Candlestick charts are financial charts that show the price movements of a certain currency. These are called candlesticks because their shape is very similar to that of a candle. Each bar represents the highs, lows, openings and closings of each day within a month. These charts are commonly used by Forex traders and they serve to identify patterns as well as to decide if they should buy or sell Forex pairs.
Candlesticks patterns were created by the Japanese and there are several types. The object of this article is to describe them and to help you learn more about how these charts work and the difference between them, so that you can use them wisely.
There are several types of candlesticks patterns but the most commonly used ones by forex traders are: Spinning Tops, Marubozus, Engulfing Candlesticks, Three White Soldiers and Three White Crows.
Types of Candlesticks
These have long upper and lower shadows. Long shadows represent that neither buyers nor sellers have had the opportunity to make a move in the market. These candlesticks have small bodies, which indicate a lack of movement in the opening and closing points. The pattern’s color is not noticeable. This pattern is usually characterized by the lack of decision among buyers and sellers.
They do not have shadows. Their highest and lowest points are the same as their opening and closing points. They can be White Marubazus or Black Marubazus. On the one hand White Marubazus have long white bodies, this indicates bullishness. Their opening price is the same as the lowest price and their closing price is the same as the highest price. On the other hand,Black Marubazus have bodies that are long and black, this indicates bearishness. In this pattern the opening price is the same as the highest price and the closing price is the same as the lowest price.
They have long white bodies that also contain a smaller black body in a downtrend. In the chart it is noticeable that the bearishness wins over the bullishness when a black body absorbs a white body in an uptrend.
Three White Soldiers
This pattern is formed when a bullish white body follows a downtrend and this usually takes place when there is a reversal in the pattern. There are three white candles, each candle represents an important piece of information about the pattern, which is crucial for the trader if they want to make good decisions in terms of buying or selling. The first candle represents the reversal, which could mean that it is the end of a period called consolidation period or that the downtrend has ended. It is important to know that the consolidation period only takes place after the downtrend has ended.
Three Black Crows
This occurs when a reversal has taken place and three bearish black bodies follow an uptrend. Each candle varies in size, the first one is small, the second one should be bigger and the third one should be equal to the second or the biggest of them all either with or without a small shadow.
If you are a trader or you have some knowledge about the market and its patterns you should know that practice makes perfect. These articles are aimed to all those who are interested in forex and are willing to improve their trader skills. Pattern management is the key to make good decisions in the market. You might face a few loses first but once you master the art of investment and sales you will be able to generate good profits. Do not be afraid to learn more and improve your trading skills by reading Steve Nison Candlestick Charting Basics book.