Candle graphs were first used by the Japanese in the 17th century to analyze the happenings in the rising market. At that early time, the Japanese recognized the relationship that exists between the demand & supply of rice and its price. They also recognized that traders’ emotions have a very huge influence on the markets. To visually represent these emotions, they created candle graphs to show how much the price was moving either upwards or downwards. Today, candle graphs are used in the forex markets to represent patterns, which then help when making trading decisions.
What Are Candle Graphs?
Now we answer the question: "what are candle graphs?" Candle graphs are used in the currency markets to present information on the movement of prices in an easy and simple way for quicker and more targeted decision making. They are also known as candlestick charts and derive their name from the fact that they have the shape of a candle. The body resembles a candlestick with a top akin to a wick and a similar bottom. Depending on the color of the candlestick, forex prices can be interpreted either as moving up or down.
On each candle graph, you will be able to see the open, low, high, and close prices over a given period. As a trader, it is upon you to set the time-frame in which you want to get the data. For that matter, the time-frame can be as short as 5 minutes. If that’s your chosen time-frame, then you will be able to see a new candle graph every five minutes. You will be able to see the current price and also check whether it moved downwards or upwards.
How to Read and Interpret Candle Graphs
If you are a forex trader, it is easy to read and interpret candle graphs. Here is how you will go about it:
1. Open Price
This is the first price traded during the time-frame of the candlestick. It could either be at the bottom or top of the body of the candlestick. A bottom open price occurs when the trend is upwards with a body that’s green in color. On the other hand, a top open price shows that the trend is downwards and the color of the candlestick turns red.
2. High Price
The highest price during the time-frame of the candle graph is known as the igh’. It is indicated by the top of the upper wick, also known as the upper tail. Where the open price was at the top, the candle graph will not have a igh’.
3. Low Price
The lowest price during the time-frame of the candle graph is known as the ow’. It is marked by the lower end of the bottom of the candlestick. In other words, it is the price at the tip of the lower tail or wick. Where the open price was at the bottom, there is no ow’.
4. Close Price
This refers to the price that was traded last in the duration of the candle graph. It could be at the top or bottom of the candlestick. Upward candlesticks are often green in color while downward candle graphs are red in color.
In the forex market, candle graphs play a very important role. The direction in which the movement happens as well as the range of the candlestick really matters. Upward direction
indicates an increase in price while a downward movement indicates a decrease in price. In this case, the range refers to the difference between the upper and lower tails of the candle. It is represented by the height of the candle. While the wide range indicates volatility, a short-range shows a more complacent market.