Forex Candlesticks:

In the real world we all know what a candle by definition is. It is said that the candlestick trading technique actually started in the 18th century by Japanese rice traders. Candlesticks are commonly set up using black or white. Often times to better highlight price movements and distinguish between candles and other indicators, many candlestick charts will replace the black or white of the candlestick body with other more noticeable colors such as red (for a lower closing price) and blue or green (for a higher closing price) we will be using white for a higher closing price, this will make the candlestick look transparent.

The purpose of these candlesticks is to tell you what the current price is for that particular time frame plus where the price action for that time frame has been. Some time frames with more movement are much larger than others, but ultimately each candle shows what price the market has been at during that time period. When the candle is white that means that from the beginning of that time frame there have been more buyers in the markets than sellers. On the flip side, if the candle turns red that means that there are more sellers in the market and the price of that pair is dropping. Some of them will hardly move at all which means that there wasn’t a whole lot of movement, volume during that time was low for whatever reason. There are other shapes and patterns we will get into later that mean different things but for now if you know what a basic candle means you will get the rest as we go.

The colored part of the candle that we just talked about whether white or red or black is called the body. The little stick you see on the tops and bottoms on the majority of them, those are called the shadows (upper and lower). To distinguish between upper shadows and lower shadows, we will call the tops wicks and the bottoms tails.

Candlesticks are referred to using four different terms; the open, high, low and close. You will notice that on the top left of the chart itself you will see the name of the currency pair and four sets of numbers, those little numbers will tell you the open, high, low, and close. The first number is the open; the second is the high, third is the low and fourth is the close.

The candlestick itself give some tell tale signs of its own as well. Take a look above.

This is going to be very important where these candlesticks end their hour or whatever time frame you are looking at. When there is a lot of shadow that shows more indecision for that time period. The reason there is shadow is because that’s where the candle went during that time, the market is leaving a sort of trail as to where it went. 

More simply put, reading these candlesticks is much like when you read a novel. When you start reading, the novel can take any turn or twist during the course of the book. Even down to the last paragraph the book can change. Once you finish the book, however, it is done it’s complete and it can’t change.  So what we have to understand here is that no matter what is going on at the moment if we are in doubt of anything we need to wait until the candlestick finishes to know exactly what it is going to do. We’ll go over more on that as the strategy progresses. For right now though what you need to do is know what the candle is telling you as far as its strength and what it has been up to and to not trust it until it’s finished.

As you learn more about trading and start getting into strategy, you will learn how the candlesticks will benefit and that there are literally dozens of terms names, shapes and sizes that at this point might become overwhelming and confusing. In the long run it will be beneficial to know and to memorize them and what they are telling you but for right now I wouldn’t worry so much about the names as I would what the shadows and bodies are telling you. The rest will be covered in Candlestick Pattern Recognition.