Using Japanese Candlesticks in Forex Trading

Using Candlesticks to Identify Reversals

What are candlesticks?

Candlestick patterns chart convey information pertaining to price action or the movement of a currency pair’s price over a specified amount of time. Each candlestick contains four attributes:

• the opening price of the currency pair at the time the candle opened
• the closing price
• the high of the time frame
• the low of the time frame

On a daily chart, each candle represents a 24-hour period; on an hourly chart, each candle represents an hour, and so on.

A visual analysis of a candlestick is as follows:

Key Definitions

Body: The difference between the opening price and the closing price. This is the wide portion of the candle that is colored red or green.

Wick or Shadow: The thin portion of the candle that represents the extreme high and low points for the time period represented by that candle.

Key Concept: Candlesticks Patterns Signal Reversals

Candlesticks patterns can be used to identify trend reversals in the market.

So why are candlesticks so important in trading? Simply put, it is because they are the best gauge of what is going on in the market at the present time. Candlesticks give us insight into the emotions of the market participants. Although traders may come and go over time, human emotion remains constant. A certain series of events creates a candlestick pattern, and when we see that pattern we know exactly what has transpired.

Ultimately, candlesticks can easily be used to identify potential reversals of trends in the market – especially when used in conjunction with other indicators.

Key Candlestick Patterns

The following are key candlestick patterns to look for:

When these patterns appear in a chart, and when they appear at levels that coincide with other indicators – such as Fibonacci retracement levels, or moving averages – they create a potential trading opportunity.