Page 72 - Module1_Introduction_to_the_Forex_Environment

Module 1 – Lesson 15 – Introduction to Japanese Candlesticks

1. introduction
Candlesticks are graphical representations of price movements of currency pairs over a period of
time. Candlestick charts are commonly used in the Forex market because it is easier to interpret,
compared to line charts and bar charts.

A single candlestick represents any period of time on a trading platform, depending on time frame
used. A candlestick on a daily timeframe represents one day of price history, while a candlestick on
a 15-minute timeframe represents fifteen minutes of price history.

2. candlesticks reflect four vital pieces of information:
▪ The opening price,
▪ the highest price during that specific period of time,
▪ the lowest price during that specific period of time, and
▪ the closing prices

A bar chart also reflects these four pieces of information; however, a candlestick clearly denotes the
relationship between the opening and closing prices through the body and wicks.

3. construction of candlesticks
The candlestick’s body forms the rectangular shape between the opening price and closing price.
The body reflects the range between the opening and closing prices of the currency pair on that
certain period. Traditional bodies of candlesticks are coloured with black and white to easily define
the market direction.

Market direction can be either bullish or bearish, depending on the opening and closing prices of the
candlestick.

A white body indicates that the A black body indicates the
closing price is higher than the opposite; the closing price is
opening price, which means the lower than the opening price,
price had increased over the
which means the price had
period, which defines a bullish decreased over the period, which
candle. defines a bearish candle.

Candlesticks make it easier to see if the prices increased or decreased at the trading period. Other
traders use blue or green colours instead of white for a bullish candle, and red for a bearish candle
instead of black.

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