Royal Capital Pro: Candlestick Patterns in Forex Explained
- Written by News Feature Team
The forex market is the largest financial market in the world. Open twenty four hours a day, five days a week, it offers a trader the unique opportunity to invest and trade in global currencies anywhere there is an internet connection and the will.
Before investing in any asset, however, an experienced trader will become familiar with the basic tools available to him or her prior to putting their hard earned money on the line. Candlestick patterns are perhaps the biggest, and most widely used tool available to any trader. Understanding them is critical to having success in this volatile and exciting market. Here is what you need to know to get started.
CANDLESTICK BASICS
Unlike any other price chart, candlestick charts offer the trader a significant amount of information. For any given time frame, they will inform the reader:
* The price the currency pair opened at.
* The price it closed.
* The pair's high for that time period.
* The pair's low for that time period.
* The directional trend, bullish or bearish.
The history of candlesticks date back hundreds of years to 18th century Japan. The Japanese created and used candlesticks to help them navigate the rice market. Similar to popular bar charts, candlestick charts provide the open and close price, as well as the high and lows of the time period being examined. Unlike bar charts, however, candlesticks use a color to indicate directional trend. If the body of the candle is green or clear, the currency pair traded upward. If the body is red or black, it traded down.
The length of the body shows the distance between the open and close. The longer the body, the more volatile the market at that particular moment, whether that be a minute, an hour, or a day. The upper and lower shadows, or wicks as they are sometimes referred, indicate the intra period highs and lows. Long shadows with short or non existent bodies indicate market indecision, and perhaps even a trend reversal.
CANDLESTICKS IN FOREX
Like bar and line charts, candlesticks offer forex traders areas of support and resistance. They can use these to interpret bounces and directional break outs. Here are some basic patterns every forex trader should know by heart.
Doji Patterns
The doji is, without a doubt, the most important candlestick to consider. A doji's body consists merely of a horizontal line. This means that the pair opened and closed at the same price. This indicates market indecision, and a potential trend reversal. There are three primary types of dojis: the basic doji, the gravestone doji, and the long legged doji.
The basic doji has the open/close line in the middle with shadows extending equally above and below. it indicates sever market indecision. The gravestone doji gets its name from its appearance. The open/close line is on the bottom with a long wick on top and nothing below. This usually indicates the top of the market has been reached, and buyers are weakening. The long legged doji looks the opposite of the graveyard. It indicates a support point has been reached, and a reversal is likely.
Spinning Tops
Spinning tops look and act very similar to the basic doji. The primary difference residing in that the spinning top does posses a slight body. This body can be bullish or bearing, but either way it represents market indecision and likely reversal.
Hammer and Hanging Man
Hammers and hanging man candles look similar to long legged dojis with the exception of them possessing a minimal body akin to the spinning top. They can be bullish or bearish in color, however, their power comes from where they are located on the chart. A hammer is a bullish candle located at the bottom of a down trend. The hanging man is a bearish candle located at the top of an uptrend. Both signify potential market exhaustion and likely reversal.
As with all candlesticks, the longer the time period of the chart, the more relevance the pattern has.
CONCLUSION
Forex traders use candlestick formations to help them read and anticipate market action. There are a great many candlestick patterns a trader can use to give him or her an edge when trading. Candlesticks are particularly useful when used in concert with other key indicators such as moving averages, Fibonacci Retracement, and fractals. The more indicators pointing in the same direction, the more likely that direction will occur.
Royal Capital Pro online trading platform provides forex trading tools, and advice to beginning and experienced traders alike. To learn more about how to use candlestick patterns in forex, visit RCPro
