Now we know the history of Japanese Candlesticks and also we had discussed a short summary of Japanese candlestick charts in the earlier lesson. Now, it’s the time to explore more about candlesticks, in order to utilize it in a proper manner to yield higher returns on our investments.
The Anatomy and Formation of A Japanese Candlestick
A candlestick is a very beautiful method of analyzing the price action in the forex market. Candlesticks are the vertical lines plotted on the chart having a solid body in the central portion of the entire vertical line, this Solid Body is also known as Real Body (Sexy Body)
and the remaining’s of the vertical line at the top and bottom are called as Shadows i.e. Upper Shadow and Lower Shadow, these Shadows are also known as Wicks (Skinny Shadows)
below you can see the formation of a single Japanese candlestick.
Formation of a Single Candlestick
Candlestick charts can be used for all time frames ranging from monthly to intraday as low as 1 minute. Candlestick charts displays the same price action data like the bar charts, but with a twist, for example; in the above picture, you can see the formation of a single candlestick. A candlestick shows the same price action i.e. the opening, high, low and closing price of a currency pair as according to the given time frame. The whole height of the candlestick reflects the highest and lowest traded price, now the twist here is the larger block (Real Body), which is in between the vertical line and its color; the whole larger block is the opening and closing price of a single time unit if the color of the real body is white or green, then it means that it is a Bullish Candle i.e. the closing price is higher than the opening price, and if the color of the real body is black or red, then it means that it is a Bearish Candle i.e. the closing price is lower than the opening price. The skinny vertical line above and below the body are known as shadows reflecting the highest and lowest traded price as according to the time frame.
Why use Candlestick Charts?
Candlestick charts makes forex trading much more pleasurable as there are “Sexy Bodies” and “Skinny Shadows”
Jokes apart, Candlestick charts are the most beautiful charts as they display the price action in a graphical format and in multiple colors instead of just dots and lines, with the help of these multiple color candlesticks; we are able to easily identify the winner between a bull and a bear i.e. understanding the current situation of the market in a glimpse, whether the demand is more or the supply is more.
By default white color candlestick reflects a bullish candle and black color candlestick reflects a bearish candle. We can also replace these boring white and black colors by bright and attractive colors such as green for bullish candlestick and red for bearish candlestick. Have a look below, How beautiful is the candlestick chart, isn’t it?
Beautiful Candlestick Chart with Green as Bullish Candles and Red as Bearish Candles
By understanding the current price action accurately with a glimpse helps us in saving time, which is required for analysis and, as a result, we are able to make the best use of time by focusing in finding and implementing more potential lower risk and higher returns trade setups as per our forex trading strategy.
It’s a win-win situation when we are using candlestick charts because candlesticks charts provide all the information and even more than the bar charts; further it gives us an extra time to identify the best possible potential trade setups.
What is Candlestick Trading?
Candlestick trading is a combined result of using Japanese candlesticks as a charting method along with other useful technical analysis tools. We are able to trade successfully by properly learning the unique benefits of every tool and utilizing all of them at an appropriate precise moment to get the best possible returns.
Japanese Candlesticks is non-arguably the best charting technique and also the best trading tool used for analyzing the market from a technical point of view, but still it is recommended to use these candlesticks as a confirmation tool along with other technical analysis tools in order to get the best results for your investments. In the nest lessons, we’ll study various different types of candlestick patterns and candlestick trading strategies including the advanced ones.
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