Forex Education

Trading industry knowledge. Learn forex trading, investing in stocks, commodities.

  • Home
  • Choose a broker
  • Brokers Rating
  • PAMM
  • Investment
  • Affiliate
  • Contact
  • About us
You are here: Home / Archives for Education / Chart Pattern

How to Read Candlesticks?

by Fxigor

Understanding Candlesticks in Forex

Every trader needs specific charts and tools to make trading more accessible and to avoid unnecessary human errors. Candlestick charts are charts that are used to read the price action by the traders. Individual candles form these. These charts allow traders to find the exact price opening for a while and when the prices closed. You can also use these charts to see the price lows and highs for some time.

What are Candlesticks?

Candlesticks represent a type of price chart that displays the high, low, open, and closing prices of a security for a specific trading period. The Candlesticks Body represents the price range, open-to-close. The Wick or the shadow shows the highs and lows.

candle tail or candle wick or candle tail

How to Read Candlesticks?

To read candlesticks, you need to analyze the Candlesticks Body that represents the price range, open-to-close, and the wick or the shadow shows the highs and lows. On candlesticks, you can see the following information:

japanese candlestick

  • Open Price

This refers to the first traded price, the opening price, that existed when the candle was forming. You will find the candle turning blue/green if there is an upward trend. You will see a red candle in case of a price decline. Keep in mind that depending on the chart settings, these colors may vary.

  • High Price

The upper shadow or the wick’s top shows the highest traded price during a particular time. In case a candle does not have an upper wick, it would mean that the highest traded price was either the close price or the open price.

  • Low Price

The lower shadow or the wick’s bottom shows the lowest traded price during a particular period. In case a candle does not have a lower wick, it would mean that the highest traded price was either the close price or the open price.

  • Close Price

This refers to the last traded price, the opening price, that existed when the candle was forming. The candle will turn red in case the open price is above the close price. On the other hand, it will turn blue/green if the open price is below the close price. Again, colors may vary depending on the chart settings.

  • The Wick

Reading candlesticks will only become beneficial if you are well-versed with what a wick is. A wick is also known as the shadow of the candle. Shadows or wicks are used to identify the price extremes for a particular charting period. You can easily distinguish between a candle body and a wick as the wicks are much thinner. A candlestick’s strength becomes apparent at this point. Traders can easily use these wicks to keep an eye out for the market momentum.

  • Direction

You can understand the price direction by paying attention to the candlestick color. If the candle’s opening price is below the closing price, you will see a green candle depicting an upward price movement. Similarly, if the candle’s opening price is above the closing price, you will see a red candle representing a downward price movement.

  • Range:

The range of the candle refers to the difference between the lowest and the highest prices. You can easily calculate it by subtracting the price at the upper wick’s peak from the price at the lower wick’s bottom.

 

Reading candles for Forex trading is essential as you can get a lot of viable information. The vital data provided by these charts is price action. Traders can use this to identify upcoming trends and possible reversals. A group of candlesticks, for example, can form patterns occurring across the Forex charts. Based on a few other factors, it could either indicate a continuation of trends or trend reversals. When these candlesticks form individual formations, they could pinpoint possible entry and exit points.

Every candlestick is built differently and shows data related to the period selected by the trader. Therefore, the exact answer to understanding a candlestick chart depends on the preferences of the trader. The daily time frame is one of the most popular time-frames used in Forex trading. You will learn about that day’s price highs and lows and opening and closing prices as well. Understanding candles in Forex varies a lot as various components allow you to forecast different aspects. For example, if a candle closes considerably below its opening point, it may hint towards a further decline in the prices.

How To Interpret Candlestick Chart Patterns

Understanding candlestick charts for beginners can be a little tricky, but you can do it quickly once your basics are right. First, you must pay attention to all the single candle components because charts are formed by individual candles coming together. Every candle has three significant points – wicks, close and open. When looking at the candles, the foremost thing to do is to pay attention to the opening and closing prices depicted by the candles. This will help you identify where an asset price begins and ends for the time-frame you have selected. Keep in mind that every candle stands for a different time frame and subsequent price movement. Therefore, it is essential to look at the bigger picture. When it comes to the daily chart, you will see the close, open, lower, and upper wick of the day.

 

How To Read Candlestick Patterns

To read candlesticks patterns you need to analyze various forms of two candle formations and multiple candlestick formations and to know which of them hypothetically predict a bullish or bearish trend.

There are different types of candlestick charts, and there are ample ways of reading them. Based on trading strategies and time frames, these are the best ways to read candlestick charts:

1. Single Candle Formation Interpretation

You can learn a lot about the current market sentiments with the help of individual candlesticks. The hanging man, the shooting star, and the hammer are examples of this category that can tell you about the changing momentum and price trends.

hanging man reversal pattern

Example on hanging man

The hammer candlestick is often used to identify trend reversals. Based on where the prices close and open and the wick’s size compared to the candle body, traders can form their respective strategies.

