The Japanese candlestick has been used to chart fluctuations of prices for centuries. It seemed like a natural addition to the Forex market. It has been used effectively in charting the various fluctuations that make up the currency exchange. While it might seem like a bunch of skinny and fat lines on a graph, each one of those lines (the thickness, the length, and the shape of each part) has a purpose and can provide a trader with a wealth of information.
What a Candlestick Looks Like
The symbol which appears on these types of charts is named candlestick because it looks like a pillar candle. The difference is that there is a “wick” coming from both ends of the pillar. These candles come in either black or white. A white candlestick is known as an empty body or bullish candle. A black is known as a bearish and is also known as a filled body.
Each one of these candles provides four pieces of information no matter what pattern or formation they are in. The first is the open price; the second is the close price, third is the lowest price and fourth is the highest price that the currency experienced within a particular period. Each candlestick can be set to represent whatever period you want within the forex market.
The pillar itself shows the forex open and close prices, while the wicks show the high and low prices. Just this information alone provides a forex trader with a huge amount of information. It goes further however, when you add formations.
In addition to the four basic pieces of information a trader can obtain from a candlestick, the shape of the pillar and the length of the wick as well as when that particular shape or formation pattern appears can also provide a wealth of information. For example, a piercing line is a pattern that is considered to be bullish despite having both a bullish and a bearish candlestick in the pattern.
The placement of these two candles is significant for a forex trader and they should pay careful attention to not just the prices but also the positions of the candlesticks in relations to the other candlesticks appearing within the period the chart is marking. In the case of a piercing line, it consists of a long bear followed by a long bull. The long bullish candle opens in a position that is lower than the bearish candle’s low. It closes more than halfway above what is considered to be the middle of the body on the bear candle.
While this might seem confusing, if you know what the bullish and bearish types of candles represent as well as the numbers that they convey you can easily interpret this information to provide you with valuable insight into what the market was doing at that particular moment. This might not seem like much but if you mix this information with information from global news, you can easily see what the Forex market is doing and how these events affect the numbers.