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TradingCurrncyOnline.com
Presents...
Japanese Candle Sticks
The sign language of
FOREX
Japanese
candle sticks are literally the sign language of the
markets. Whether you trade stocks, heating oil, gold
or currency, learning to "listen" and understand
what the candles are "saying" will give you a
powerful tool for your trading arsenal.
Japanese
candle sticks tell a story, here's how to read what
they say...
Candles have
been around a long time. I don't think there is a
trading tool with more of a track record except for
maybe the concept of supply and demand.
Created by
the Japanese sometime during the 1600's, candle
sticks where used to analyze the price of rice
contracts.
Japanese
candle sticks animate what are otherwise technical
price records by painting a colorful picture thus
creating a visual representation of price history.
Candles
record the emotion of the markets.
Simply put,
candles are the sign language of the FOREX markets.
They are
constantly telling a story and the day you are able
to effectively read them is the day your trading
will improve dramatically.
Before we
get into how to read candles, let's review real
quickly the basics.
A candle simply records price
movement for a unit of time.
If you are
looking at a one hour chart then each candle
represents the price activity for one hour. If you
are looking at a day chart then each candle would
represent one day and so on.
Candles are
comprised of the BODY and an upper and lower wick.
Not all
candles have bodies.
Not all
candles have both wicks or sometimes they will have
no wick at all.
Looking at
the picture above we can see that:
1) On the
bullish (blue) Candle the opening price is lower
that the close. This tells us prices where going UP
while that candle was open.
Another way
to look at it is that there was more buyers than
sellers.
2) The red
bearish candle's close is LOWER than the high. This
tells us there was more sellers than buyers while
this candle was open so the price fell.
The tips of
the upper and lower wicks are the extreme highs and
lows for that candle.
If the low
is also the close, there will be no lower wick.
If the high
is also the close, there will be no upper wick as is
the case with the blue bullish candle above.
Bullish
and Bearish Candlles
The close on
a bullish candle is always higher than the open.
The close on
a bearish candle is always lower than the open.
Decision
and Indecision Candles
Full bodied
candles are considered "decision" candles, a
decision candle tells us the market has made a
decision to go in a particular direction.
Indecision
candles are candles with little or no body at all.
These candles tell us the market cannot make up its
mind which direction it wants to go.
Look at the
picture above. Note the left hand red bearish candle
opened and while the candle was open, prices
continued to fall producing a long red body. This is
a decision candle. The market knew where it was
going and that direction was down.
During the
life of the next candle the direction was not a
sure. Notice the smaller body and the small upper
wick.
This candle
tells us that although the price continued to fall,
it may be slowing down.
The next
candle often referred to as a "Doji," is the grand
daddy of indecisive candles.
Notice how
price climbed up and fell way down before closing
just about the same place it opened? Dojis usually
have long wicks on both sides and a very little or
no body at all.
This Doji
candle is giving us a clue...
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