Technical analysis is the most widely used way of analyzing the Forex market. The technical analysis itself has many tools of analyzing the market. Probably the most popular one is identifying the candlestick chart patterns. These candlesticks first appeared in Japan sometimes in 18th century. They were used by Japanese rice traders to plot the price movement. That’s why candlestick charts often called Japanese candlestick charts.

Long time before candlestick charts were invented traders would use line connecting the prices over time. Bar charts substituted the line charts because a bar gives much more visual information about the price movement. Looking at the bar of certain time frame you could tell at what price it opened, closed, what was the high and low of the price for that particular period period. However a candlestick could make visualization even better.

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 Formation

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 top shadow is the highest price point reached during the time period of a candle. The lower shadow is the lowest price reached by the price. The horizontal lines are the open and close prices. If it’s a bullish candle then the open price is the lower horizontal line and the close price is the upper horizontal line.

How To Use Candlestick Charts In Forex 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.

Very often a trader needs to make a decision very quickly. Candlestick patters allow to get information about the price movement in a glance. The color and size of the candles show what the trend is and how strong it is. That’s why candles are very useful tools for Forex trading.

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