Candlestick forex charts allows you to make use of special visual cues that enable easier chart reading. It allows you to understand market sentiment when you make use of the forex charts for trading. The candlestick offers more information than is available on bar forex charts, which emphasise the highs and lows, as they place more emphasis on the link between the opening and the closing prices.
One of the most difficult aspects of forex trading is the identification of price movements that may predict the continuance or reversal of the trend. It is often easy for traders who make use of candlesticks to do this. If you use a combination of this type of chart with suitable tools for technical analysis, you should be able to successfully determine your entry and exit points for a trade.
The body of the candlestick indicates the opening price and the closing price. The use of colour, normally blue to indicate that the price is up, and red to indicate that it is down, indicates to the trader the direction at the closure of the market. The candle wicks are indicative of the trading day’s extremes which are either low or high.
Candlestick Forex Charts vs. Bar Charts
Since the body of the candle is normally thicker than its shadow, the charts often stress the link to the opening price more than bar charts can. When data exploration is being done, bar charts provide high and low spikes. These highs and lows may often be due to noise in the marketplace which is insignificant if you are doing proper analysis. With the candlestick, this static is able to be eliminated and focus is placed on the manner in which the price movements occurred during a stated time period. It is not possible to use the candlestick in isolation if you wish to determine the sentiment in the market; you would have to add technical analysis to the equation. It is however, possible to search for patterns within the candlestick chart to a make an attempt at predicting future price movements.
By doing technical analysis you can target identification of directional changes in price. Candlesticks are able to provide insight into the thinking pattern present in the market which makes it possible to use the chart for suggested amendments to the market sentiment. This amendment is called a reversal pattern.
Other reversal patterns available in trading are called double tops, and head and shoulders. These particular charts do not indicate the thinking pattern in the trading market, but they show the common patterns that are in the price actions before a reversal is due to take place.
When you work with candlesticks, you should bear in mind that a pattern of reversal is not a suggestion of a total reversal of the trend. It is a pause in the trend or a change in the direction the trend is moving. This could mean a slowdown of the trend, sideways trending, or a total turnabout after a reversal.
Candlestick charts can become an extremely valuable tool for forex traders who want to obtain a view of the market. Many analysts recommend that you use these charts in combination with other methods of analysis.