You’ve set up your demo forex account and you’re seeing charts, lots of charts – of how the price of a currency pair is moving against time.

Charts are classified firstly by their time units.
1-minute chart – each unit on the horizontal = 1 minute
24-hour chart – each unit on the horizontal = 24 hours

But what’s going on with all the points plotted? There are line charts, bar charts around, but what the pros use nowadays are candlestick charts and these are what we’ll be using almost exclusively.

One candlestick = 1 time period – whatever the chart happens to be. For a daily chart, each candlestick corresponds to 1 day, if a 5-min chart, each candlestick is a 5 minute period.

Here’s a real-life example – doesn’t matter which currency pair, it’s a 1-hour chart, so there will be 24 candlesticks each day along the x-axis – and as you can immediately see, the price is going up and down a bit…

The body of the candlestick is made by the opening and closing prices through the period. A long candlestick obviously means a relatively large change in the price, a shorter candlestick means less movement.

If the price rose over the period, convention is that the candlestick body is open, or white, or nowadays often green.
Conversely, if the price fell over the period, the candlestick body is filled, black, or red.

The 2 ’shadows’, upper and lower, indicate the highest and lowest points that the price reached during the period. So, for example, if the close was also the highest point in the price – no upper shadow.

Candlestick Information
Long open/green candlesticks = price ends higher over the period – more buying than selling of the pair was going on – a bull market.

Long filled/red candlesticks = price ends lower over the period – a bear market, the market forces suggested sell…

For example, open/green candlestick with long upper/short lower shadows.
Sure, the market ended up higher, but maybe the signal to buy isn’t as strong as it was – by the end of the period the price is coming back down = more sellers entering the market.

It’s this increased information that a candlestick can give, that makes them so useful in charting. If you’ve got a practice account, look back over the history of any currency pair – it really is worth sitting down with charts, any old charts, and making sure you’re clear about what’s going on.

This is the begining of chart patterns – characteristic shapes and groups of candlesticks that maybe give an indication about what’s going on with a market at the time – and just maybe, give an indication about what’s likely to happen next… which is just what we want….

Candlesticks orginate in Japan (there are various claims to have popularized their use in the West), so a lot of their names are Japanese, doji, marubozu, etc. – and in English, spinning tops, hammers, gravestones, shooting stars – these pretty patterns do make it all quite fun to forex, if you like some geometry going on…

Next, let’s look to link some candlesticks together and form a trend in 5. Trends, Trendlines and Channels →