The Candlestick is absolutely key to understanding forex price action

Candlestick Charts have become the norm in forex trading for the simple reason that most traders prefer them for the information they convey.

Candlesticks are formed based on a single timeframes open, high, low and close values. For example, if you are looking at a chart of daily candlesticks, the candlestick previous to the current open candlestick will contain what the values for yesterdays open, high, low and close were.

The following diagram gives a quick breakdown of basic candlestick anatomy. with the parts of a candlestick labeled:

Candlesticks are excellent visual aids to current price action and market sentiment. Reading candlestick charts can give us the following powerful information at a glance:

• Support and Resistance levels formed by the wicks at either end. These form the boundaries of how far the bulls and the bears could push price in the session just finished.
• Volatility and/or Volume. This can be seen by the extent of the candle body. If the body is relatively long, it may indicate increasing interest, volatility and possible volume. If the real body is relatively short, it often indicates a lacklustre market in which neither the bulls nor the bears have gained the upper hand, and it may further indicate little volume of orders. Of course, it may also indicate a session in which price was very tightly contested, with a near match of buyers and sellers. But generally speaking, lots of interest in a currency will see an extended candle body.
• The open and close tell us where the bulk of the trading likely occurred. They also represent consensus views with regards to price. Where price opened tells us how the market valued the currency at the beginning of the session; where price closed tells us what the market valued the currency at when trading ceased for that particular session. Of themselves these values may represent little. However, used in conjunction with the levels of other candlesticks, as well as indications such as pivots, Fibonacci etc, this can be potent information.

This section of AuthenticFX will teach you what candlesticks mean. It is broken down into the following topics:

• Forex Candlestick Glossary Chart. This is a chart of the major forex candlestick patterns that can be used in price action trading. Click the image at the right to go to Forex Candlestick Glossary Chart OR DOWNLOAD the AuthenticFX Forex Candlestick Chart PDF

(Easy to print and pin above your workstation, and includes clickable links to a full explanation of each candle pattern).