Candlestick Charts

One of the most common ways of displaying Forex charts is with candlesticks. A lot of people prefer to use these charts as they show a lot of information in an easy to understand format.

Each candlestick bar shows the high to low price range during the time interval on your Forex chart as a vertical line but there are different parts to the line:

The body of the candle is fatter than the rest of the bar and shows the range between the opening and closing prices of the time period you’re viewing. Most charts colour in the candles according to the direction of the change in the market. If the closing price is higher than the opening price, the candle will be coloured green. Conversely, if the closing price is lower than the opening price then the candle will be coloured red.

At the top and bottom of the candle you’ll normally see a thinner line, known as a wick or shadow. These show the highest and lowest prices reached during the time period. If you’re staring at a chart in real time, you’ll often see the wicks growing momentarily, representing short term spikes in the market.

Candles give an at a glance view of the market.

If the main body of the candle is long, there has been a significant move in the price. The direction of the movement is indicated by the colour of the candle, so a big price rise will be indicated by a long green candle whilst a big drop will be represented by a long red candlestick bar.

If the main body of the candle is short, that shows that there has been very little movement in the market for that time period.

A candle with a short body but long wicks both above and below it is called a spinning top. Depending on the market direction before it, a spinning top can be a useful indicator that the market is about to change direction as it shows that there is almost a balance between buyers and sellers.

Another specially shaped candle is called a Marubozu. This is distinguished because there are no shadows above or below the main bar of the candle. A green Marubozu candle shows that the market was bullish and that buyers were forcing all the action. A red Marubozu indicates a bearish market with sellers being in control.

Doji candles have very short bodies, showing that the open and close prices were almost identical. The length of the wicks on a doji can help identify trends in the market place. A dragonfly doji has no upper wick and a long lower wick and shows a trend reversal to a more bullish market. The opposite is a gravestone doji with no lower wick but a long upper wick, which can be interpreted as a change to a more bearish market.

Of course, candles are only part of the story. You need to use them along with other indicators to get a fuller picture of what is happening in the market at any given time.