Sharpening Your Trading Skills: Understanding Candlestick Charts

“The world today communicates visually” – This is a statement that today’s marketers and media creators can openly declare with zero-doubt indication. Whenever we see signages of all kinds, we now see drawings and symbols instead of words. In publications, magazines, books, and even their digital counterparts are so replete with diagrams and infographics that text and numbers are kept very minimal.

Undeniably, graphics and visuals are now becoming as important as words in making people understand something. With online trading, even though you will mostly deal with numbers, you will also deal with graphics a lot… illustrations that represent the rising and falling of monetary pricings from all over the world, graphics that are actually known to the trading world as candlestick charts.

Believed to have been popularized by Munehisa Homma, a Japanese rice trader during the 18th Century, it is now the basis used by traders all over the world in this digital age of ours. The candlestick chart is super-important for an online trader – it is the ultimate tool that one must use in order to come up with the best trading decisions. Trading is an art that can really make you rich, no doubt of that. But it isn’t something that you can just put money into, and wait for it to pile up without really doing anything.

You really need to understand how money within the exchange market flows and to do that, you need to understand what a candlestick chart is, and how you can use it as a guide to embark on your trading adventures.

Candlestick charts are often regarded by some traders as more than just a trading tool that can read and predict prices. For them, those charts are also a means of behavior analysis – something that can make them understand the possible outcome of market practices tomorrow, and in the next period of months, or even years.

Some experts even claim that candlestick charts are actually objects that can spell out human emotions because they tell us the buying and selling patterns made by people within the online trading market every day, and what could they be thinking as they go on about their transactions.

Before breaking down the elements of a candlestick chart, let’s grasp a simple analogy from a rope-pulling game called “tug-of-war.” Even if you haven’t participated in that kind of game, you can certainly discern that it can be summed up by knowing which side pulls the hardest, and which side gets dragged over into the opposing side’s domain.

When a tug-of-war battle begins, we can see that the 2 teams start at an even point: no winner, no loser. But as the battle ensues, we can then see that one team could be in greater power compared to others for a few seconds, but then would start to get overpowered by the other due to some underlying forces at play.

When the battle finally commences usually after just a few seconds, we can then see the true victor and the true loser. In currency trading, that can then be declared as the closing of a trading day, or week. By then, you should be able to see if you’ve gained more, or lost more than what you have actually expected.

Such an analogy could be one of the best methods for understanding a currency chart. When a particular currency is pulling a currency closer to its domain, it means that it is gaining higher value compared to the other currency it’s paired with.

There are times when one team pulls strongly for a few seconds, but then gets easily trampled down as the opposing team unpredictably pulls back harder. In currency exchange, things can also be like that – unpredictable and erratic. But by gaining some experience with charts constantly, you can somehow make productive predictions that can help you grow your money fast.

The Anatomy Of A Candlestick Chart

The very reason why it is named as such is actually due to a very obvious reason – it really does look like a candlestick, with protruding fuses on both ends. It has basically four parts:

High point – is the topmost part of a trading candlestick. It is kind of like the tip of the candle’s string fuse.

Close point – the bottom of the high point line, or where the main body of the candle begins.

Open point – is the bottom of the candle’s body, the tip of the low line.

Low point – the tip of the candle’s bottom string fuse.

To have a clearer picture in your head of what a trading candlestick looks like, we can say that it looks like a tube with short protruding strings on both ends. The candle’s main body or the tube actually represents a trading duration. It could represent a single day, an hour, a day, an entire week, or even an entire month.

In the open point, it is where a trading day opens, and the corresponding price for a certain currency of that day. The “low point string” is the duration in which the currency at hand is at its lowest point. Conversely, the higher part of the candlestick is just the opposite of those.

Green candles are often referred to as “bullish candles” because well, they are raging like bulls in terms of making a currency attain a higher value. Red ones are called “bearish candles” because traders think of them as slugging the value of your money like a slow-running bear.

When a candle is in full green, meaning it has no string fuses at all on either end, it means that it is a strong candle, representing a currency that performing extremely well. Conversely, a totally red candle with no thin lines at all means it’s doing badly.

You have to note that when the candle’s body appears red, it means that the value is lower than the expected lowest point, so it means that the currency is appearing really bad. We can think of it as the value becoming negative if we compare it to Algebra. Another way of saying it could be that a currency becomes lower than the original value when it was opened on a given day.

By looking at various candlesticks within a trading market chart, we can then create our own analysis of the market’s direction. It is then when we can make a smart decision about what particular currency to trade, and how long will we hold on to our money, and how soon should we let it go and trade it with something else.

Bear in mind that a good comprehension of candlestick charts is very vital to the success or failure of any online trading activity. When the direction of a chart is going up, it means that there are lots of currency buyers doing some purchases.

It means you should consider buying too because the value of that currency you’re buying could be raised really high. It could be raised to a quarter, a half, or even many full times over… depending on trends and other factors.

When a candle is very short compared to its strings on its ends which are really long, and if that little candle is in the middle, it means indecision. It means that people find it hard to decide whether to sell or to buy currencies at a particular time.