WHAT IS A CANDLESTICK IN FOREX TRADING?

While we briefly covered candlestick charts in the previous lesson, we’ll now dig in a little and discuss them more in detail. First let’s do a quick review.

What is a Candlestick?

t and slowly grew in popularity in 90s. To make a long story short, without Steve Nison, candle charts might have remained a buried secret. Steve Nison is Mr. Candlestick.

Okay so what the heck are candlesticks?

The best way to explain is by using a picture:

 

Candlesticks are formed using the open, high, low and close.  

·         If the close is above the open, then a hollow candlestick (usually displayed as white) is drawn.

·         If the close is below the open, then a filled candlestick (usually displayed as black) is drawn.

·         The hollow or filled section of the candlestick is called the “real body” or body.

·         The thin lines poking above and below the body display the high/low range and are called shadows.

·         The top of the upper shadow is the “high”.

·         The bottom of the lower shadow is the “low”.

Support and Resistance

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Support and resistance is one of the most widely used concepts in trading. Strangely enough, everyone seems to have their own idea on how you should measure support and resistance.

Let’s just take a look at the basics first.

Look at the diagram above. As you can see, this zigzag pattern is making its way up (bull market). When the market moves up and then pulls back, the highest point reached before it pulled back is now resistance.

As the market continues up again, the lowest point reached before it started back is now support. In this way resistance and support are continually formed as the market oscillates over time. The reverse of course is true of the downtrend.