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What the candlesticks are telling you
Dear Subscriber,
As you spend time looking at forex charts you start to see patterns repeating themselves...
And it's by recognising these patterns and reacting to them that you can learn to trade forex more successfully.
That's why today I want to start highlighting some of the more common patterns, so you can recognise them for yourself.
And once you're able to recognise the patterns themselves, you'll be able to start interpreting how the patterns effect the price movements of the market and trade accordingly.
Now, to best look at the patterns the market produces, as we often do, we'll be looking at candlestick charts...
I'm sure that by now you're relatively familiar with candlestick charts. But to make sure we're on the same page, let's just quickly recap...
Here's the EUR/USD one hour candlestick chart:
Each candle, green or red, represents one hour of trading time.
A green candle means, during that hour, the closing price was higher than the opening price - it went up.
A red candle means the closing price was less than the opening price - it went down.
Simple, right?
The black lines above and below the candle bodies are called 'wicks' and they show where the price moved highest or lowest for the candle period.
You can hover the mouse on any candle body, and the price information will pop up in a box.
It will tell you the opening price, closing price and the highest and lowest price for the time period.
On the above chart, the price has fallen from 1.2394 (in the top left and corner) to 1.2150 in a couple of days.
But today I want to show you how to spot patterns in individual candlesticks that can give you clues as to what could happen next.
You see, some candle sticks are very bearish.
In other words they show strong price movement down and a high probability of continued downward movement.
How to spot a bearish candlestick
I call full bodied red candlesticks, bearish candlesticks.
Like the one below...
As you can very well see, it's red and this means the price has fallen consistently for the time period... an hour in this case.
But the important thing is that a downtrend a bearish candlestick often signals that the downward price movement may continue.
A bearish candle stick does not have long wicks, but has a long full body indicating strong selling pressure.
It's a simple example, but the fact is, being able to spot a candlestick like this could help you get into trades with a good probability of success.
So, see if you can spot a bearish candle sticks on your chart and have a look to see if the action that follows it continues to be negative.
Best wishes,
Richard Hill
Editor
Forex Round-Up
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