Candlestick charts shows information about the price action and themovement of the currency price over a specified period of time. Itcontains the market's open, closing, low and high of that specific timeframe.
Below is an analysis of a candlestick chart and its components.
On a daily chart, each candle represents a 24 hours period. Itcontains information of the daily open and daily closing price, thehighest and lowest price during that day. On an hourly chart, eachcandle represents an hour and so on. Since the forex market is a 24hours market, there is no real daily open or closing price. The chartprovider will decide a time, 5pm EST for instance, as the daily openand closing time. Different chart providers may have different choicesfor the open and closing time. Traders may find the charts fromdifferent providers are slightly different to each other.
What are candlestick patterns?
Technical analysts found that, by observing the candlesticks, thereare recurring patterns on the candlestick charts. Such patterns arelike recurring pictures on the candlestick charts and they tend tooccur when a trend is about to end or reverse its direction. Thepatterns are very good visual representation of the price movements andgive traders a good grasp of what is going on in the market.
Why are candlestick patterns so important?
Why are candlesticks so important? It is because they are the bestgauge of what is going on in the market at the present time. If acandlestick is very short, it implies that the range for the tradingday was very tight. If this candle appears after a strong up-trend, itmay suggest that sellers have now begun to enter the market moreaggressively, and thus the price may be on its way back down.
Eventually, candlesticks patterns can easily be used to identifypotential reversals of trends in the market - especially when used inconjunction with other indicators. By observing the candlestickpatterns, traders can speculate potential reversals of trends andentering the market with strong reference to the patterns.
