Do you want to know how to read candlestick charts? Candlestick charts are one of the main tools in many forex traders’ arsenal. In fact, many forex traders prefer using the candlestick chart as opposed to the bar chart. If you are going to become a successful forex trader, you need to know how to interpret a candlestick chart.
The candlestick chart shows the following information: Opening Price, Closing Price, High Price & Low Price, over a pre-determined time span. You can customize the time span to be anything that you want. For instance, you can select the time interval for each candle to be: weekly, daily, hourly, or even minutes.
Each bar / candle indicates the range of price movement over the time span that you selected.
The colored in area (the red or blue section) of the candlestick is referred to as the Body. This shows the Opening & the Closing Price.
The long thin lines above and below the body are known as Shadows / Wicks / Tails. These lines represent the High & the Low price.
So how can you make sense out of all of this?
The Blue Candle indicates a Bullish signal. This is because the price has increased during the designated time span. The price closes higher than its opening price (i.e. the exchange rate opens at the bottom of the body and closes at the top of the body).
Sometimes, the color of the Bullish candle can be green or white.
Red Candle means Bearish because the price decreases during the designated period. The price closes lower than its opening price (i.e. the exchange rate opens at the top of the body and closes at the bottom of the body).
In some charts, the color of the Bearish candle is black instead of red.
Candlestick charts are now the preferred charting tool for the majority of professional traders. This probably becasue of their visual impact. Like bar charts, candlestick charts are based on four main pieces of information relating to the timeframe of the chart (15 minute, 1 hour, 4 hour, daily, etc.) – the open and close prices for the timeframe, plus the high and the low during that time span.
Gaining a better understanding, and knowledge of how to read candlestick charts along with a solid understanding several other tools, such as pivot points and support/resistance lines, Fibonacci retracements and trendlines can add real profits to your trading.