WHAT ARE CANDLESTICKS IN FOREX?
- Forex candlesticks maintain a range of information about currency price movements, helping to inform forex trading strategies with PaxForex.
- Trading forex using candlestick charts is a useful skill to have and can be applied to all markets
What could possibly be more important to a technical forex trader than price charts, how to start trading on Forex? Forex charts are defaulted with candlesticks which differ greatly from the more traditional bar chart and the more exotic renko charts. These forex candlestick charts help to inform an FX trader’s perception of price movements – and therefore shape opinions of trends, determine entries, and more.
All currency traders should be well-informed of forex candlesticks and what they indicate. After learning how to analyze forex candlesticks, traders often find they can identify many different types of price action far more efficiently, compared to using other charts. The added advantage of forex candlestick analysis is that the same method applies to candlestick charts for all financial markets.
WHY FOREX TRADERS TEND TO USE CANDLESTICK CHARTS?
Candlestick charts are the most popular charts among forex traders because they are more visual. Candlestick charts highlight the open and the close of different time periods more distinctly than other charts, like the bar chart or line chart.
Candlestick charts have certain advantages:
- Forex price movements are perceived more easily on candlestick charts compared to others.
- It is easier to admit price patterns and price action on candlestick charts.
- Candlestick charts offer more information in terms of price (open, close, high and low) than line charts.
Some disadvantages of candlestick charts:
- Candles that close green or red may mislead layperson forex traders into thinking that the market will keep moving in the direction of the previous closing candle.
- Candlestick charts may clutter a page because they are not a simple as line charts or bar charts.
There are three specific points that create a candlestick, the open, the close, and the wicks. The candle will turn green/blue (the color depends on the chart settings) if the close price is above the open. The candle will turn red if the close price is below the open.
- Open price: The open price depicts the first traded price during the formation of a new candle.
- High price: The top of the upper wick. If there is no upper wick, then the high price is the open price of a bearish candle or the closing price of a bullish candle.
- Low price: The bottom of the lower wick. If there is no lower wick, then the low price is the open price of a bullish candle or the closing price of a bearish candle.
- Close price: The close price is the last price traded during the formation of the candle.
This image below shows a blue candle with a close price above the open and a red candle with the close below the open.