Candlestick charts are the most popular types of price action chart amongst Forex traders. There are some unique characteristics of a candlestick chart that have contributed to its gaining enormous popularity. Among all these characteristics, the candlestick chart’s ability to visually present different aspects of the market condition are the most crucial one. No other charts can elicit every price action so explicitly as a candlestick chart does.
Read a Candlestick Chart
To get the most out of anything, you surely have to acquire the ability to comprehend it comprehensively. Some fundamental elements of a candlestick chart are explained in this article. Those who are new to the Hong Kong trading community must read this article carefully.
Anatomy of the Forex Candlestick Chart
A pattern mainly has two parts: The Body and the wick. A wick is also termed as a tail or a shadow. The body of a pattern can be one of the four colors. They are green, red, black, or white. A green or a white body refers to a bullish or uptrend, and a red or a black body shows a bearish movement or downtrend.
Each body represents a specific pattern. To understand the pattern, you must understand the components from which it isformed. Every pattern has four data points. They are
- Open – This implies the opening price of a trade
- High – This is the pick price over a constant time period
- Low – This is the least price over a constant time period
- Close – This implies the closing price of a trade
For a bullish or uptrend, the open remains at the bottom of the body, and the close remains at the body’s upper side. For a bearish or downtrend, the open remains at the body’s upper side and the close at the bottom side. To know things precisely, you can learn more at Saxo as they have premium educational resources.
There are hundreds of candlestick patterns that reflect hundreds of market conditions. You cannot memorize all of them, and you do not have to. Most of the time, all you need to do is to understand two very basic things.
· Who is in control, the buyers or the sellers?
· Has the move got any strength behind it?
1. Who is in control, the buyers or the sellers?
You can find out who is controlling the market just by looking at two things.
The price rejection – It is shown by the upper wick of a bullish movement’s body. A longer wick is a sign of a higher price rejection, whereas a shorter wick declares a lower price rejection.
- High of a range – The upper wick of a body
- Low of a range – The lower wick of a body
- Price Closing Point – The pick point of a bullish movement’s body.
When you see the price closing point of a trade is near the high of the range, you can infer that the buyers are in control. The length of the upper wick will be shorter in such cases.
On the other hand, if you look at a chart where the closing point is near the lows, the trade is in control of the sellers. The length of the upper wick will be longer for such cases.
2. Has the move got any strength behind it?
You can quickly figure it out if a trend is being backed by strength or not. To do so, you have to compare the latest candle body with the one that came before it.
If the latest one is larger to the extent of two times or more than that of the previous one, it means the move does indeed have strength behind it.
If the latest one is similar to the previous one and shows no significant changes, then the move does not have any strength behind it.
It is never possible to learn to read a candlestick chart and understand all the indications it gives. Knowing the basics is just the beginning. Keep reading and keep learning more about the various patterns, and you will eventually reach the professional level.