Now that you have some experience and understanding in currency trading, we will starting discussing a few basic tools that forex traders frequently use. Due to the fast paced nature and leverage available in forex trading, many forex traders do not hold positions for very long. For example, forex day traders may initiate a large number of trades in a single day, and may not hold them any longer than a few minutes each. When dealing with such small time horizons, viewing a chart and using technical analysis are efficient tools, because a chart and associated patterns can indicate a wealth of information in a small amount of time. In this section, we will discuss the "candlestick chart" and the importance of identifying trends. In the next lesson, we'll get into a common chart pattern called the "head and shoulders." (Day trading could be your cup of tea; you might want to read How To Set A Forex Trading Schedule.)

Candlestick Charts
While everyone is used to seeing the conventional line charts found in everyday life, the candlestick chart is a chart variant that has been used for around 300 years and discloses more information than your conventional line chart. The candlestick is a thin vertical line showing the period's trading range. A wide bar on the vertical line illustrates the difference between the open and close.

The daily candlestick line contains the currency's value at open, high, low and close of a specific day. The candlestick has a wide part, which is called the "real body". This real body represents the range between the open and close of that day's trading. When the real body is filled in or black, it means the close was lower than the open. If the real body is empty, it means the opposite: the close was higher than the open.


Just above and below the real body are the "shadows." Chartists have always thought of these as the wicks of the candle, and it is the shadows that show the high and low prices of that day's trading. When the upper shadow (the top wick) on a down day is short, the open that day was closer to the high of the day. And a short upper shadow on an up day dictates that the close was near the high. The relationship between the day's open, high, low and close determine the look of the daily candlestick.






After viewing it, it is easy to see the wealth of information displayed on each candlestick. At just a glance, you can see where a currency's opening and closing rates, its high and low, and also whether it closed higher than it opened. When you see a series of candlesticks, you are able to see another important concept of charting: the trend. (For a more in depth analysis, check out The Art of Candlestick Charting.)



Chart Basics (Trends)

Related Articles
  1. Trading

    Candlestick Charting: What Is It?

    Discover the components and basic patterns of this ancient technical analysis technique.
  2. Trading

    Using Bullish Candlestick Patterns To Buy Stocks

    These five popular candlestick chart patterns signal a bullish reversal in downtrend.
  3. Trading

    Star Formations Spotlight Luminary Trades

    Morning, evening and doji stars will have you basking in better trading profits.
  4. Trading

    Understanding the "Hanging Man": The Optimistic Candlestick Pattern

    A hanging man is a candlestick pattern that hints at the reversal of an uptrend. The candlestick is recognizable by a small box atop a long, narrow "shadow."
  5. Trading

    Heikin-Ashi: A Better Candlestick

    Enhance trend isolation and prediction of future prices with this technique.
  6. Personal Finance

    Top 5 Books to Become a Forex Trader

    These books are some of the best resources to learn about forex trading, covering everything from the basics of currency trading to advanced trading strategies.
  7. Trading

    Candlesticks And Oscillators For Successful Swing Trades

    Take advantage of short-term price moves by pinpointing reversals.
  8. Trading

    Day Trading Strategies for Beginners

    Interested in day trading? From picking the right type of stock to setting stop-losses, here's a tutorial on how to trade wisely.
  9. Trading

    The 5 Most Powerful Candlestick Patterns

    Statistics show unusual accuracy for the buy and sell signals of certain candlestick patterns like abandoned baby, evening star, and three black crows.
  10. Trading

    How To Become A Successful Forex Trader

    Discover a framework that will help you build your own profitable forex trading strategy.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center