Forex candlesticks made easy? If you’re new to forex (fx) trading, you may well find the idea unbelievable. After all, aren’t there scores of forex candlestick patterns with complex formations and exotic names such as the hanging man, morning and evening stars, three black crows and the dragonfly and gravestone doji?
It’s true that if you want to devote yourself to studying forex candlesticks you could spend a lifetime on it. It’s also true that to be an effective and profitable trader, you just need to master a handful. The trick is knowing which ones to master and how to use them effectively in day to day currency trading.
First let’s take a quick look at what they are.
Candlestick pattern trading was created by the legendary Japanese trader Homma Munehisa who used them to make a killing on the Osaka rice market in the 1700s. Japan’s isolation from the world kept candlestick techniques a secret for centuries until they were discovered and popularized by Steve Nison at the end of the 1980s.
In the 20th century, US trader Charles Dow formulated his own charting system know as the bar chart. While both bar and candlestick charts both display similar information about the market, candlestick patterns do so much more vividly and comprehensively.
On candlestick charts, a new candlestick forms for each time period. Each candlestick shows opening and closing prices and the highs and lows for that period. The highs and lows are indicated by the wicks (known as shadows) that form above and below the body of the candle.
By gauging the relative lengths and the body and wick, the informed trader can glean much about the movement of the market. By studying the patterns of several consecutive candlesticks, he can see the real movement of the market.
Most retail traders, especially beginners, focus on technical indicators to guide their trading. This is often because these indicators seem easier to understand than candlesticks. The fact is that indicators can only show you the history of the market; candlesticks can show you what’s happening now. And learning the key candlestick patterns is easy.