shadow. This is a 'bullish reversal pattern' - which means that chances are
that prices will rise soon. The reason is simple: the prices were first
falling, but somewhere in the period of this 'Hammer' prices started to move
the other way; the low price could apparently not be maintained.
The Hanging Man is the same as the hammer, but in
reverse, or it follows a series of green candles, but could not hold the high
prices.
The Inverted Hammer is a hammer on its head, following a
series of red candles. The implication is that prices struggle to rise and in
the period of the 'inverted hammer' they made a first attempt but failed. There
is a good chance that prices will try again in the next period.
The Shooting Star. Same as the Inverted Hammer, but after
a number of periods of rising prices. .
There is much more Forex information available from
candlestick charts, and there is also much more to say about candlestick
patterns, but that would go beyond the goal of this 'forex course for
beginners'. But if the candlestick patterns appeal to you, we recommend reading
the book Candlestick Charting Explained by Greg Morris.
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