What is Candlestick in Forex?
Candlestick is an age-old Japanese method of technical analysis. It was created to analyze rice trade. After many centuries the technique was rediscovered in the and slowly earned immense popularity in the 90s. The technique is extremely visual and with a supporting picture the analysis becomes extremely easy to comprehend.
To start at the very basic level it can be said that Candlesticks are formed using the open, high, low, and close values in the trading market. With practical values from the forex trading, patterns are generated for predicting future trend.
A hollow candlestick, which is displayed as white is created when the close is above the open. The hollow or filled section of any candlestick is known as real body or body. A filled candlestick, depicted as a black stick is created when the close is below the open.
The thin lines created above and below the body shows the high or low range, and these are known as shadows. The top of the upper shadow shows the high. The bottom of the lower shadow shows the low.
In forex, long bodies show strong buying or selling trend. Longer body shows more intense buying or selling pressure. Short bodies show very little buying or selling action.
The beauty of the candlestick patterns is a single pattern depicts thousand words. Only by looking at the candlestick you get to know many details on one go. For example, a long white candlestick will implicate strong buying pressure. Longer white candlestick means further close above the open. This also suggests that prices increased significantly from open to close and buyers were quite aggressive.
If you find a long black filled candlestick, you know it implies a strong selling pressure. The longer the black candlestick becomes, the further the close goes below the open. This will tell you that prices fell considerably from the open and here the sellers were aggressive.
Initially candlesticks and their implications may appear to be rather complex. But once you go on unearthing the meanings you learn more and more. Keep exploring!