Candlestick Patterns are the basic part of technical analysis. If you want to place an order in the forex market, you get the prices displayed in the form of candlestick charts. The other types of charts like bars, are outdated and not preferred by investors to use for trading now. Candlestick chart types can be dated back to 18th Century Japanese traders, however, their form was not as developed and detailed as it is today. In this technological era, Candlestick Charts are the most widely used charts to analyze the data, due to the detailed information they provide you. You can get an overview of the behavior of the market prices by studying these charts.
Now that you know what they are used for, you must learn how to read them properly so that you can look for patterns on the chart. If you take a look at the Candlestick chart for any currency pair, you can observe that there are color-coded candle-shaped bars with little wicks on both the top and bottom ends. One candle indicates the price movement for a particular time period, it is usually for a day, but the chart’s data is also available for hours, weeks, months, and even years.
The next step is to learn what these candles tell you? It shows the open prices for the day that tells at which price the trades opened that day, similarly the close prices for the day that tells at which price the trades closed that day, and the “wicks” or “shadows”, the thin lines that form above and below the candles, tells you the extreme prices the pair reached in a day including the highs and lows. Furthermore, the color of the candle also tells you a piece of important information. If the candle is green (the color could be changed in the settings), then it means the trades closed at a higher price than they opened that day or a particular time frame, and if it is red then it means the trades closed at a lower price than they opened for that specific time frame.
All this information is extremely important to learn before placing a trade. In addition to that, these candlesticks form some patterns on the charts that can help you further predict the behavior of the market. Approximately 42 chart patterns are recognized by forex experts that include the hammer, inverse hammer, bullish engulfing, piercing line, the morning star, and many other simple and complex patterns that can be divided into more patterns.