Forex Candlesticks Tell A Story

[Norman2008]

By Tlenyk

There are four Japanese candlesticks that are typically used in FX trading; engulfing candles, the doji star, exhaustion candles and independent candles. The opening and closing of a candlestick can be very significant in a forex trade.

Engulfing Candles
An engulfing candle is one that follows a previous candle of the opposite color or opposite way. The engulfing candlestick pattern can be a bull or bear depending on how the candlestick forms. The larger candlestick "engulfs" the previous candlestick.

The Doji Star
Doji candlesticks will look like a plus sign. The candle opens at the center point, it moves up and then it comes down passing the center point, where it opened and then it moves back up to center point to close. The opening and the closing position is the center point. A doji star is important because it is a potential turning point. Neither, the bulls or bears take over at this point.

Exhaustion Candles
Exhaustion candles have long wicks and signify that the market is reversing. These candles are usually found on, a 60 minute chart. In a bull market, the candlestick opens and moves upward creating a long wick, which represents massive selling. Then it comes back down and closes above its opening position.

In a bear market, the candlestick opens and moves downward creating a long wick, which represents massive buying. Then it comes back up and closes below its opening position.

Independent Candles
Independent candles are also known as tweezer tops, bottoms or twins. These candlesticks are created when institutions that are buying and selling currency. They are not identical twins but independent candles. When the institutional client or the "big boys" sell, they will then immediately buy and this creates a twin candle. When you see this type of candle it is safe to say that the institutional clients are reversing their position. They create the market so these candles are significant to us. A set of twins can start a run.

Candles are telling you in a very subliminal way what the market is trying to do. Needless to say, it is very important to understand candlesticks.

[Somya Gabriel]

Though the candlesticks technique displays a more apparent relationship between the four major points which goes to make a particular pattern. Just one simple glance will make the traders know the underlying price action which is being projected by it, still it cannot predict the volatility of the price actions during different trading stages.

[kelvinlee]

I find the candlestick useful only when looking for reversal and possible breakout.

Other than that, the candlestick can only tell the open, high, low and close of a period of time.