Forex candlestick technical analysis is the detailed examination of statistics gathered from trading activities using a candlestick chart. The aim of such technical analysis is to forecast the future movement of securities in the forex market. The candlestick chart is the trading tool upon which this analysis is efficiently carried out.
WHAT IS A FOREX CANDLESTICK CHART?
A forex candlestick chart is a chart that displays four major aspects of a particular security over a specified period of time. The trading aspects displayed in a candlestick chart are the high, the low, the opening, and the closing prices. The use of candlestick charts as a trading tool has been in existence for over 300 years and still counting. It is used majorly by day traders who initiate large numbers of trades daily and hold the position of the trade only for a few minutes. With a candlestick chart, a trader can easily identify market patterns as well as other useful trading information in a limited time frame.
TECHNICAL ANALYSIS OF THE FOREX MARKET
The technical analysis of the forex market employs the use of past trading activities of a particular security as well as the price changes of that security to predict the future price of the security. According forex market analysts, price changes and past trading activity, when combined, are better indicators of a security price movement than the intrinsic value of the security. The use of candlestick charts can be helpful in the development of forex technical analysis patterns that can make seemingly negligible but enormously positive difference in a trade.
THE USE OF CANDLESTICK CHART AS FOREX TECHNICAL ANALYSIS STRATEGIES
There are tons of unique strategies a trader can trade with, all of which has to do with some form of analysis at a point. The analysis could be technical or fundamental. The use of candlestick chart is an example of technical analysis, and could be helpful to traders when applied the right way.
Before venturing into the use of candlestick chart, here are some candlestick basics to take note of
The “real body” is the difference between the open and the close. The higher real body value creates the upper extreme of the real body value, while the lower value of it forms the lower extreme of the real body.
If a security rises above the real body price, that rise is known as upper shadow. On the other hand, if it is a reduction, the value is known as lower shadow.
When the lower extreme is defined by the opening price of a security, which rose during the charting, then the candle color is either green or white. If the lower extreme is defined by the closing price, and the security fell during the time it took for charting, then the candle turns red or black.
Candlesticks can work for a specified period of time; it could be monthly, weekly, daily, hourly, or per minute.