8. What Are Candlesticks in Forex?
There are three specific points that create a candlestick, the open, the close, and the wicks. The candle will turn green/blue (the color depends on the chart settings) if the close price is above the open. The candle will turn red if the close price is below the open.
If you have the chart on a daily setting each candle represents one day, with the open price being the first price traded for the day and the close price being the last price traded for the day.
- Open price : The open price depicts the first traded price during the formation of a new candle.
- High price : The top of the upper wick. If there is no upper wick, then the high price is the open price of a bearish candle or the closing price of a bullish candle.
- Low price : The bottom of the lower wick. If there is no lower wick, then the low price is the open price of a bullish candle or the closing price of a bearish candle.
- Close price : The close price is the last price traded during the formation of the candle.
The image below shows a blue candle with a close price above the open and a red candle with the close below the open :
Why Forex Traders Tend to Use Candlestick Charts Rather than Traditional Charts Candlestick charts are the most popular charts among forex traders because they are more visual. Candlestick charts highlight the open and the close of different time periods more distinctly than other charts, like the bar chart or line chart.
Candlestick charts have certain advantages :
- Forex price movements are perceived more easily on candlestick charts compared to others.
- It is easier to recognize price patterns and price action on candlestick charts.
- Candlestick charts offer more information in terms of price (open, close, high and low) than line charts.
However, there are some disadvantages of candlestick charts :
- Candles that close green or red may mislead amateur forex traders into thinking that the market will keep moving in the direction of the previous closing candle.
- Candlestick charts may clutter a page because they are not a simple as line charts or bar charts.