How to Read Forex Candlesticks For Beginners

In the world of trading both forex, stocks, and cryptocurrencies, a trader needs to know how to read candlesticks. Candlestick techniques must be mastered to get maximum profit and minimize losses.

The popularity of this candlestick is what makes many traders use it to show prices. Because visually, candlestick charts are easy to understand and the information presented in each candlestick is quite complete including the opening price, lowest price, highest price and closing price.

Is Munehisa Homma, a rice trader who created candlesticks as a type of chart in forex trading that is quite popular and widely used by traders to date.

Candlesticks were first used around the 17th century in Japan and were used to calculate rice price movements. Through homma's ideas, he managed to get around the market with his analytical skills. The idea of creating an indicator that can be used to predict the direction of a trend is a very brilliant idea.

What is Candlestick?

Candlesticks are different visual representations to make price movements easier to understand. Trading on a time frame with Japanese candlestick charts allows traders to better understand market sentiment. Thanks to Steve Nison, forex candlestick charts offer more in-depth information than traditional bar charts.

But it turns out that not everyone can read candlesticks accurately in a short time. It takes some special insights in order to read candlesticks quickly and accurately, including knowledge of candlestick anatomy, time span, and candlestick size.

Understanding Candlestick Anatomy

A candle chart shows a development in the price of an asset over a period of time. Each candle represents a movement in the price in a period, with a special sign for the starting price. To better understand about forex Candlesticks here is the anatomy of a candle.

1. Opening price or Opening

Its position coincides with the top or bottom of the wax body. If the price increases in one period, then the opening will be under the green body. Whereas if the price decreases in one period, then the opening will be above the red body.

2. Highest or Highest Price

This high position is at the top of the candle axis. However, if the price at the open and also the close are already high then this candle will not have an axis.

3. Lowest or Lowest Price

Its position coincides with the peak of the axis or tail of the lower candle. But if the closing or opening price is the lowest price, then the candle will not have a lower axis or tail.

4. Closing price

These positions are at the bottom or also above the forex candlestick. If the price increases, then the closing will be above and green. Whereas if the price decreases then the closing will be in the lower position of the body in red.

Candlesticks and TimeFrames

When comparing candlestick charts on different timeframes, the shape must be different. In fact, candlestick charts on daily timeframes go up, but candlestick charts on 5-minute timeframes (M5) decline. This is because the OHLC price benchmark follows the price developments in one timeframe only.

One candlestick on the Daily timeframe will represent the opening, high, low, and closing prices in one day. One candlestick on a 5-minute timeframe will represent the opening, high, low, and closing prices in 5 minutes. One candlestick on the Hourly timeframe will represent the opening, high, low, and closing prices in an hour. So on.

This time frame is very important to note in order to read candlesticks accurately. In addition, it is necessary to wait until the candlestick has finished forming in a certain period before using it in forex analysis.

Size Along With Candlestick Distance

The size of a candle is largely determined by the price value that fluctuates in a period. The higher the price fluctuations eat the size of the candle will be the larger as well. This can be used as an indicator to see strong or weak buying and selling flows on foreign currencies. Candlestick sizes have at least four important benchmarks that you should remember.

First, if the body of the candle is large and also green then it indicates the purchasing power of the buyer is very high. Secondly if the body is large candlestick is large and also red then it signifies a high selling current.

Second, the body of a large and red candlestick indicates a high selling current or a very strong seller movement.

Third, if the upper and lower wicks are long with a small candle body, it indicates that there will most likely be a reversal of direction on the price movement. However if the axis below is equal in length to a small body size, then it indicates the market is confused in determining the direction.

Fourth, the distance between very long candles will create a distance or gap. This indicates there is too high price volatility or too little market liquidity. This distance is common at the beginning of the week, but if in the middle of the week there is a large distance going on, then it should find out if there is news or something else that surprises the market.

This candlestick pattern is one of the combinations towards success in forex trading. Apply new knowledge to test and know about various important sciences in the world of forex trading.