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Charting for Visual Interpretation in Forex Trading

June 01, 2012 | Comments: 0 | Views: 143

The Japanese Candlestick pattern of charting in Forex Trading reports is an old one, used since the 1800's. It makes a very easily interpreted visual to explain how trading for the day went. Though it can look complicated to chart, it is really very simple. The boxes, or candlesticks, are based on the opening, closing, high, and low.

The main body, either white (hollow) or black (filled), shows the price action. If the closing price is higher than the opening price, the body is hollow, or white. If the closing price is lower than the opening price, the body is filled, or black. So, just glancing at the chart shows what happened for that time period. A series of time periods can be charted, allowing one to know at a glance the trend the trading is taking over time.

The shadows are lines above and below the main body that indicate the high and low range. The line above the body is also called the wick. The one below is also called the tail. These give an idea at a glance how much difference there is between the opening and closing and the high and low prices. A long wick, or top shadow, means the high had a great difference. A long tail, or bottom shadow, means the low had a great difference.

The length of the body indicates how aggressive the trading was for that time period. A short body means there was little change between opening and closing, and trading was not very aggressive. A long body indicates that there was a large difference and trading was very aggressive. A black or filled body means that the closing was much lower than the opening, and that sellers prevailed. A white or hollow body means the closing was much higher than opening and that buyers prevailed.

The absence of shadows and their length indicate how trading related to the opening and closing price. No shadow at all means that the trading was confined within the high and low. A white body means that the closing was the high and the opening was the low. This represents an aggressive buyer condition. A black body means the opening was the high and the closing was the low. This depiction is named the Marubou brothers. This represents a strong seller condition.

Long shadows depict a large range between the high and low. Short shadows indicate a narrow range. The placement of the larger shadow indicates whether the buyer or seller predominated. Just looking at the body and the related shadow can tell whether trading clustered mostly around the opening or closing. Combined with the color of the body, a quick glance can tell exactly how the trading went and what happened over the time period being depicted.

Other patterns emerge with special Japanese Candlestick charting designs, indicating specialized situations in trading. These include spinning tops and Doji candlesticks. These two represent a more neutral state of trading. Again, looking at the design and noting the shadows and body shapes will tell the observer about the trading situation.

You can go to my forex blog and read more about popular Japanese candlestick such as the doji candlestick pattern and follow my daily trading progress.

Source: EzineArticles
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