FOREX Money Trader
FOREX Money Trader
Our Site is dedicated to providing as much straight forward information
as we possibly can without all the extras hype. Currency knowledge
that's empowering.
MLD
Our Site is dedicated to providing as much straight forward information
as we possibly can without all the extras hype. Currency knowledge
that's empowering.
MLD
| Foreign Currency Exchange Information: Candlesticks |
| Candlesticks |
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| Copy Right 2008 |
| Working with this program now. Seems to work well. Have made back my investment in the program so I figure its paid for itself. Give it a shot! |
| "Currency Knowledge That's Empowering" |
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Candlesticks
When you start to trade in any market, you are likely to come across candlestick charts, or candle charts. They have
become an important tool for technical analysis, so much so that it is surprising to realize that they were only
introduced to the Western trader less than twenty years ago, in the early ‘90s. Prior to this, “Western charts” were
used, which contain much the same information, but do not display it with anything like the clarity of a candlestick
chart.
Candlesticks have been used in Japan for many years, and Steve Nison, the trader who discovered and introduced
them to the West, has said that they were in use over 1,000 years ago. As with the Western chart, they show price
information, with each candle representing one time period, commonly a day, although the techniques are applicable
whatever time period is depicted and used.
The price information that they show includes the stock price when the market opened, the highs and lows that the
stock was traded for during the day, and the last or closing price of the stock. The visual representation often
resembles a candle with a wick, which is the reason for their name. They are drawn as a closed box, the body of the
candle or “real body”, with the top and bottom lines at levels of the opening and closing prices. The wick, or upper
shadow, at the top, extends up to the highest price paid during the day; the lower shadow, sticking down from the
bottom of the box, goes as far as the lowest price.
The major improvement over the Western chart is that the direction of the market is indicated by the color of the
candle body. Often white or black, but sometimes colored green or red, the body provides valuable information. If it
is white or green, it shows a bullish day. The opening price is the bottom of the body, and the closing price is the
top. When a candle is black or red, it is the other way around – the top is the opening price, and during the day the
price dropped to close at the bottom of the body.
A great deal can be learned about the market’s sentiment to the stock price by considering what each candlestick
means. This includes how long the body is, as this shows the difference between the price at the open and the
close; and also how long the upper and lower shadows are, as they show how far traders were prepared to go in
their buying and selling. Although much can be told about the market from each candle, even more is revealed when
you consider several together and the patterns that they make. In fact, there are many named candle patterns, so
interpretations can be easily discussed with other traders.
One of the fundamental candle forms is called the doji, and this is a candlestick that has no real body, caused by the
opening price being the same as the close. This generally shows that the market is indecisive, with neither the bulls
nor the bears pushing the price in any direction. If you see just the doji, you have only this limited knowledge about
the market sentiment. When you consider it in relation to the candlesticks before, you may add to this interpretation
– a doji, because of its form, suggests that the market is tired, and often this is an indication that the direction of
price movement is about to change – for instance, it may come at the end of an uptrend, and particularly after a long
white candle, which suggest that the trend is about to end.
The doji can also reinforce the interpretations, depending on the shadows that the doji has. Often, the doji is a plain
doji, with upper and lower shadows, which doesn’t give you much more information. If the doji has no upper shadow,
and a long lower shadow, it is called a dragonfly doji, and shows that the open, close and high were the same, with
lower intraday activity – as the lower prices didn’t stick at the close, the buyers or bulls must have fought back. If you
see this in a downtrend, it may mean that the buyers are emerging and will finish the trend; if it comes after an
uptrend, you could say that the buyers failed to continue the trend, and the bears did get a low, so again this implies
a reversal.
Another special type of doji is the gravestone doji, which has no lower shadow and a long upper shadow. You can
interpret this in a similar manner as giving a stronger indication of a reversal, whether it comes after an uptrend or a
downtrend. In fact, if any candlestick has a really long shadow, it can be interpreted as showing market sentiment
that is unsettled, and may indicate the weakening of the current trend, up or down, and possible reversal. If they
also have short bodies, they are called “high wave” candlesticks.
There are many other variations on candlestick patterns, and I recommend Steve Nison’s books if you want to study
them in detail. For this article, I will consider just one more major form, the “engulfing” pattern. As the name implies,
the engulfing pattern happens when the following candle engulfs the previous one, that is, the real body has a higher
high, and a lower low than the first, which is thus considered overwhelmed by it. The engulfing candle is the opposite
color.
The “bullish engulfing pattern” consists of a small black body followed by a large white body. That means that the
opening price of the second candlestick is less than the previous closing price, and the closing price of the second is
higher than the opening price of the first. This is regarded as a powerful reversing pattern, coming at the end of a
downtrend, and signaling a likely start to a bull run. The “bearish engulfing pattern” is the exact opposite of this, and
has the reverse meaning.
