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How to read forex candlesticks?

Forex candlesticks are the most commonly used trading chart in the forex market. They are used to represent the price movements of currency pairs over a specific period of time. Reading forex candlesticks is an essential skill for any forex trader as it helps to determine the trend, support, and resistance levels, and potential entry and exit points. In this article, we will explain how to read forex candlesticks.

Understanding the Anatomy of a Candlestick

A forex candlestick is made up of two main parts; the body and the wick. The body of the candlestick represents the price range between the opening and closing price of the currency pair during a specific period of time. The wick, on the other hand, represents the price range between the highest and lowest price during the same period.

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The color of the candlestick also plays an important role in determining the price movement of the currency pair. A green or white candlestick indicates that the closing price is higher than the opening price, which means that the price of the currency pair has gone up during the period. On the other hand, a red or black candlestick indicates that the closing price is lower than the opening price, which means that the price of the currency pair has gone down during the period.

Reading Candlestick Patterns

Candlestick patterns are formed by several candlesticks that have specific shapes and positions. These patterns help traders to identify potential trend reversals, support and resistance levels, and entry and exit points. There are several candlestick patterns that traders use to analyze the price movement of currency pairs. Some of the most common patterns include:

1. Doji Pattern

The Doji pattern is formed when the opening and closing price of a candlestick is the same or nearly the same. This pattern indicates indecision in the market and can be a potential sign of a trend reversal.

2. Hammer Pattern

The Hammer pattern is formed when the price of the currency pair opens low but closes high. This pattern indicates a potential bullish trend reversal.

3. Shooting Star Pattern

The Shooting Star pattern is formed when the price of the currency pair opens high but closes low. This pattern indicates a potential bearish trend reversal.

4. Engulfing Pattern

The Engulfing pattern is formed when a smaller candlestick is engulfed by a larger candlestick. This pattern indicates a potential trend reversal.

Identifying Support and Resistance Levels

Support and resistance levels are key areas where the price movement of a currency pair is likely to change direction. Support levels are areas where the price of a currency pair is likely to bounce back up after falling, while resistance levels are areas where the price of a currency pair is likely to bounce back down after rising.

Traders use candlestick charts to identify potential support and resistance levels. An area of support is indicated by a series of candlesticks with long wicks at the bottom, while an area of resistance is indicated by a series of candlesticks with long wicks at the top.

Conclusion

In conclusion, reading forex candlesticks is an essential skill for any forex trader. It helps to determine the trend, support and resistance levels, and potential entry and exit points. Traders should be familiar with the anatomy of a candlestick, common candlestick patterns, and how to identify support and resistance levels. By mastering these skills, traders can improve their chances of making profitable trades in the forex market.

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