Candlestick Charts as a Critical Step Towards Forex Trading Success.

March 31, 2011

by Pablo Soria de Lachica

Candlestick charts show price fluctuations for stocks, currencies, and commodities over time. This chart shows the gold price relative to the U.S. dollar from 1968 to 2008.

Source: Produced from the London Bullion Market Association Gold Fixing. Posted at Wikimedia Commons.

Bforex provides dedicated forex trading solutions, allowing timely and informed speculation on international currency movement. When trying to understand forex trends and make educated currency trades, it pays to understand candlestick charts. First employed in medieval Japan as a way of quantifying and predicting rice price fluctuations, candlestick charts have become the predominant indicator of stock, commodity, and currency performance among brokers and investors.

Candlestick charts superficially resemble bar charts in that they record high and low valuations over a given period. Additionally, they provide indicators of underlying currency strength through color, length of wick, and body size. The wicks of each candle are the single lines extending beyond the larger bars on either end, indicating the highest and lowest prices within a period. The top and bottom of the bars reflect the actual opening and closing prices. By showing the fluctuations within the given period, the candles accurately reflect the battle between traders hedging for or against a particular currency. The color of each bar is either green or red, with green representing a higher close from the opening price and red indicating a lower close from opening. The doji is a unique candle that has no body, and simply shows two wicks meeting each other at a cross line. The doji represents a scenario where the closing price is the same as the opening price, with price fluctuations throughout the day represented through the wicks as usual.

The candles within a chart are flexible; they can be calibrated to time frames as short as a minute or as long as a month. Naturally, swing traders tend to study charts with shorter time intervals and long-term traders focus on charts with longer intervals. In fully understanding both the macro and micro trends of a currency, it is often useful to study candlestick charts that plot the same currency over different time intervals. The Bforex Forex Academy at details a sophisticated multiple timeframe trading system that allows traders to avoid random trading in both directions in once, which will inevitably lead to a high incidence of false trades.

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