Technical analysis is a visual, almost artistic skill that traders acquire through practice and time. Different traders like to practice their art on different types of charts. Technical analysts tend to gravitate toward the following three chart types:
- Line Chart
- Bar Chart
- Candlestick Chart
As candlestick charting is the most widely used one among the three types, and Stealth Forex Trading System™ works best on candlestick charts, only this one will be described in details.
Candlestick Charting
The image below represents the three basic candlesticks and every candlestick chart pattern is made of some combination of these three. They are called the Doji, the Bearish Candle, and the Bullish Candle and they represent the price movement of a given time interval.
Candlesticks have two basic parts called the body (the candle itself) and the shadow (the stick). The body visualizes the price movement that occurred between the opening price and the closing price during the given time period. The bottom part of the body represent the opening price in case of a bullish candle and gives the closing price in case of a bearish candle for the given time period. Logically, the upper part of the body is the other way around.
Doji does have very small or no body as the price closed on a similar or same price level where it previously opened for the given time period. So a Doji is normally made of shadows and the end of the upper shadow represents the maximum price for the time period and the end of the shadow under the body part represents the minimum price in all cases. Candlesticks basically give information on the actual trend for a given time period.
For instance, each candle represents the price movement of one day on a daily chart, and gives information on the actual trend for that period. Doji represents the sideways movement of the prices, while bullish candle accounts for an upward move for the period and bearish candle signals a downward move of prices in all cases. A trend is made up of candlesticks, but candlesticks can be viewed as microscopic trends within a trend.
Although there are candlestick patterns which, many thinks, help to catch the reversals, you do not need to use them once you trade with Stealth Forex Trading System™.
If you are interested in details of candlestick chart patterns or need more information on line charts or bar charts then read these articles about the three types of charts and Japanese candlesticks.