Beginner to Independent Trading Course
About Lesson

Candle Sticks

While everyone is used to seeing the conventional line charts found in everyday life, the candlestick chart is a chart variant that has been used for around 300 years and discloses more information than your conventional line chart. The candlestick is a thin vertical line showing the period’s trading range. A wide bar on the vertical line illustrates the difference between the open and close.

The daily candlestick line contains the currency’s value at open, high, low and close of a specific day. The candlestick has a wide part, which is called the “real body”. This real body represents the range between the open and close of that day’s trading. When the real body is filled in or black, it means the close was lower than the open. If the real body is empty, it means the opposite: the close was higher than the open. 

Just above and below the real body are the shadows. Chartists have always thought of these as the wicks of the candle, and it is the shadows that show the high and low prices of that day’s trading. When the upper shadow (the top wick) on a down day is short, the open that day was closer to the high of the day. And a short upper shadow on an up day dictates that the close was near the high. The relationship between the day’s open, high, low and close determine the look of the daily candlestick.

 

Japanese Candlestick

Spinning Tops

Japanese candlesticks with a long upper shadow, long lower shadow and small real bodies are called spinning tops. The colour of the real body is not very important.

The pattern indicates the indecision between the buyers and sellers.

 

The small real body (whether hollow or filled) shows little movement from open to close, and the shadows indicate that both buyers and sellers were fighting but nobody could gain the upper hand.

Even though the session opened and closed with little change, prices moved significantly higher and lower in the meantime.Neither buyers nor sellers could gain the upper hand, and the result was a standoff.

If a spinning top forms during an uptrend, this usually means there aren’t many buyers left and a possible reversal in direction could occur.

If a spinning top forms during a downtrend, this usually means there aren’t many sellers left and a possible reversal in direction could occur.

Marubozu

Marubozu means there are no shadows from the bodies. 

Depending on whether the candlestick’s body is filled or hollow, the high and low are the same as its open or close.

Check out the two types of Marubozus in the picture below.

 

A White Marubozu contains a long white body with no shadows. The open price equals the low price and the close price equals the high price.

This is a very bullish candle as it shows that buyers were in control the entire session. It usually becomes the first part of a bullish continuation or a bullish reversal pattern.A Black Marubozu contains a long black body with no shadows. The open equals the high and the close equals the low.

This is a very bearish candle as it shows that sellers controlled the price action the entire session. It usually implies bearish continuation or bearish reversal.

Doji

Doji candlesticks have the same open and close price or at least their bodies are extremely short. A doji should have a very small body that appears as a thin line.

Doji candles suggest indecision or a struggle for turf positioning between buyers and sellers.Prices move above and below the open price during the session, but close at or very near the open price.

Neither buyers nor sellers were able to gain control and the result was essentially a draw.

There are FOUR special types of Doji candlesticks.

The length of the upper and lower shadows can vary and the resulting forex candlestick looks like a cross, inverted cross or plus sign.

The word “Doji” refers to both the singular and plural form.

 

 

When a Doji forms on your chart, pay special attention to the preceding candlesticks.

If a Doji forms after a series of candlesticks with long hollow bodies (like White Marubozus), the Doji signals that the buyers are becoming exhausted and weakening.

In order for price to continue rising, more buyers are needed but there aren’t anymore! Sellers are licking their chops and are looking to come in and drive the price back down.

 

If a Doji forms after a series of candlesticks with long filled bodies (like Black Marubozus), the Doji signals that sellers are becoming exhausted and weak.

In order for price to continue falling, more sellers are needed but sellers are all tapped out! Buyers are foaming in the mouth for a chance to get in cheap.

 

While the decline is sputtering due to lack of new sellers, further buying strength is required to confirm any reversal.

Look for a white candlestick to close above the long black candlestick’s open.In the next following sections, we will take a look at specific Japanese candlestick pattern and what they are telling us.

Hopefully, by the end of this lesson on candlesticks, you will know how to recognise different types of forex candlestick patterns and make sound trading decisions based on them.

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