2. Multiple Candles and Price Patterns

Some of the most popular multi candle charts are Cup and handle, triangle patterns, bullish engulfing patterns, etc. You can employ these patterns to figure out the entries and the exits of the market. If you are using multi candle patterns, it is better to deep-dive and understand each pattern’s format.

cup and handle chart pattern

The bullish engulfing pattern is formed with a combination of blue and red candles. The blue candles engulf the red candles, hence the name. This pattern shows the end of the weakness of the currency pairs. You can use this information to enter a long position once the blue candle has closed. The trader below the bullish pattern will place a stop loss to ensure a tight stop loss in the hammer position. The next step would be to set the take-profit.

Conclusion

Understanding candlesticks and interpreting candlestick graphs may seem daunting to a new trader, but it is an easy task. Once you have read the basics, you can use these charts to up your trading game. These charts can be used in share, stock, and Forex trading. If you are still not confident about them, we suggest that you start with a small investment and with a small time-frame. You can invest more and upgrade your trading strategy once you are comfortable with its various aspects. Candle reading in the share market and any other trading will help you in becoming a better trader.

Filed Under: Chart Pattern

Hook Reversal

by Fxigor

Hook reversal is a candlestick reversal pattern that hypothetically predicts a reversal trend about the previous candle range. Hook reversal pattern usually consists of two candles where the current candle is in the range with the previous candle.

hook reversal

Bullish to bearish hook reveal:

The Open bar is near the High price
The Close bar is near the Low price level
There is a lower High and Higher Low compared to the previous day.

 

reveral hook bullish to bearish

 

 

 

Bearish to bullish hook reveal:

The Open bar is near the Low,
The Close must be near the High, and
There is a lower High and Higher Low compared to the previous day.

 

Let us see an example on image:

reversal hook from bearish to bullish

Filed Under: Chart Pattern

Morning Star Forex Pattern

by Fxigor

One of the reversal candlesticks is the morning star candlestick pattern. As we know, reversal candlesticks are trading patterns that suggest a possible change in future trends trend reversal.

Morning Star Forex Pattern

Morning Star Forex Pattern represents reversal candlestick pattern that predicts hypothetical future price reversals to upside. The morning star pattern consists of three candles: a large bearish candlestick, a small candle, and a bullish large candle.

morning star forex pattern

 

The morning star pattern consists of 3 candles:

  1. Large bearish candle
  2. Small bullish or bearish or Doji candle
  3. Large bullish candle

The second candle can any small candle. Usually, it is a doji candle or a small bearish candle, but sometimes it can be a small bearish candle.

Morning star pattern can be seen in any part of the trading industry such as stocks trading, forex trading, indices, ETF, commodities, etc. It is part of reversal candlestick patterns analysis that analysts use in technical analysis.

The opposite candlestick pattern for the morning star is the evening star candlestick pattern. It is a bearish version of the bullish evening star pattern.

Filed Under: Chart Pattern

Evening Star Forex Pattern

by Fxigor

Recently, I wrote one article related to reversal candlesticks. This article concludes that reversal candlesticks are trading patterns that suggest a possible change in future trends, trend reversal. One of the excellent reversal candlestick patterns is the evening star. 

Evening Star Forex Pattern

Evening Star Forex Pattern represents reversal candlestick pattern that predicts hypothetical future price reversals to the downside. The evening star pattern consists of three candles: a large bullish candlestick, a small candle, and a red large candle. 

Evening star forex pattern

The evening star pattern consists of 3 candles:

  1. Large bullish candle
  2. Small bullish or bearish or Doji candle
  3. Large bearish candle

 

Evening star pattern can be seen in stocks trading, forex trading, indices, at any trading asset. It is part of technical analysis, reversal candlestick patterns analysis.

The second candle can any small candle. Usually, it is a doji candle or a small bearish candle, but sometimes it can be a small bullish candle.

The opposite candlestick pattern for the evening star is the morning star candlestick pattern. It is a bullish version of the evening star pattern.

Filed Under: Chart Pattern

How to Read Forex Charts?

by Fxigor

Technical analysis is critical if you aim to become a trader, especially understanding trading graphs, and knowing how to read a chart can add significant value to your trading skills. Are you also looking for the same? Read on.

To learn how to read trading charts, you need to have an eye to see the data plotting on the chart. By looking at it, you can analyze the direction the financial instrument is about to move.

What is a forex chart? A forex chart represents a graphical representation of how the price of a currency pair changes over time. The price values are plotted on the vertical y-axis, while the horizontal x-axis shows time. Below is a presented forex chart example:

forex line chart

 

How to Read Forex Charts?

