Candlestick Charts and how they can help you trade Forex

Do you find it hard to analyse your financial charts in a technical way? Would you like to use a more intuitive, simple method? Read on and find out about Candlestick Charts.

Candlestick charts are said to have been  originated in Japan by a rice trader, Homma Munehisa. The charts gave Homma an overview of the rice market. It is said that he once made profit on 100 consecutive trades! Candlestick charts were noticed by Charles Dow in around 1900 and are used very widely today. The charts are now applied to currency markets to predict future movement and to document the open, close, high and low prices for a given period.

Candlesticks are normally made up from either a solid or hollow rectangular body and an upper and lower shadow (which would be wicks on a wax candle). The shadows show the highest and lowest price that the security (currency in this case) was traded for in a period of time. The body shows the opening and closing trades. If the security closed higher than it opened, the body is hollow, with the opening price at the bottom of the body and the closing price at the top. If the security closed lower than it opened, the body is solid, with the opening price at the top and the closing price at the bottom. A candlestick doesn't have to have either a body or a wick. In most charts now, the body is coloured depending wheather the price closed higher or lower than when it opened. Red and green candlesticks are commonplace.

Prices are driven by trade and the emotions that govern the people making those trades. Candlestick charts are very good for tracking this in a minute by minute fashion but trading in the short term is known to be risky. Luckily, candlestick charts are equally valid for longer periods. Most modern software enables you to choose a period from seconds to months or even years. This is far safer since long term trends tend to be more stable in nature.

Depending on the pattern of candlesticks, they can show bullish or bearish behavior and therefore indicate where a market is headed. Different patterns mean different things of course and need to be interpreted very carefully. There are many patterns to learn but they are visual which can aid the your learning. A course in candlestick charts is essential be it either a book or videos. A good system is recommended below.

In this article I have just given a very basic introduction but there is a wealth on information available online. Candlestick charts have been used for centuries and for good reason. They are visual, the patterns are easy to learn and they are a reliable source of indicators. Get the advantage by learning all you can about them.

Steve Smith recommends the Forex Candlestick System and is the founder of New FX Pro

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