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Candlestick Charts – Amazing Analysis Tool

There is a charting way developed by a 16th century Japanese commodities trader of some fame.  That is why many of the patterns in candlestick charting are called by Japanese names.  When you first look at candlestick charts they may look odd to you and you can see how there is much information that can be articulated in a small area, and that is one reason that they have become so well-liked.  There have been many books and papers written on using candlestick charting, and with good reason, it is a very strong tool.

Many of us have seen and used simple line charts, but if you want much more information, you may find that candlesticks will give you what you are looking for.  It is not self explanatory to read a candlestick chart.  As a matter of fact you will most likely need to do some diligent reading or learn how to use them effectively.   The data that can be conveyed efficiently in a candlestick chart is more than you can imagine, really.

Candlestick charts first made their way to the U.S. About 100 years ago and have since spread worldwide. The Dow-Jone Company, founder of the Wall Street Journal was instrumental in candlestick charting gaining wider acceptance.

Candlestick Formation

The candlestick indicator is made up of a fat body that resemble a stick candle with a wick like indicator on the top and bottom of the fatter part.  Each of the components is an indicator of some importance.  Of course, like other charting methods, the chart can be drawn in diverse time frames, such as 15 minute, 1 hour, day, week, month and year.

The top of the top wick is the highest price reached during the time period and the lowest point of the lower wick is the low. The top and bottom of the body or fat part are the opening and closing prices. If price rose during the period, the body will have a certain color.  The bottom of the body marks the opening price and its top marks the close. If the price fell during the period the prices are the other way around and to show this at a glance the body will be another color.

How Can You Use Candlestick Charts In Forex Trading?

Some like to use a 5 or 15 minute chart to view the market over a several hour period of time to indicate certain patterns, or see if a trend is developing.  As an example, if the body is white or green and higher than the candle before it, that may indicate that the the buyers are bullish on that currency.  On the other hand if the candle is black or read it could indicate that the buyers are bearish.

Since the markets are faster now that they ever have been, candlestick charting is a very useful tool in seeing market trends and indicators very fast.  With study and use you will find it to be a very useful tool in your trading arsenal.