Posted by forex at 2:38 AM
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1. Chart any financial product using a candlestick method. This feature exists on most trading platforms and on financial charting websites. Candlestick charts are appropriate for any financial instrument, such as stocks, bonds, commodities or foreign currency exchange (Forex).
2. Identify the wicks of each candle. These are the thin vertical lines at the top and bottom of the candles. They extend to the highest and lowest prices of the candle. In this way, the wicks resemble a more traditional bar chart style.
3. Look at the body of each candle. The body is the main rectangular shape in the middle of the candle, though if it is small, it sometimes appears as a short horizontal line. The body indicates the opening and closing price for the candle. Since the highs and lows of the candle do not usually coincide with the opening and closing prices, the body is usually suspended between two wicks. However, in the case of a trending day where prices steadily rose or fell throughout the session, there may be little or no wicks if the opening and closing prices were also the lowest and highest prices.
4. Identify the color of the candle's body. The color is typically either red or green. In some systems, the green color is omitted, and the candle is simply 'hollow,' with just a rectangular outline for the body. A red candle means the top of the body is the opening price, and the bottom is the closing price. This means the prices overall fell throughout the day. A green candle indicates that the session ended with higher prices than those at the beginning of the day.
5. Examine a candle with long wicks of equal length extending from a short body. Investors often call this candle shape a 'spinning top.' This, like many other candle shapes, offers insight into the day's activity. The small body indicates that prices neither rose nor fell significantly by the end of the session. But the long wicks show that prices fluctuated considerably up and down before ending at nearly break-even. Such days indicate a neutral balance between buying and selling activity. A spinning top at the end of a long trending period could suggest a reversal is imminent.
6. Study a list of other candle shapes and price sequences. There are dozens of recurring candlestick charting patterns that traders use to predict future price action. It can take a while to memorize them all. Eventually, you will want to instantly recognize these patterns while market activity unfolds in real-time.