Technical analysis is the commonly used tool that gives a graphic representation of market data in relation to time period for which the chart is being plotted. The data of foreign exchange prices are showed in various patterns. Commonly used patterns include bars, line, point and figure & Japanese candle sticks. In this article we will discuss in detail about the concept of these Japanese Candle sticks.
Candlesticks are the oldest and most popular form of data presentation. The main reason of its popularity is its unique features of being visually more informative and appealing than other charting patterns. It consists of four vital components that are must for forming such pattern. They include; open price, high price, low price and close price of the currency pair. Time period however depends upon the trader, as that is related to his short term or long tern analysis goal. Candlestick body is termed as the real body and shows the range between open and close prices of foreign exchange. A filled body in candlestick represents close price being less than the open price during that particular time in the chart, and indicates bearish trend. On the other hand, if the body is appearing blank, then a bullish trend is assumed as here as close price was more than the open price of the currency. Candlesticks also contain a thin line which is known as show that generally appears below or above the candle. It represents the high and low price extremes for that period. Another essential term used on candlestick pattern in known as Doji. A Doji pattern on observed when the open price and close price of a particular currency pair are virtually equal.
The Long and short Body in foreign exchange:
The longer body here explains the intensity of buying and selling pressure in the foreign exchange market. Whereas the short body indicates a consolidation trend, and indicate less price movement. If the candles are filled and long then it shows a strong selling pressure in the market. However if candle are long but unfilled or white, then it depicts a strong buying pressure. Here more potent long candles are termed as Marubozu brothers.
The Long and Short Shadows in candlestick:
The long or short shadows provide good information about the foreign exchange trading session. The upper shadow in candle shows high session, while the lower shadow depicts low trading session. The short shadows advise traders that the trading action in the session was confined mostly near close and open price only. Whereas the long shadow tells that price movements in the foreign exchange market moved well and extended past the open and close price. Besides this, buying activity is highlighted by long upper and short lower shadow in the candle chart. Here selling activity is explained by long lower and short upper shadows.
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(This image may be copyrighted) Source: www.foreignexchangee.com
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