There are 3 ways to display charts in the meta trader, we have the following;
- Line chart
- Bar Chart
With all the 3, the Japanese candlestick is the most popular, followed by the bar chart with the least being the Line chart.
This popularity comes largely from the data you can deduce from the candlesticks that just aren’t possible with the bar chart or line chart.
In this section, we would be looking at the candlestick anatomy, some important candlestick patterns, etc.
A candle has 2 main parts;
- The Body – The main part of the candle is the area between the open price and the closing price of the candle.
- The Wicks – The outer parts of the candle, a candle can have a maximum of 2 wicks. In a bullish candle, the upper wick and the lower wick, the upper wick is the area between the closing price and the highest price. The lower wick is the area between the opening price and the lowest price. The opposite is true for a bearish candle.
In between these two main parts, you can find the following;
- Opening price
- Closing price
- Lowest price
- Highest price
A candle is said to be bullish if the closing price is above the opening price, and it is a bearish candle if the closing price is lower than the opening price.
The way a candle forms, can provide several pieces of information to the Forex trader. We would look at some candle formations and it’s meaning to give you a fair idea.
Candle Stick Formation
The hammer or hanging man:
These often show’s a possible trend reversal, that we are close to a resistance point where price most likely would reverse.
The hammer or hanging man is characterized by it’s long wick and shorter body. The longer the wick, the stronger the rejection and thus the likelihood of a reversal happening.
The hammer or hanging man can form in either directions, both down trends or up trends would change most often when you experience a hammer or hanging man.
Remember these candles from earlier? These type of long candles often dictates the continuation of a trend. They can either be bullish or bearish.
These candles form as a confirmation that the on going trend is still strong and worthy of further continuation.
However, should one occur that is directly opposite the trend, know that the trend is most likely at it’s end.
These types of candlesticks form when the opening price and closing prices are the same or very close to each other.
It simply says that the buyers and sellers were equally yoked within that time frame, there were equivalent amount of buying power to spending power.
These type of candlesticks could inform you that the trend might be losing it’s potency, and thus the need to trade cautiously.
No matter what a candlestick look, right now you get the point, that candlesticks tell a story, being able to interpret that story would give you an edge over other’s in the market, it would give you a fair idea of price, and what next the market is most likely to do.