Forex, short for the Foreign Exchange Market, is an electronic market wherein people trade currency and speculate on the fluctuations of currency exchange. Many traders who earn a decent amount of money in Forex are mostly driven by or dependent on chart usage to help them make successful traders. And one of the most effective charts they rely on is the Candlestick chart.
By the way, for those who do not know the significance of charts in Forex, charts are considered as technical analysis tools. Technical analysis is used in Forex trading to provide traders insights on what will happen with the trends or price movements in the market. This tool uses historical data to analyze the behavior of the prices.
Going back to the Candlestick chart, this graphic tool looks similar to a regular bar graph. However, instead of the conventional bars, the chart uses marks that resemble candlesticks to plot data. The four primary details that those sticks will tell its viewers are the open, high, low, and close values of every price period.
The body of a candlestick represents two details. The line that extends upward is the ‘high’, and the line that extends downward is the ‘low’. On the other hand, the top and bottom part of the body represent the opening and closing price. In case the open was higher than the close value, which means the price action declined, the candle will be colored red or black and the open will be situated in the top part of the body.
Alternatively, if the close value was higher than the open value, the candle will be colored white, blue, or green, and the close value will be placed in the top part of the body instead. Take note that the color of the candles may vary depending on the author of the chart, or the software that produced it.
At a quick glance at the candlesticks, you can effortlessly see what happened in each trading period. When you see a short-bodied candlestick, you can easily know that the period opened and closed near. On the other hand, the color-coding schema helps traders to know the level of volatility in the Forex market.
Apparently, many traders prefer this type of charting. On this type of chart, you will be able to see all the information that you will want to know all in one graph. Also, ‘patterns’ are easier to spot in this kind of chart.
Even though it is an excellent and simple way of analyzing data, do not become too dependent on it. Remember, other tools that can provide you with insights on trading are available for your disposal. The information that you can come up with using this type of chart however, it is still quite limited for more seasoned traders.
To know more about how to use a Candlestick chart in trading, there are information resource and forex tutorials online. You can also try to practice with this chart using a Forex simulation site. When you get the hang of reading this chart, you will be able to identify patterns and make trading decisions faster.