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Candlestick Forex analysis
What makes a successful trader? Above all, it is the skill to strategize and forecast all possible outcomes. Of course, this doesn’t come at once. Becoming a professional currency trader can take some time, especially if you have your eyes on the prize and don’t mind staying focused on small details that add up into a big picture. The key is the combination of patience and a clear easy to follow plan. As long as you have a comprehensive idea of what you should be doing next, you will get guaranteed positive results. Now, with that said, it is also fair to mention that the learning phase might appear tricky due to a great amount of technicalities. What you should keep in mind, is that the best quality of Forex is its ability to be structured and analyzed. So, basically it is all very possible. For example, let’s break down the steps of Forex candlestick analysis to make a first move towards becoming a true pro.
Forex candlestick analysis
For starters, let’s figure out what is a candlestick in Forex and where it is used. To oversee the situation at the market and build an effective trading strategy, traders use the data that can be found on the chart. The chart represents mainly the price values of selected currency pairs at different times. There are three ways a market chart can look like: candlesticks, bars and lines. Each of the mentioned options is equally efficient and popular. Today we are going to focus on the candlestick Forex analysis including its specifics and instructions. To an inexperienced trader the candlestick chart might seem confusing at first. The color scheme of the chart depends on the trading platform setting, but the main elements will look the same. The name of this type of chart comes directly from the way the units look - vertical rectangular boxes of various heights with small vertical markings at the top and bottom. Kind of like candles. There are two types of candlesticks at the charts: the ones filled with color and the ones that look like just an outline. In some platforms, however, both types will be filled and you can tell them apart by which color is used. On standard charts the filled candle is also called bearish (or bear) and it can appear on the chart when the opening value of the currency is higher than a closing one. The non-filled candlestick is also referred to as bullish (or bull) and shows up when the closing value is above the opening one. Important step to make sure you can read the chart correctly is to distinguish bearish candles from bullish ones.
How to read Forex candlestick charts
Every professional trader has their own techniques when it comes to analysis, but the chart reading strategies usually remain the same. Let’s go through a few steps of navigating through chart settings and learning how to read Forex candlestick charts:
First things first, pick the currency pair you want to analyze. Each chart will be specific to the chosen pair. And in order to compare several pairs the trader will need to generate charts accordingly. Pro tip for beginners is to start their trading journey with just one or two pairs. This will help to keep focus as well as to learn individual characteristics of every currency.
Next, select the period of time you wish to be reflected in the chart. Timeframes can be set anywhere from a few seconds to weeks and even months. Needless to say, that the smaller the timeframe the more precise is the chart. However, every good Forex candlestick analysis PDF manual will tell you that you should not go too small or too big. Most trades can be built from a 24 hour time frame chart with references to the weekly one. And in case you personal trading strategy involves short term charts, remember to cross check with bigger time periods for a fuller picture.
The third step of candle analysis Forex is something we have already discussed: distinguish the bullish candlesticks from the bearish ones. And as previously mentioned, before you get to analysis make sure you are familiar with the particular settings of your service. Sometimes the bullish candlestick is just and outline and in other cases it is filled with green, while the bearish candle is red.
Now look at just one candle at the time. See those little vertical markings? They are called the wick and the shadow (for top and bottom respectively). The highest point of the wick represents the highest rate for the chosen pair in the selected timeframe, while the lowest point of shadow represent the lowest rate. The top and bottom lines mean different things based on the candle type. On bullish candles the top line is the closing price and the bottom is opening. On the bear its vice versa: top is opening and bottom is closing.
Then you can identify the pattern. This part can be kind of fun as there are many known patterns of candlestick charts and some of them have interesting names. For example Doji candles are the ones with very small or not even noticeable bodies. They appear when the market conditions are either neutral or uncertain. At this point a trader might want to hold on before making a trade.
And now is the main part: use the patterns you identified to build an action plan for your upcoming trades. Based on the time frame you have chosen and the level of expertise you have, you strategy may be different from other traders. This doesn’t mean that it’s wrong, but it is always a good idea to double check and get a second opinion if possible.