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How to read chart in forex trading?

Forex trading involves the buying and selling of currencies in order to make a profit from changes in their value. To be successful in forex trading, it is important to understand how to read charts. A chart is a graphical representation of price movements of a currency pair over a certain period of time. There are different types of charts, such as line charts, bar charts, and candlestick charts. In this article, we will explore how to read candlestick charts, which are the most commonly used charts in forex trading.

Understanding Candlestick Charts

Candlestick charts are composed of individual candles that represent price movements of a currency pair over a certain period of time. Each candle is made up of a body and two wicks, which are also called shadows. The body represents the opening and closing prices of the currency pair, while the wicks represent the highest and lowest prices reached during the same period of time.

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The color of the candle body can be either green or red, depending on whether the closing price is higher or lower than the opening price. A green candle means that the closing price is higher than the opening price, while a red candle means that the closing price is lower than the opening price.

Reading Candlestick Patterns

Candlestick patterns can provide valuable information about the behavior of a currency pair. Here are some of the most common candlestick patterns and what they indicate:

1. Bullish Engulfing Pattern: This pattern occurs when a small red candle is followed by a larger green candle that completely engulfs the previous candle. This pattern indicates that buyers have taken control of the market and that a bullish trend is likely to continue.

2. Bearish Engulfing Pattern: This pattern is the opposite of the bullish engulfing pattern. It occurs when a small green candle is followed by a larger red candle that completely engulfs the previous candle. This pattern indicates that sellers have taken control of the market and that a bearish trend is likely to continue.

3. Doji: A doji occurs when the opening and closing prices are the same, resulting in a candle with a very small body and long wicks. This pattern indicates that the market is indecisive and that a trend reversal may be imminent.

4. Hammer: A hammer occurs when a candle has a small body and a long lower wick. This pattern indicates that buyers have taken control of the market and that a bullish trend is likely to continue.

5. Shooting Star: A shooting star occurs when a candle has a small body and a long upper wick. This pattern indicates that sellers have taken control of the market and that a bearish trend is likely to continue.

Conclusion

Reading charts is an essential part of forex trading. Candlestick charts provide a visual representation of price movements of a currency pair over a certain period of time. Understanding candlestick patterns can help traders predict market behavior and make informed trading decisions. It is important to remember that candlestick patterns are not always accurate and should be used in conjunction with other technical analysis tools. With practice and experience, traders can become proficient in reading charts and making profitable trades.

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