The Basics of Candlestick Charts in Forex Trading

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Candlestick charts are thought to have been developed in Japan towards the end of the 18th century by rice traders trying to make sense of price movements. Later it was adapted to the stock market, and today it is widespread in Forex analysis. It is one of the most popular indicator types in today’s markets due to the clear manner in which information is presented, and the extensive studies performed on it over the years.
Almost every single pattern, or formation which can develop on a candlestick chart has been analyzed thoroughly by analysts over the years, and you’ll never lack guidance on what to do when a particular pattern arises.
The small lines at the top and bottom of a candlestick are called wicks. When the body of the candlestick is white, prices have closed the timeframe in consideration (day, hours) with a rise in the price. When the body is black, we understand that the prices closed the time period at a lower value.

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Candlestick patterns are analyzed according to their shapes. Let’s see a few examples:
1. White Candlestick: In this case the candlestick is made of a large white body with small upper and lower wicks. This formation signifies that the uptrend is ongoing.
2. Black candlestick: This pattern is the opposite of the white candlestick. The candlestick has a large black body, with small upper and lower wicks. This is also a continuation pattern in an ongoing downtrend.
3. Hammer: In this pattern the candlestick has a long lower wick, but no or very small upper body. Sellers attempt to dominate the price action, but are unable to do so. It is a bullish formation
4. Inverted hammer: In this case the candlestick has a long upper wick, but a small body. This is an indication that buyers were unable to gain much confidence. It is a bearish formation.
5. Doji: The doji is a candlestick with two wicks and no body. It is thought to be a neutral pattern, but can generate signals in combination with other, more decisive formations. The doji is a sign of indecision. It can lead to continuation or a reversal depending on other factors.

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6. Spinning top: This is very similar to the hammer or inverted hammer formations, except that it requires that the candlestick has no body at all (while with a hammer a small body is possible and desirable). Similar to the doji, this formation must be interpreted in combination with signals from other indicators.
The candlestick is a popular and common ingredient of Forex strategies. It is best used and interpreted in combination with other indicators, and as with most other tools of technical analysis, a degree of skepticism will help you make the most of its signals. Still, it is more useful than simple bar charts, and has been in use for centuries, so it clearly has some predictive value for traders of all backgrounds.