Posted by forex at 7:38 AM
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1. Understand the basic candlestick shape. It is made up of a rectangular 'candle body' with two vertical 'wicks'---one top and one bottom wick---protruding from the candle body. The candle body top and bottom represent a currency pair's opening and closing prices. The tip of a top wick is the pair's high price for the period; the tip of a bottom wick is the period low. If a pair closes higher for the period, the body is colored green (or sometimes blue); otherwise, if it closed lower, then it is red.
2. Interpret an individual candle body's shape and color. Start with the height of the candle body. A tall body means that the price moved substantially during the trading period. A green tall body denotes an uptrend; a downtrend is shown as a red tall body. A short candle body indicates an unresolved tug-of-war between buyers and sellers over the trading period.
3. Interpret the wick lengths. First, examine the wick extending from the closing price---the top wick on a green candle, the bottom wick on a red one. If this wick is short or absent, then the forex pair closed near its high or low for the period. This suggests a trending price, especially when accompanied by a tall candle body. Two long wicks indicate that prices ended away from the period's extremes, not evidence of a strong trend.
4. Identify breakouts from support and resistance levels. By viewing a series of candlesticks, you can see how opening and closing prices align over time. Often, closing prices will bounce between two horizontal price lines---the lower line shows price support, and the upper line reveals resistance to higher prices. Traders attach significance to pierced support and resistance lines because they indicate the start or continuation of a trend and therefore a possible trading opportunity. For instance, an uptrend is indicated by a green candle body that extends above a resistance line. The longer the duration of the support-resistance channel, the stronger the trend predicted by the penetration of the channel by a candle body.