In 1755, Candle chart was first invented by a Japanese rice merchant named Homma Munehisa who discovered that the psychological and emotional aspect of traders has critical influence on rice prices. Now widely used for technical analysis of a market, candlestick chart shows the high, low, open and closing prices of a market for a set period. X-axis of the chart is for time by hours or days, and Y-axis is for currency exchange rate price. The candles tell if the closing price was higher or lower than the opening price. Depending on the time frame of the strategy, the x-axis can be set up by 1 or 5 minutes for scalping, or can stretch into hourly or daily x-axis for intraday, and weekly and monthly for swing and position trading.
How to read candle..
Shown in the figure above, the body of candle displays opening and closing price, while the upper and lower shadows shows lowest and highest point of the market price.
For example, let’s say EUR/USD market started at 1.14430, peaked at 1.1550, fell down to 1.13420 and ended at 1.1440.
Candlestick chart is used in technical analysis of Forex price patterns.
It is a powerful visual aid for decision making when reading psychological trend.
It is a cornerstone of strategical case study of Forex market and a trader must get used to reading the chart before getting into deeper complex mechanism of the technical analysis.