Examining the Candlesticks

Forex traders often look at charts as if they were looking at books. In essence, the way a market moves tells the story of how traders feel about a particular financial instrument. This is one thing that many technical traders tend to overlook: Charts simply quantify the excitement of all market participants.

While there are certain candle patterns and shapes that Forex traders will use to identify trading opportunities, the truth is that almost any candle can tell a little bit of the story in general. In a way, this is very much like a book in that, while some parts are more important than others, it is the sum of all the information that makes up the story. Financial markets are similar because they are simply a set of reactions to financial headlines, economic numbers and simple “sentiment” towards a currency or the economy.

It is under this prism that we must look at the candles in a graph. In addition, one must always marry the idea of the importance in the general history of the base from which these candles appear. As your career in commerce continues, you will learn over time how important support and resilience really are. In other words, a great sail looking at a massive support level will always defeat one that is placed in the middle of two levels of support and resistance. We always want to seek support and resistance first and then the candles.

Before we get too involved in patterns, we need to think about the simplest of all forms of analysis: Color and length. In other words, is the sail short or long term? Obviously, a red or black (negative) candle that is long means much more than a short one, if everything stays the same. This is simply because it represents more operations in a negative direction. Also, we must always keep in mind that, like all things related to technical analysis, the longer the deadline, the more reliable it is. This is because making a weekly candle takes much more time and operations (and therefore information) to make the candle.

In conclusion, please always remember the following questions before taking a position:

Is this candlestick a support or resistance zone?

What exactly does this candle (or candles) say about the emotional response of traders?

Is the sail going with the general trend, or is it a counter trend?

Remember, there are several Forex traders around the world trading based on different time horizons, and with different underlying needs. Because of this, before looking at the shapes of the candles, you should take a moment to think about what a particular candle is trying to tell you. Sometimes the market whispers, sometimes it screams. You decide whether you listen or not.

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