Posted by forex at 5:25 AM
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Viewing the Candlestick Chart
1. Open any Forex charting software program, and create a candlestick chart of any currency you wish. This is a standard feature in nearly all charting programs, and it often is the default setting for creating charts.
2. Identify the two colors of the candlesticks on your chart. In most programs, these are red and green, though they may be white and black or other colors. One of these colors, usually the red or the black, indicates a period in time (such as a single day) in which the last price was lower than the opening price of that period. By contrast, a green or white candle indicates the closing price was higher than the opening price.
3. View each candle's shape and notice the difference between a candle's 'body' and its 'wick.' The body is the widest rectangular portion of the candle, while a wick usually extends above and below the body as a single thin line. The body shows the price range between the opening and closing prices, while the wicks show the extent of the candle's range to its highest and lowest prices.
Candlestick Patterns
4. View the candlestick chart, and find an occasion in which a candle's body extends both above and below its previous candle's body, while also being the opposite color. Such a pattern is called an 'engulfment.'
5. Compare the subsequent price action on the chart following this engulfment to the price behavior prior to the engulfment. When the second, engulfing candle is red, this often leads to dramatically lower prices. When an engulfment is green, the Forex currency often rises in price following this pattern.
6. Study a guide to other candlestick patterns. There are dozens of well-known patterns that may occur in the Forex market, each with a particular interpretation that informs future price expectations. Start with simple two-candle patterns such as engulfments until you can recognize them clearly. Learn to identify other more complex patterns involving multiple candles.