1Finance

What is a Japanese Candlestick in Forex Trading



Candlestick charts are the most common chart types used by retail traders and investors. There are other types of charts such as line charts, bar charts etc., but they don't tell the story of past price action like candlesticks do. When trading is based on technical analysis, the decisions for future price action are made based on how the price has reacted in the past. I find candlesticks to be very useful and they are one of my favorite indicators. They work almost perfectly in volatile times, but even in less volatile times they work pretty well if used in combination with one or two other indicators.



Candlesticks are the price movement/action for a certain period of time, from as little as 1 minute to a week or a month. The body of the candlestick is the price difference between the opening and the closing time. The two lines on each side, which are called shadows or wicks, display the highest and the lowest point of the price for that period of time. The green candlestick in the picture below is a bullish candlestick in which the closing point is higher than the opening and the red one is a bearish candlestick, indicating that the price at closing was lower than at opening. The colors of the body is irrelevant, you can set them to your preference.

Traders carry out technical analysis to build ideas and strategies for possible future trades. Candlestick formations are a very useful tool for indicating possibilities for entries and exits. I use candlesticks as one of my two or three indicators on most of the trades that I make. Their shapes show you what's going on with the price very clearly. Let's see some of the most popular and easy to trade candlesticks and how they can be interpreted.