In Forex trading there are two ways of predicting the price movement. One is fundamental analysis and second is technical analysis. The most popular tool in technical analysis is candlestick chart patterns. They come in existence some time in 18th century in Japan. Many commodity traders there were using such candlestick charts to identify the price movement. That's the reason why we call it candlestick charts.
A line graph that plots the function of the price depending on time was used for very long time. Then traders invented bar charts because they needed to see more information on a two dimensional charts. The bar shows the open, close, high and low of the price for certain period. However bar chart sometimes is not very visual as candlestick chart.
Candlestick charts appeared in America in early 20th century when stock market trader started using them. The first man who brought these charts into stock trading was Charles Dow. Everyone knows him as a co-founder of Dow Jones company as well as a founder of Wall Street Journal.
Candlestick Patterns
Candlestick as a rectangle of certain color with upper and lower vertical lines. The upper line is called the upper shadow and the lower one is called the lower shadow. The color of the candles indicates the difference between open and close prices over certain period of time.
The wick represents the highest or lowest price point during the time period that candlestick was formed. The horizontal lines represent the opening price and closing price for that time period. Let say we have a bearish candlestick. It can be identified by the color of the candlestick. Then the open price will be higher than the close price for such a candlestick.
The Ways to Use Candlestick Patterns for Trading
Candlestick chart is a very good way to visualize the trend development. On a chart time frame like 15 minutes over long time where multiple candlesticks fit you can see if majority of the candlesticks have the same color. Tat means you see the trend development.
That's the beauty of candlestick charts they give visual information immediately. It shows if the trend up down or if the price in a sideways movement. In an environment when you need to make decision quickly such tool can be invaluable for a Forex trader.
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