Forex Charts and Candlestick Patterns
Tuesday, June 30th, 2009Technical analysis is the most widely used way of analyzing the Forex market. The technical analysis itself has many tools of analyzing the market. Probably the most popular one is identifying the candlestick chart patterns. These candlesticks first appeared in Japan sometimes in 18th century. They were used by Japanese rice traders to plot the price movement. That’s why candlestick charts often called Japanese candlestick charts.
Long time before candlestick charts were invented traders would use line connecting the prices over time. Bar charts substituted the line charts because a bar gives much more visual information about the price movement. Looking at the bar of certain time frame you could tell at what price it opened, closed, what was the high and low of the price for that particular period period. However a candlestick could make visualization even better.
Early in 20th century American stock market traders started to use candlestick charts. The one who introduced them to candlesticks was Charles Dow. We know him as a co-founder of the Dow Jones company.
Forming of a Candlestick Pattern
Candlestick as a rectangle of certain color with upper and lower vertical lines. The upper line is called the upper shadow and the lower one is called the lower shadow. The color of the candles indicates the difference between open and close prices over certain period of time.
Each line gives certain information in candlestick. For example the higher wick or shadow shows what was the highest price during the time period of the candlestick. The lower wick or shadow shows the minimum of the price during that time frame. The horizontal lines indicate the open price and close price. The direction of the price movement is identified by the color of the candlestick.
The Ways to Use Candlestick Patterns for Trading
Candlestick charts of shorter time frames like 15 minutes can clearly show you the trend over longer period of time. So if you see many candlesticks of the same color you may be sure that a trend is developing. For example if in your charts the rising candle is colored in green seeing green candles back to back indicate a trend development.
That’s the beauty of candlestick charts they give visual information immediately. It shows if the trend up down or if the price in a sideways movement. In an environment when you need to make decision quickly such tool can be invaluable for a Forex trader.

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