There is nothing more important for a technical forex trader than price charts. Forex price charts are also called candlestick charts that provide a wide range of information regarding currency price movements. Forex candlesticks inform about a trader’s perception or price movements and play a major role in shaping opinions of trends, determining entries and much more. Thus, candlestick charts can be considered a helpful tip in trading forex, which also forex traders should be knowledgeable about and what they signify. When you become proficient in analyzing forex candlesticks, you will be in a far better position to identify different price actions than other charts. The best advantage of using forex candlestick analysis is that it has the same analysis method in all financial markets. Get more information about forex candlestick provided by the best regulated brokers. Read More
Forex Candlesticks Explained
There are three major points to consider when creating a candlestick which are:
The candle turns blue/green depending upon the chart settings if the open price is below the close price. On the other hand, the candle will turn red if the open price is above the close price.
If the trader has a chart for routine setting, every candle represents a single day, where the open price is the first price being traded in the day and the close price is the last price being traded in the day.
Why Do Forex Traders Prefer To Use Candlestick Charts Instead Of Traditional Charts?
Candlestick charts are one of the most popular charts for forex traders as they are more visually appealing. They highlight the open and close positions at various time intervals, which are more distinctive than other charts, say bar charts or line charts.
There are certain advantages of using candlestick charts:
- It is much easier to perceive forex price movements on candlestick charts than others.
- One can recognize the price patterns and actions much more conveniently with candlestick charts.
- If you require additional information regarding price (high, low, open and close), candlestick charts are a much better option than line charts.
However, there are certain disadvantages of using candlestick charts as well:
- Candlesticks closing red or green might mislead inexperienced forex traders to think that the market is moving in the previous direction of the closing candle.
- Candlesticks might create confusion as they are not as simple as bar charts or line charts.
How Can You Use Candlestick Charts In Forex Trading?
Many traders use candlestick formations for entry and exit points in the forex market. Forex candlesticks are individually called candle formations such as hammer, shooting star, hanging man and more. They also form numerous price patterns such as wedges, triangles and more. Apart from being used in the forex market, these candle formations and patterns are also very much prevalent in other financial markets such as cryptocurrencies, stocks and more.
Also read : How Leverage Works In The Forex Market?
How To Trade Forex Using Candle Formation?
- The Hanging Man:
The hanging man is a type of candlestick formation with a small body, long lower wick and an open above the close. It signals that the market will continue in a downward trend. If you are able to recognize the hanging man candle, you can easily get to know about the most significant entry and exit signals which are prominently used in candlestick charts. Selecting a low commissions broker crucial because these costs can quickly eat away at your profit.
- The Shooting Star:
Another type of candle formation is the shooting star, which has a wick which is half of the candle length. The longer wick shows that the sellers outweigh the buyers. A shooting star is a perfect example of a long exit or short entry into the forex market. It is recommended that traders execute a short trade just after the shooting star candle has been closed. They can then put a stop loss or a price to get the best risk-reward ratio, which is the most important trait of being a successful forex trader.
- The Hammer:
The hammer candle is the opposite of the shooting star candle. Traders can use it for a long entry or short exit into the market. The hammer is known for its small body and longer wick.
Candlestick charts have been a great tool for forex traders worldwide for decades. A basic understanding of candlestick patterns could give you an edge that can help you become a successful trader. Thus, every trader must have them in their technical toolbox to facilitate the trading process.