Candlestick Chart Patterns to Trade Currencies

In Forex trading there are two ways of predicting the price movement. One is fundamental analysis and second is technical analysis. The most popular tool in technical analysis is candlestick chart patterns. They come in existence some time in 18th century in Japan. Many commodity traders there were using such candlestick charts to identify the price movement. That's the reason why we call it candlestick charts.

A line graph that plots the function of the price depending on time was used for very long time. Then traders invented bar charts because they needed to see more information on a two dimensional charts. The bar shows the open, close, high and low of the price for certain period. However bar chart sometimes is not very visual as candlestick chart.

Candlestick charts appeared in America in early 20th century when stock market trader started using them. The first man who brought these charts into stock trading was Charles Dow. Everyone knows him as a co-founder of Dow Jones company as well as a founder of Wall Street Journal.

Candlestick Patterns

Candlestick charts are made of so called candlesticks that are basically rectangular shapes with vertical lines above and below. The upper line is called upper wick, the lower one is lower wick. The color of the candlestick indicates if it's bullish (close price is higher than open price) or if it's bearish (open price is higher than close price) candlestick.

The top shadow is the highest price point reached during the time period of a candle. The lower shadow is the lowest price reached by the price. The horizontal lines are the open and close prices. If it's a bullish candle then the open price is the lower horizontal line and the close price is the upper horizontal line.

Forex Trading and Candlestick Charts

Candlesticks are the best way to visually identify the trend. For example if you have a candlestick chart of 5 minute time frame over several hours and the majority of the candles are green (or whatever color on your chart means bullish movement) then you can tell that the uptrend is developing.

That's why candlestick charts can be an invaluable tool. A quick glance at the chart can tell you if market is trending or if the movement is basically horizontal without any major trend. Forex is an environment where a trader needs to make a decision in a very short time. Such chart patterns can help.