Candlesticks may seem simple and straightforward, but there’s a lot of information embedded in each candle. It’s exactly this information that can help a trader make the right call for what the market is going to do next. The next step is to capitalise on that prediction. That’s why we’re traders right?
Understanding Market Direction with Candlesticks
The analysis of candlesticks to predict the market direction is what you can use as part of pretty much any forex trading strategy. You can use it as a confirmation tool that triggers the trader to enter or exit. That can, however, be tricky, as your trading can become to emotionally influenced and impulsive.
Using Candlesticks to their full potential
Imagine you’re in a sellers market or a downtrend. The last candle suggests that at some point while the candle was open the buyers tried to push the price up. This is what the long wick on top indicates. However, before the candle closed the sellers took over again and pushed the price back down. This is shown by the body close that has turned red (if red is the colour you use to indicate sellers). Ask yourself, would you sell now?
Not so much information right? You only know that you have the trend with you and that buyers in the last candle are weaker than sellers.
Forex being a game of odds, you need to put the odds in your favour. So figure out what the story is. Read the candles one by one, from left to right. And take your time to read them. Each of them have information and you want to extract as much information as you can. This way you’ll get the most complete story.
You can extract information from candlesticks to build a story to determine the market direction. Getting the complete story is just one step, albeit a very important one. Reading and understanding the charts is very important. You can always add more tools that put more odds in your favour. The tricky part is to find the confluence in doing it all right. This comes with years of experience and loads of education. Amassing education and experience is a process that will never stop for as long as you’re a trader.