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Shedding Light On Candlestick Charts For Forex Traders
The functions of candlestick charts and bar charts are actually quite similar: both are extremely valuable to the foreign currency exchange market (forex) trader by helping him or her make predictions about market trends and patterns. But is the candlestick more reliable and easier to read than the more standard bar chart?
The widely accepted origin of the candlestick method of predicting price trends dates back 300 years, to the famous rice trader Munehisa Homma. Using his analysis methods, he was able to make an incredible fortune in the rice markets of Japan. In fact, the Japanese candlestick chart is still considered the standard with knowledgeable forex traders the world over.
How does it work and what is its advantage over a bar chart?
The most obvious difference between a bar chart and a candlestick is in appearance: a bar chart shows only vertical lines which show a currency's high and lows, and separate ticks to show opening and closing. A candlestick chart is more visually detailed and is able to show not only the basics, but also a clearer view of trends.
Rather than lines, candlestick is two-dimensional. This "all in one" representation can show an open to close trading range, while also containing "wicks," or shadows on the figure, to show the day's high and low in value. This kind of easy read chart requires no explanation, and its ability to be understood transcends all language barriers. Because its look is so user friendly, it is much easier for a trader to make snap decisions about trends at a glance.
Once a trader learns what to look for, the candlestick becomes a powerful tool, and can be used with other technical tools to confirm your trading decisions. The most visually powerful part of this kind of chart is the red candlestick, which can be considered a warning about the trend of that particular currency. This kind of feature is not available in a bar chart.
Because this system has been regularly used in the Eastern trading world for over a century, their analysts have a large amount of data to study. This data over so many years has helped analysts use the candlestick method to be able to more accurately make market predictions. This knowledge is readily available to all forex traders who are willing to take the time to use this pattern indicator system properly.
There are reasons why this helpful illustrative chart has withstood the test of centuries of time with experienced currency traders worldwide. If you are not familiar with using candlestick pattern indicators, it is best to consult with a forex professional who can help to guide you in the proper use of this excellent trading help.
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