To read forex charts, traders need to learn to identify low and high prices, trading patterns, and trends during various time frames.  However, there are three types of trading charts: line charts, bar charts, and candlestick charts. Usually, candlesticks charts represent the complete type of charts that contain the most information, such as open, close, high, and low price level for each candlestick.

How to catch a trend in forex?

To find a trend on any trading chart, traders use technical indicators and trend lines to confirm the overall direction or a currency price. In the first step, traders determine breakout move on a forex chart where a new high or low is made, and resistance or support is broken. Then, traders draw a trendline as diagonal support or resistance level on a price chart. Finally, traders can confirm trends using moving average indicators or seek logical confirmation of a movement based on macroeconomic parameters.

bullish trend example

Example of the bullish trend on forex trading chart

Finding trends, whether they’re going up, down, or around, and even understanding when they’re about to reverse, is the secret to your Forex trading. You need to know how to follow charts no matter what commodity you’re trading. Analyzing trading charts is crucial in this field; you will eventually become a good trader with time and practice.  

The purpose of this article is to get you started on your path to knowing and using charts to improve your trade.

If you use a trading chart, you can be called a technical trader. Technical traders choose to adopt chart tools and metrics’ forecasting abilities to define peak patterns and price ranges to enter and leave marks in markets.

Also, traders tend to monitor news outlets that provide updates on economic activity, oil production, job data, interest rate shifts, and geopolitical drivers such as conflict and political uncertainty. 

We will start by knowing what the trading map is before we focus on trends and indicators. In short, the graph displays the market prices that exist between two financial products that are shown in a chart.

When you learn of the bullish cycle, you’re looking at the general upward trend (presume a bull trying to charge), whereas the Bearish trend is a declining trend of downs (presume a bear hidden in the forest). There is a third form of the movement that is sideways, horizontal, or flat.

An extensive demand happens when the commodity price approaches the same highs (resistance level) and lows (support level) three times. It’s said that they’re trading in a spread.

What are the Different Types of Trading Charts?

Three main types of charts come forward when we talk about technical charts. They are unique and give certain kinds of information about the market; it is on traders to comprehend it and make sense to earn profits.

Line Chart 

A line chart represents a simple chart type that displays trends over time. This graph usually reflects just the closing price for the span of time. The closing price is also considered to be the most significant factor in the data analysis. In fact, the line chart is formed by linking the closing rates over a defined timeline. There is no graphic data or spectrum of trade, which means no peaks and falls and nothing about opening rates.

forex line chart

Line chart

Bar Chart 

A bar chart is a graphical representation of  OHLC (open, high, low, close) price values consisting of an opening foot—facing left—a vertical line, and a closing foot—facing right.

bar chart

Extending the line chart in greater depth, the bar chart contains many more crucial snippets of details applied to every other data set on the graph. Made up of a vertical line series where each line is a depiction of trading knowledge. They reflect the high and low levels of the trading day and also the open and close rates. A short horizontal line defines the free and the near price.

forex bar chart

Bar chart

The open value is a ‘dash,’ which is positioned on the left of the vertical bar, and the near price shown by a parallel horizontal line is on the right of the bar. Comprehending the trading chart is straightforward; if the left dash (open price) is lower than the right dash (closing rate), the bar will be colored in orange, black or blue, indicating a price rise and a valued instrument. The reverse is valid, and the diminished value of the stock is seen in red.

Candlestick Chart 

What is a candlestick in forex trading?

Candlesticks represent a type of price chart that displays the high, low, open, and closing prices of a security for a specific trading period. The Candlesticks Body represents the price range, open-to-close. The Wick or the shadow shows the highs and lows.
andlesticks - candle tail or candle wick or candle tail
After you have learned the line and bar charts, it is time to switch to the candlestick chart. It is quite similar to the bar chart. The vertical lines of the two charts show the trading period’s price points, while the structure of the candle uses various colors to reflect the market fluctuations of the span.

Going back to the 17th century, the Japanese started to use a scientific method for the trade-in rice known as technical analysis. It is fascinating that Japanese candlesticks are widely used even today. The data reflected from the candlestick involves low, high, close, and open values.

The body can be seen as ‘hollow’ and ‘colored’ parts. Long thin outlines above and below ‘body’ reflect lower or higher ranges and are often pointed as the shadows, wicks, or tails. If the lines are positioned at the top of the body, this will show you the high and closing rates, whereas the lines at the bottom of the chart show the low and the closing price of low.

eurusd daily chart February 2016 trading idea

Example on candlesticks charts for EURUSD

The body colors vary from broker to broker but are usually green, indicating a price rise, or red, reflecting a price decline.

A hollow candlestick is a place where the near price is better than the market value, informing traders to buy. Filled or colored candlesticks in which the value is less than opening would show the selling spot. Long and short bodies would offer the BUY or SELL tension between traders. 

