3. Candles

By now, you should have an access to a forex demo account and a pre-set template for viewing charts (“pristine chart”). We will be covering fundamentals of technical analysis, which will allow you to read charts. Technical analysis studies price movements and provides strategies to enter in and out of trades. Through charts, we can read the overall emotional tone of a given market. You will learn to profit from understanding the dominant emotions experienced by the majority of traders. Technical analysis can be used virtually in any market (stocks, bonds, commodities, currencies). The principles are always the same.

We will be using Japanese candlestick charts. They do not offer any extra information compared to bar charts, but provide a visual picture of what is occurring at any given moment. Candles allow us to read other trader`s expectations on an ongoing basis. As you can see below, each candle shows 4 pieces of raw market data: open, close, high, and low. Green candle is a bull candle, meaning the market went up in value during a given period. Red candle is a bear candle, meaning the market went down in a given period. Depending on the time-frame you are looking at, each candle represents a period of time such as one hour, four hours, one day, one week, and so on.

Now, let`s examine the structure of a candle. Each candle has a body, which is the difference between the open and the closing prices. The part on either side of the body is called shadow, wick, or tail. Tails show us the maximum and minimum prices for a given period. There are many candlestick patterns both bullish and bearish. We will be discussing the different individual candles, two-candle patterns, and three candle patterns. However, to gain deeper understanding read book from Steve Nison. Below is a link to Amazon bookstore. If you will be buying it from Amazon, please, use this link. You can also find this book at Barnes&Nobel.

Open a daily pristine chart of EUR/USD and email me (pavel.ordos@foreksy.com) the open, close, high, and low prices for the following dates: November 27th, 2009; June 7th, 2010; November 4th, 2010; and January 11th, 2011. I will email you back my reading list.

" It is our duty to proceed as though the limits of our abilities do not exist."  - Pierre Teilhard De Chardin