While some traders rely heavily on these candle patterns, as with all technical indicators it is wise to use at least one
other to support your decision about what and when to trade.
When you start to trade in any market, you are likely to come across candlestick charts, or candle charts. They have
become an important tool for technical analysis, so much so that it is surprising to realize that they were only
introduced to the Western trader less than twenty years ago, in the early ‘90s. Prior to this, “Western charts” were
used, which contain much the same information, but do not display it with anything like the clarity of a candlestick
chart.
Candlesticks have been used in Japan for many years, and Steve Nison, the trader who discovered and introduced
them to the West, has said that they were in use over 1,000 years ago. As with the Western chart, they show price
information, with each candle representing one time period, commonly a day, although the techniques are applicable
whatever time period is depicted and used.
The price information that they show includes the stock price when the market opened, the highs and lows that the
stock was traded for during the day, and the last or closing price of the stock. The visual representation often
resembles a candle with a wick, which is the reason for their name. They are drawn as a closed box, the body of the
candle or “real body”, with the top and bottom lines at levels of the opening and closing prices. The wick, or upper
shadow, at the top, extends up to the highest price paid during the day; the lower shadow, sticking down from the
bottom of the box, goes as far as the lowest price.
The major improvement over the Western chart is that the direction of the market is indicated by the color of the
candle body. Often white or black, but sometimes colored green or red, the body provides valuable information. If it
is white or green, it shows a bullish day. The opening price is the bottom of the body, and the closing price is the
top. When a candle is black or red, it is the other way around – the top is the opening price, and during the day the
price dropped to close at the bottom of the body.
A great deal can be learned about the market’s sentiment to the stock price by considering what each candlestick
means. This includes how long the body is, as this shows the difference between the price at the open and the
close; and also how long the upper and lower shadows are, as they show how far traders were prepared to go in
their buying and selling. Although much can be told about the market from each candle, even more is revealed when
you consider several together and the patterns that they make. In fact, there are many named candle patterns, so
interpretations can be easily discussed with other traders.
One of the fundamental candle forms is called the doji, and this is a candlestick that has no real body, caused by the
opening price being the same as the close. This generally shows that the market is indecisive, with neither the bulls
nor the bears pushing the price in any direction. If you see just the doji, you have only this limited knowledge about
the market sentiment. When you consider it in relation to the candlesticks before, you may add to this interpretation
– a doji, because of its form, suggests that the market is tired, and often this is an indication that the direction of
price movement is about to change – for instance, it may come at the end of an uptrend, and particularly after a long
white candle, which suggest that the trend is about to end.
The doji can also reinforce the interpretations, depending on the shadows that the doji has. Often, the doji is a plain
doji, with upper and lower shadows, which doesn’t give you much more information. If the doji has no upper shadow,
and a long lower shadow, it is called a dragonfly doji, and shows that the open, close and high were the same, with
lower intraday activity – as the lower prices didn’t stick at the close, the buyers or bulls must have fought back. If you
see this in a downtrend, it may mean that the buyers are emerging and will finish the trend; if it comes after an
uptrend, you could say that the buyers failed to continue the trend, and the bears did get a low, so again this implies
a reversal.
Another special type of doji is the gravestone doji, which has no lower shadow and a long upper shadow. You can
interpret this in a similar manner as giving a stronger indication of a reversal, whether it comes after an uptrend or a
downtrend. In fact, if any candlestick has a really long shadow, it can be interpreted as showing market sentiment
that is unsettled, and may indicate the weakening of the current trend, up or down, and possible reversal. If they
also have short bodies, they are called “high wave” candlesticks.
There are many other variations on candlestick patterns, and I recommend Steve Nison’s books if you want to study
them in detail. For this article, I will consider just one more major form, the “engulfing” pattern. As the name implies,
the engulfing pattern happens when the following candle engulfs the previous one, that is, the real body has a higher
high, and a lower low than the first, which is thus considered overwhelmed by it. The engulfing candle is the opposite
color.
The “bullish engulfing pattern” consists of a small black body followed by a large white body. That means that the
opening price of the second candlestick is less than the previous closing price, and the closing price of the second is
higher than the opening price of the first. This is regarded as a powerful reversing pattern, coming at the end of a
downtrend, and signaling a likely start to a bull run. The “bearish engulfing pattern” is the exact opposite of this, and
has the reverse meaning.
While some traders rely heavily on these candle patterns, as with all technical indicators it is wise to use at least one
other to support your decision about what and when to trade.