A candlestick has many types of shapes and sizes; some are huge, and some are small, some have a beautiful top and some have an awesome bottom, some have a long leg and some have a huge hand. All in all, trading with candlestick charts is fun and pleasurable
Candlesticks are plotted in all time frames, and as per every time frame, the value and importance of a candlestick is different, say, for example, a single candlestick on a daily chart provides significant market price action information and is much more important than a single intra day 5 minute candlestick.
Candlesticks are plotted in different sizes on the forex charts. I am sure; you would want to know the difference, and what market information does these different sizes of candlesticks reflects?
Long, Medium and Short Candlesticks
The longer the candlesticks real body is; the more is the difference between the opening price and closing price of a currency pair. A long body reflects the power of demand and supply. Longer the real body is, the powerful are the buyers or sellers; as a result, candlestick ends up in a strong bullish or bearish sentiment.
A long white and/or green candlestick indicates a high demand
, which creates an enormous buying pressure due to low supply. The longer is the height of the real body, the more was the intense pressure of buying; as a result, a long and strong bullish candlestick is formed.
A long black and/or red candlestick indicates a heavy supply
, which creates an enormous selling pressure due to low demand. The longer is the height of the real body; the more was the intense pressure of selling, as a result, a long and strong bearish candlestick is formed.
The shorter the candlesticks real body is; the less is the difference between the opening and closing price of a currency pair. A Short body reflects the market stability i.e. the demand and supply are equal in the forex market and there is no such pressure in buying or selling the currency pair, as a result, candlestick ends up with a shorter real body reflecting the market sentiment as sideways i.e. non trending phase.
Reading Forex Candlestick Charts
In the above illustrated USDCHF, 4 hours chart, you will see that due to higher demand at a support level, price appreciated very quickly resulting into long and strong bullish candlesticks and after a couple of days, the market was stable i.e. the demand and supply were almost equal, there wasn’t any pressure of buying nor selling resulting into smaller and weaker candlesticks.
What Market Information does Upper and Lower Shadows provide?
Most often you will see long vertical lines above and below the real body; these vertical lines are called Shadows and they play a very important role in analyzing the price action.
The extremes of shadows signify the highest and lowest traded price
as according to a particular time frame. If any candlestick has a shadow, then it reflects the trading activity information of a trading session i.e. the trading was very active and volatile for the entire session despite its opening and closing price. If a candlestick has a shallow and/or a very small shadow, it means that the price action was highly influenced by buying or selling pressure resulting into a closing price very near to the highest or lowest traded price.
A long lower and short upper shadow of a candlestick means that in the beginning of the candle, the bears were stronger i.e. there was a very high selling pressure but due to some reason may be an economic news release or any other reason popped up creating a huge demand in the market resulting into a strong and enormous buying pressure and, as a result, the closing price was not only higher than the lowest traded price but even higher than the opening price.
A long upper and short lower shadow of a candlestick means that in the beginning of the candle, the bulls were stronger i.e. there was a very high buying pressure but due to some reason may be a fundamental news release or any other reason popped up decreasing the demand and resulting into a strong and enormous selling pressure and, as a result, the closing price was not only lower than the highest traded price but even lower than the opening price.
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