What is a Candlestick Chart in Forex Trading?

Quick Answer

A candlestick chart displays open, high, low, close (OHLC) for each period using colored rectangles (bodies) and lines (wicks). Green/white candles show bullish periods, red/black show bearish. Candlesticks reveal price action and market psychology better than line charts.

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What is a Candlestick Chart in Forex Trading?

A candlestick chart is a type of price chart that displays the open, high, low, and close (OHLC) for a specific time period using rectangular shapes called "candlesticks." Each candlestick visually represents price movement, with the body showing the open-to-close range and wicks (shadows) showing the high-to-low range. Developed in 18th century Japan for rice trading, candlesticks are now the dominant charting method in forex due to their rich visual information.

Anatomy of a Candlestick

Each candlestick has four key components:

  • Body: The rectangular area between open and close prices
  • Upper Wick (Shadow): Line extending from body to the period's high
  • Lower Wick (Shadow): Line extending from body to the period's low
  • Color: Green/white (close > open = bullish) or red/black (close < open = bearish)

Practical Example

A 4-hour EUR/USD candlestick: Opens at 1.1000, rises to 1.1050 (high), falls to 1.0980 (low), closes at 1.1030. Result: Green body from 1.1000 to 1.1030 (30-pip body), upper wick from 1.1030 to 1.1050 (20-pip wick), lower wick from 1.1000 to 1.0980 (20-pip wick). This tells you: buyers won (green), price tested lower but rejected (long lower wick), sellers pushed back slightly at the top (short upper wick). All this information from one visual element.

Why Candlesticks Matter

Candlestick charts reveal market psychology that line charts hide:

  • Battle visualization: Body size shows conviction, wick length shows rejection
  • Pattern recognition: Doji, engulfing, hammers, shooting stars
  • Support/resistance: Wicks clearly mark where buyers/sellers stepped in
  • Momentum shifts: Body size changes indicate increasing/decreasing momentum

Reading Candlestick Stories

Professional traders read candlesticks like sentences in a book. A large green body followed by a small-bodied doji suggests buyer exhaustion. Long lower wicks at support levels indicate strong buying pressure. Consecutive small bodies during a trend suggest consolidation before continuation or reversal. Master candlestick reading before adding indicators - price action is the primary signal, indicators are secondary confirmation.

Related Terms

DojiEngulfing PatternPrice Action

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