By Art Gib
With the recent tanking of the American stock market and fiscal disasters happening around the world, many investors have turned to the Foreign Currency Exchange Market (Forex) as a way to make more money. Knowing how to use a candlestick chart as well as the standard bar and line charts can help traders do even better.
Candlestick charts have been used to make price predictions for at least 300 years. Candlestick analysis was used in Japan to predict the movements in the price of rice. It was one Munehisa Homma who, in the 1700’s, amassed a huge fortune using this method, and his astounding success led to an explosion in popularity for the candlestick.
In the context of Forex, candlesticks have the same features of being able to chart the open, close, high and lows of the currencies as the bar and line charts do. Many experienced traders agree, that the distinct advantage of using a candlestick chart is that it is much easier and clearer to read, especially at a glance.
The illustrative design of a candlestick with a wick at each end forms an easier representation of the data a trader wishes to understand. When your price at initiation exceeds the rate when you close, the candlestick appears to be solid. When the opposite is true, the image is called hollow, and the difference can be immediately apparent.
When you can easily gain an overall picture of the patterns in the unpredictability of the Forex markets, it draws your attention to noticing the difference between the opening and closing prices of your currency. The clearer your power of discernment and analysis, the more likely you will be to find more accurate ways to trade better and earn profits.
Because of the color coding of this method, detecting a certain color more than others can be an early warning of trouble. For instance, if the candlestick looks red to you, then it could be an indication that the currency’s trend means problems for you.
The upper wick is the highest price for that taper, and the bottom of the wick is the lowest price, while the middle red part is the differential. As these colors vary, you can get instant feedback on what the currency is doing without having to have specific numbers.
In order to succeed and make money in the Forex market, traders need to use every advantage and tool at their disposal in order to make the most accurate predictions possible. This ancient Japanese method should be added to your arsenal, and used often.
About the Author
For the very latest in Forex market news, or to check out a free demo Forex account, contact the experts at InterbankFX, LLC. Art Gib is a freelance writer.
