Each candlestick comprises four data points of the instrument for the period of analysis – the open, high, low and close values. The body of the candle is capped by the open and close prices. If the open is lower than the close the candle is usually indicated in white, green or occasionally blue. For a closing value below the opening value, the body is indicated in black or red. The other components of the candlestick are the upper and lower shadows (or wicks). The upper shadow is a line extended from the top of the candlestick body and extends up to the high price of the instrument. The lower shadow extends from the bottom of the body to the low value of the instrument for the period. Either of these components – the body or the wicks – may be absent in any candlestick when a few data points match. In the particular case of all points being identical, the candlestick does not exist at all.

Exhibit A: A Typical Candlestick with various components

Candlestick

Exhibit B: A candlestick chart with a 30 min interval period

Candlestick Chart

A number of complex patterns and technical analysis techniques have been formulated on candlesticks. We emphasize on a few simple patterns for starters.

A white, green or blue candlestick is a bullish signal indicating uptrend. The more number of consecutive white candlesticks and the longer the bodies, the more bullish the signal. Similarly, a black or red candlestick (or a series of such candlesticks in progression) signify selling – a bearish signal indicating downtrend.

A long upper shadow with a length of at least equal to the body indicates a bearish signal. This signal is strengthened if the body is black. Similarly, a long lower shadow with length more than the body indicates an uptrend, reinforced by a white body.

A Doji is a pattern where the open and close coincide reducing the body size to zero. This is normally a neutral sign used in conjunction with other signals. A Doji pattern above a white candlestick is a possible reversal signal (bearish), strengthened by a subsequent black candlestick. This kind of a candlestick pattern is called a Doji Star. A bullish Doji Star is a Doji subsequent to a black candlestick and placed below it.

Exhibit C: Bearish Doji Star and a Morning Doji Star

Bearish Doji Star and a Morning Doji Star

A Morning Doji Star is an extension of the Doji Star where a Doji follows a long black body. The candlestick following the Doji is a white body where the upper limit of the white body is beyond half of the black body’s length. This indicates a reversal of a bearish trend. A Morning Star is the same as a Morning Doji Star except that the Doji in between the two candlesticks is replaced by a small body (open and close values are close together). This is also a bottom reversal signal. Reversing a Morning Doji Star or a Morning Star, we get Evening Doji Stars and Evening Stars which are considered top reversal signals.

A Harami is a combination of a large white body candlestick followed by small black body. The following black body needs to have the open and close limits of its body i.e. contained within the preceding white body’s limits. This is considered a bearish signal when preceded by a Bull Run. For a bullish Harami signal, a large black body is followed by a contained small white body with the same conditions as a bearish Harami.

A Hammer is a small bodied candlestick (black or white) with a very small or non-existent upper shadow and a long lower shadow indicative of an uptrend. An Inverted Hammer is a bottom reversal signal with a small body and long upper shadow.

Exhibit D: Other candlestick patterns (Spinning Tops, Hammer, Inverted Hammer, Harami)

Another key technical candlestick pattern is a Spinning Top, which is neutral in nature and typically used with other technical signals. This pattern consists of a single candlestick with a small body and tiny shadows.

To start out your forex trading you need to find a broker. This is the very first step you must take. You need a broker to assist you with all your forex trading activities. It is important that you check the reputation of a broker. Fortunately, you will not be short of the list of brokers to choose from.

The reputation of a broker is very important. It is your responsibility to choose the right broker. It is your own money that is at risk in this kind of investment. Check if your broker of choice is affiliated with good companies. Companies with good standing can be a determining factor how good your broker is. Researching or doing a background check on a broker can help you minimize the risk of losing profits.

Always remember that brokers can make you or break you. Forex trading is a complex process and you need to be guided accordingly by your broker.

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When you take a peek inside the forex market world you will find several participants. Participants like Central banks, investors, forex brokers, large multinational companies and other banks involved in inter-banking transactions are all busy exchanging currencies for profit. Well, gaining profit is the main goal of every participant of the forex market trading. But as mentioned earlier, forex trading is a risky investment. Therefore, profit is not always guaranteed.

The forex market is always open for transaction. It never sleeps for people around the world lives in different time zones. Another part of the world may be sleeping but on other parts, investors are all awake and busy trading their currency pairs.

Brokers act like middlemen. All forex trade transaction passes through a broker. Investors must be well aware of the basics of the trade. Both investor and broker must play wisely to reach their goal and that is to earn profit from their investments. Strategies must be well established to minimize the risk involved in this risky global trade.

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You have learned from the two previous posts about the basic Forex strategies. Different Forex investors use different strategies. It depends on which strategy they are more comfortable with. Some are more comfortable using the fundamental analysis and some find it easier to use the technical analysis.

But either strategies can be very useful for every investor to earn profit. Although technical analysis is the more commonly used strategy among forex investors due to its simplified form, it is still but necessary to learn about the fundamental analysis.

