How to Read The Candlestick Chart in Forex Trading - ForeXposed

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Sunday, September 3, 2017

How to Read The Candlestick Chart in Forex Trading



Look at the image below. This is called Candlestick Chart because of its shape similar to the candle. Each provider has a different look of the chart. Not a problem because if we can use a single chart on any platform then we can use another platform, just needs a little adjustment.

The graph was created in the 17th century by the people of Japan that were originally used to monitor the movement of prices on the commodity products. Steven Nison is known as the first to popularise this type of chart. It's very representative because it consists of High, Low, Open and Closing Price, makes this the most popular chart used by forex analysts. If you are familiar with the products of securities, this graph is never used to monitor prices. Why? Because the securities require price closing only, not similar to forex trading.

In fact, there are more types of charts such as bar charts, line charts, dot chart, and more. But candlestick chart was indeed more widely used by traders because it's more easy to read.

How to Read The Candlestick Chart in Forex Trading
Source: BelajarForex.com

The picture above is the chart for the EUR/USD exchange rate. If you see a blue dashed line on the top, it is the last price value of EUR/USD, i.e. of 2.0052. This means that 1 EUR is valued USD 2.0052 (remember how to read a quote, explained in a previous module). See also small writing on the top left that says M15 = 15 minutes. It means that one candle (one stem) represents the price movement for fifteen (15) minutes.

The interpretation of candlestick is based on “pattern” there. Green candle means price moves up, or closing price higher in value than the opening price. Instead, the red candle means price moves down, or closing price was lower in value than opening price. Then what is the meaning of the vertical line above and below the candle? It was the highest price and the lowest price, during the period provided. In the example above is the lowest and highest price for each hour due the period used is per hour.

If using the term of Bullish and Bearish, so the Green is a Bullish pattern and Red is a Bearish pattern. For more details look at the image below:
How to Read The Candlestick Chart in Forex Trading

Don't be surprised when you find a different color, for example, blue with red. No problem, depending on the respective chart provider in providing color.

Well, now look at the picture below:

How to Read The Candlestick Chart in Forex Trading
Source: BelajarForex
 This is a candlestick for GBP/USD using 1H chart period (meaning 1 Candlestick represents the movement for 1 hour). X-axis, particularly the section that I give the sign of the red is the clock movement shall we discuss. The clock shows at 09.00 and 10.00, meaning a Candlestick on it represented movement from 09.00 till 10.00, shown by the image of the red candlestick. Here's how to read it: at 9:00 am price opened at 1.9987, then at 10.00, the price closed at 1.9970.

This was followed by the next Green candle, from 10.00 to 11.00, price opened at 1.9971 and then closed at 1.9974 at 11.00, and so on and continues to the other candle.

Now comes the question, whether the opening price was to be equal in value with the closing price on the previous candle? It is not. Not necessarily, and in fact, it often happens that the opening price is different to the closing price on the previous day. This often happens when passing through the holidays (Saturday and Sunday) and if there are special events. This is commonly called “gap”. Gap commonly used by technical analysts to predict the prices.

For more details, look at the picture below:
How to Read The Candlestick Chart in Forex Trading

A discussion of the gap will be separated from this article because it is already alluded to in technical analysis and is quite extensive. For a while, it is enough for us to be able to read a candlestick before knowing the technical analysis. Don't forget to read other articles on this website to deepen your analysis capabilities.

Well, now you've found out the key to read forex charts, at least it could've been grasping the direction of price movement. Maybe you thought: Gotcha! Finally, I've been able to open a real account! Woo hoo ...

Wait a minute. Could read it not means can benefit. Continue your forex school until it is finished before you decide to open a real account.