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Read And Understand Forex Charts

Robert Farrel

Software Forex Information

Read And Understand Forex Charts

There are three most commonly used types of Forex charts: line chart, bar chart and candlestick chart. Candlestick chart is the most popular and widely used chart type. A candlestick chart reveals things that are not visible on other charts. It gives comprehensive information about price on the market and thus helps better understand and predict future price moves.

Each bar of the chart is a candlestick known also as Japanese candlestick. Because of its appearance candlestick delivers more information than any other line or bar method.

Candlestick carries High, Low, Open and Close for the price at specific time and possesses a Body. A color and the size of the body supply traders with additional price details.

The major part of the candlestick, the body, represents a range between Open and Close prices.

When Open for the price is above Close, a candlestick body is filled (gold).

When Open for the price is below Close, a candlestick body is hollow.

One of the common set up which we are going to use for our charts is gold and white. So "gold" will stay for the filled candlestick giving a signal that the price has dropped and "white" will stay for hollow giving a signal that the price has gone up.

The "gold" and "white" candlesticks also describe two opposing forces on the market: buyers and sellers (also called bulls and bears). Bulls (buyers) are Forex traders who push the price up and bears (sellers) pull price down. So the gold and white candlesticks show who is in control on the market at the time.

The size of the candlestick tells how strong buying or selling pressure is. A long big candlestick symbols of a strong market pressure (buying or selling), whereas a small size candlestick means that buyers and sellers are in consolidation and the pressure is weak.

Shadows (tails or wicks) of the candlestick reveal activity of buyers and sellers. The upper shadow shows activity of buyers towards pushing the price up. The lower shadow represents seller's activity pulling the price down. Long shadows occur during high activity coming from both sides - sellers and buyers - as they try to turn the price into their direction.

A small upper shadow plus a big lower shadow tells a Forex trader that in the beginning sellers were dominant and forced the price down, but fell under the pressure of buyers at the end of the trading session.

A big upper shadow plus a small lower one indicates that at 1st buyers took over the trade and pushed the price up, but eventually forced to give up facing strong pressure of sellers.

A candlestick with no shadows indicated that buyers (in case of a white candle) or sellers (gold candle) were dominant during the