Short-term bodies reflect very little market change and are mostly viewed as a convergence phenomenon known as Doji. Doji is an essential aspect of the candlestick graph as it offers details in a variety of candlestick trends. These shape when instruments open and close to nearly identical rates, and there is not much price disparity.

Doji candles’ importance is to indicate to investors that after a long green candle, the purchasing pressure starts to wane, or after a strong red candle, the panic selling will start to reduce. It leads to a balance between supply and demand.

Learn the Graphical Analysis of Charts

There are a lot of trends that you can recognize only by glancing at the graph. The concept of chart patterns is premised on the idea that human behavior does not alter quickly, and so history continues to replicate itself.

Chart patterns illustrate the psychology of capital markets, assuming that they have succeeded in the past, so will they work next time. They send you hints as to the possible path the pattern is likely to go. They are at the center of all important market fluctuations that form a correlation across trends. It would help if you used chart trends as a stand-alone strategy for your investing.

A few crucial patterns to know are the Triangles, a continuity pattern that indicates a war taking place amongst soaring and declining values. This means that the price is ultimately likely to proceed in the direction it headed until the trend was detected.

Another prominent trend to recognize is the double top, showing the value reaching two highs and suggesting the price reversing to the bearish way from the bullish pattern. Its opposite – the double bottom – describes a trend turnaround from bearish to bullish, implying an inevitable uptrend. From such instances, you can realize how essential it is to recognize trends for your trading performance.

Learn to Use Indicators

When you get more acclimatized with reading and analyzing graphs, you can add additional instruments, like technical measures, to calculate price movement and change in value.

These statistical metrics can help you learn whether stocks are oversold or over-purchased. If a stock is oversold or over-purchased, it fails to sustain its course, which sometimes indicates a turnaround is inevitable. You can use momentum sensors, such as oscillators, to calculate the asset price’s speed or velocity. Instances of the most widely used dynamic metrics are MACD, Stochastic or RSI.

Other ways of analysis can allow you to determine when to take a trading position or leave a trade, including the Bollinger Bands. Trend line metrics such as the Moving Average clearly help you determine how the market moves by cutting off all the noise from small price fluctuations.

You may use a couple of these measures in unison to validate the signal. They all appear on most of the trading sites. 

FAQs on How to Read Trading Charts

What is the Data on the Trading Chart?

Traders use several metrics to read the market graph, but at its heart, it holds two essential bits of information – value and quantity. Anything other than past prices and volume details is nothing other than speculation. Yet, these halves of knowledge are crucial to anticipate possible price movements. Volume shifts are often ignored, but growing volumes indicate a much more substantial change, one that is likely to persist, whereas declining volumes display a lack of confidence among traders.

What Do I Need to Search for in a Trading Chart?

The first thing that most technical traders measure while considering a market graph is the trend line. Markets are not necessarily trending all the time, and you may not have a strong trend pattern. You would need to focus on a longer time span to see what the pattern is. The support and resistance ratios are similar to the trend line, and this could be the upcoming thing you’re looking for on your graph. Here, it might sound right to broaden the possibilities that you may find long-term support or resistance levels that can be incredibly significant.

What’s the Most Crucial Technical Indicator While Reading a Chart?

It’s hard to find the most significant indicator on any graph. The trend line and the level of support or resistance are critically important, and traders who depend on these factors would find trading very critical. As far as technical metrics are concerned, the moving average in all of its various time frames may be the most relevant predictor precisely since so many traders implement them as a base of their trades, particularly the 50 days and 200 days moving averages.

Filed Under: Chart Pattern

  • 1
  • 2
  • 3
  • 4
  • Next Page »

Website categories

Main Forex Info

  • Forex Calendar 2020
  • Forex Holidays Calendar 2021 – Holidays Around the World
  • Non-Farm Payroll Dates 2021
  • Key Economic Indicators
  • The Best Forex Brokers Ratings List
  • Top Forex brokers by Alexa Traffic Rank
  • Free Forex Account Without Deposit in 2021
  • Brokers That Accept PayPal Deposits
  • What is PAMM in forex? Are PAMM Accounts Safe?

Main navigation:

  • Home
  • About us
  • Forex brokers reviews
  • MT4 EA
  • Education
  • Privacy Policy
  • Risk Disclaimer
  • Contact us

Forex social network

  • RSS
  • Twitter
  • FxIgor Youtube Channel
  • Sign Up. Get newsletter.

Spanish language – Hindi Language

Spanish language website Hindi language website
Risk Warning: Trading leveraged products such as Forex and CFDs may not be suitable for all investors as they carry a high degree of risk to your capital. Trading such products is risky and you may lose all of your invested capital. Before deciding to trade, please ensure that you understand the risks involved, taking into account your investment objectives and level of experience.

Copyright Forex.in.rs 2007