Candlestick Basics

Candlestick charting is a form of ancient charting originated from Japan used to convey – in a graphic form – information of the open, high, low and close of a price movement within a time period. A series of candlesticks or even a single candlestick can provide a history of price movements, which we can use to analyze and predict future price movement.

Candlestick analysis is used by many traders today to improve the success probability of their trades. Highly reliable and accurate, learning how to read candlestick signals efficiently is definitely a skill you should pick up.

Candlestick charting displays similar price information as the bar chart, such as the open, high, low, and close. However, the graphical way in which this similar information is displayed differs. If the closing price is higher than the opening price, then the color of the candle will be light. If the closing price is lower than the opening price, then the color of the candle will be dark.

Candlesticks are formed using the open, high, low and close.

• If the close is above the open, then a hollow candlestick (usually displayed as white) is drawn. This basically means that the price during the duration of this candlestick has risen.
• If the close is below the open, then a filled candlestick (usually displayed as black) is drawn. This basically means that the price during the duration of this candlestick has fallen.
• The hollow or filled section of the candlestick is called the “real body” or body.
• The thin lines poking above and below the body display the high/low range and are called shadows.
• The top of the upper shadow is the “high”.
• The bottom of the lower shadow is the “low”.
• The distance between the top of the candle and the bottom of the candle indicates the range within which the price has fluctuated during the duration of this candlestick.
• It is possible to read the market sentiments by reading a single candlestick or a sequence of candlestick and anticipate how the market is going to move next.

Here is a link to an article which details several candlestick patterns commonly used to read trend reversals.

If you are keen to find out more about using Candlestick to increase the success probability of your trades, I highly recommend Forex Candlesticks Made Easy! by Chris Lee. Written straight to the point in an easy-to-understand style, this is a good guide to learning about Candlestick analysis.