Reading Candlestick Patterns in Forex

Are you new to forex trading? If so, you probably wonder what a candlestick pattern is and how to read it. Candlestick charts are a popular tool for day traders because they offer rich analysis and easy interpretation.

Using candlesticks to analyze price movements is a more powerful way for traders, as it can help them identify different types of market behavior. Almost any powerful trading platform like Metatrader 5 has the candlestick chart as a tool to follow the price changes. So if you will carry out the MT5 download on your device, you can get acquainted with candlestick charts.

In this article, we will explore it so that you will be one more step ahead of the competitors. 

Let’s begin now. 

What is a Forex Candlestick?

The candlestick is a chart that shows equity prices over time. ‘’The real body’’ represents whether the closing price was higher or lower than the opening one, while white indicates the high range and low green ones to make it easier on traders’ eyes! 

The Japanese used this kind of system long before Americans realized its potential – tracking market momentum with them way back when rice merchants.

How to Understand Forex Candlesticks?

The structure of a Candlestick chart is very simple, but it can be difficult to read if you are not used to the format. To read a Candlestick chart, you must first understand the basic structure of each candle.

They account for specific periods, such as 1 minute or 60 minutes; daily candles represent Weekly expirations with open-close prices at their highest/lowest point during that particular session (daily). Whatever your preference, maybe there is an appropriate candle that will suit you!

The opening price at the beginning of the time, closing price during it (if applicable), and the highest pricing point recorded in this given period are all values one needs for representing four different types: Bullish representation – red color indicates buying pressure while yellow hints selling; Bearish: inverted horizon blue means lower prices ahead so investors should sell now before they go any lower. 

Pros and Cons of Forex Candlesticks

Pros

Easy to understand – Candlestick charts are not only easy to understand but also aesthetically pleasing. With customizable colors and outlines available on most platforms, you can make the chart look however suit your needs.

Gives a lot of information – As the candlesticks display the high’s, low’s open, and close prices for any given day or week to track progress on that investment accurately.

cons

Gaps – Gaps are common in candlestick charts. There may be instances where one candle closes at a particular level, and the following one opens higher or lower than expected.

Analysis paralysis can be a major problem when it comes to technical analysis. These charts can show multiple biases, which in turn create conflicting signals. Adding indicators only worsens the situation by making the analysis even more subjective.

Conclusion

The article introduced you to the candlestick patterns, how to read them, and some pros and cons of using this type of chart in forex trading. It is important to practice using candlesticks and other indicators to develop a solid trading strategy. With time and practice, you may find that candlestick patterns are a valuable tool for making profitable trades in the forex market.