Most financial analysts believe that using both strategies in combination is the best strategy that a Forex investor may use. If a Forex investor learns how to combine both analysis he is more likely to gain sure profits.

To sum it all up, Forex trading is an investment that must be played with strategy. Without knowing at least the basic strategies an investor will hardly make profit. Making profit is the main goal of any investor so it is certainly just right to be armed with knowledge before diving in to this risky but profitable business of Forex trading.

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Fundamental analysis is a much more difficult decision. An investor using this strategy is putting a currency’s value on an entire country. Financial experts find this strategy to be useful in long term trend prediction. It can also be used in short term decisions and investors use current news releases for decision making. Certain indicators are being used for fundamental analysis. These indicators may be the Consumer Price Index and Purchasing Managers Index. There are also two important meetings that an investor must be updated with – the Humprey Hawkins Meeting and the Federal Open Market Committee. This two meetings help a trader foresee both short and long term trends.

Technical analysis is more popular among Forex traders. Traders use time factors to analyze the price trend. Price trend is the basis of forex traders in their decision making prices. Technical analysis have 3 common styles of analysis – Fibonacci Studies, Parabolic SAR Pivot Points and the Elliot Waves. A broker should explain to an investor what these styles of analysis are and let the investor decide on which he is more comfortable in using with.

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Without basic knowledge, a Forex investor is like an unarmed soldier going to war. Most likely an investor will fail to achieve his goal which is to gain profit.

There are two basic Forex strategies that a new Forex investor must know – Fundamental analysis and Technical analysis.

An investor using fundamental analysis bases his decision or plan on the value of a country as a whole. He believes that the value of currency depends on the economic and political stability of a country.

However, an investor using technical analysis bases his decision on the trend of a currency price over a given period of time. An investor relies heavily on price trend not the country‘s stability as a whole.

These two basic Forex strategies are both powerful tools that will assist an investor to formulate his own plan. Without a plan or guide, an investor will be lost and he won’t be able to consistently earn profits. Forex may be accompanied by risk but with a strategy proven to work overtime, profits will not be hard to earn.

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If you are looking for a feasible and workable investment vehicle, you should consider taking advantage of the profitable market condition of Forex. The flexibility of Forex market enables people to enter and exit a trade at any time. There are no set limits for trading and you can do as many trades as you want on a daily basis.

When it comes to leverage ratio forex has the best to offer at 400. You get more buying power and can increase your total return on investment. However, increasing the leverage ratio also increases risk. But with experienced Forex market traders a proven and tested strategy that works minimized any risks involved.

As more and more people get to discover the advantages of investing in the Forex market, this market will continue to swell as the time progresses on. Its low risk feature will make this happen. Furthermore, the increase in number of Forex traders will strengthen the market more.

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A wider spread means a higher commission rate while a tighter spread means lower commission rate. However, it does not necessarily mean lower profit for investors dealing with wide spread Forex brokers. Moreover, it does not mean you can get higher profit dealing with tight spread brokers.

Although wider spread means you can buy at higher price and sell at lower price, it is still not a basis that you will get lower profit. It is the same for tight spread, it is not an assurance that you will get higher profit. However, most traders look for brokers with tighter spreads.

Wider or tighter spread, it really does not matter. As long as you have a proven strategy that works, profits are not difficult to earn. Unlike other trading markets, Forex market does not follow any conventional trading floor. And this makes Forex trading a very flexible and advantageous investment.

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Each country has several institutions that play a key role in determining the value of their own currency. These institutions are large banks, large business companies, government and other financial institutions. Traders in the Forex market monitor the value of the currencies.

Unlike stock markets, Forex market involves more than one country. Forex market is actually a global trade and therefore open twenty four hours a day. Forex market operates non-stop because different countries have different time zones.

Huge amounts of cash are involved daily in the Forex market trading. Imagine thousands of traders around the world buying and selling currencies. A study just recently made shows that the daily average trading volume is around three trillion dollars.

Just like any other market investments, Forex market trading is risky. If the trading strategy is not properly planned, a trader may lose a huge amount of money. To gain profit, strategies and proper timing should be properly applied when entering or exiting a trade.

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On the early days of the Forex market trading, only a few people have access on it. It is believed that only rich people get involved in this trade. A huge amount of money is needed for the initial investment. Unfortunately, not all people have the amount of cash to invest in this risky business. However, as the technology advances, more and more people get the chance to be involved in the Forex market trading.

The introduction of the internet really paved the way for Forex market investors to grow in numbers. More and more people gain access to the Forex market trading with ease. With a computer and an internet connection, Forex market trading can be done at the comfort of your own home.

Moreover, the initial investments have gone very low that small budget investors can now put a small amount of money in the trade. Forex softwares are also developed to help investors for easy trading. As technology developers put more effort in developing more investment options, the number of Forex market traders will continue to grow.

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