Futures Trading Chart: How to Learn Candle Reading for Currency Traders

When you decide to enter the world of trading (Forex) currency, the most important skill is understanding price movements through chart trading. Correctly reading candlesticks is the foundation of successful trading. Many traders have achieved success simply by understanding candlestick patterns. This article will introduce you to the world of chart trading and in-depth candlestick reading.

Understanding Candlesticks and Their Structure

What are Candlesticks

Candlesticks are one of the most effective ways to display price data. A candlestick chart consists of four key pieces of information: opening price, closing price, highest price, and lowest price within a specified period. Whether you trade on 15-minute, 1-hour, or weekly timeframes, this candlestick chart can assist you.

Structure of a Candlestick

A typical candlestick consists of two main parts:

• The Body: Shows the range between the opening and closing prices
• The Wick (or Shadow): The long lines extending above and below the body, indicating the highest and lowest prices

Interpreting Colors and Market Signals

White Candlestick (Bullish)

When the closing price is higher than the opening price, a white candlestick appears, indicating buying pressure outweighs selling pressure. If the white candlestick is large with a short wick, it shows strong control by buyers.

Black Candlestick (Bearish)

Conversely, when the closing price is lower than the opening price, a black candlestick appears, indicating strong selling pressure. A large black candlestick signifies vigorous selling.

Long and Short Wicks

Short wicks indicate balanced buying and selling. Long wicks suggest higher volatility and market indecision.

Why Traders Use Candlesticks

Understanding Market Sentiment

Candlesticks are not just numbers; they reflect the true emotions of traders in the market. The clash between buying and selling forces creates patterns that tell the story of the market battlefield.

Clarity and Convenience

Compared to line or bar charts, candlestick charts provide more comprehensive information. Candlestick patterns are clear and easy to understand, especially when combined with other tools like trend lines and support-resistance levels.

Proven History

Candlestick reading techniques originated in Japan over 200 years ago. Rice traders used them to forecast prices in Osaka markets, and they have since become a proven method.

Single Candlestick Patterns: The Basics of Chart Trading

Doji: A Sign of Indecision

A Doji occurs when the opening and closing prices are approximately equal. It reflects a balance between buying and selling forces and often signals a potential trend reversal.

There are several types of Doji:

• Standard Doji: Long wicks on both sides
• Gravestone Doji: Long upper wick, indicating buyers attempted to push prices up but were pushed down
• Dragonfly Doji: Long lower wick, showing sellers tried to pull prices down but were pushed up
• Four Price Doji: Indicates very limited buying and selling activity

Marubozu: Strong Momentum of One Side

Marubozu is a candlestick with no wicks, showing dominance by one force:

• White Marubozu: Open at the low, close at the high, indicating strong buying throughout
• Black Marubozu: Open at the high, close at the low, indicating strong selling throughout

Spinning Top: Market Indecision

A Spinning Top has a short body with long upper and lower wicks, indicating market indecision with no clear dominance.

Two-Candlestick Patterns: Reversal Signals

Hammer and Hanging Man

Hammer: Appears in a downtrend, with a small body and a long lower wick, indicating buyers attempted to push prices up after a decline, potentially signaling a reversal from downtrend to uptrend.

Hanging Man: Appears in an uptrend, similar in shape but suggests weakening buying pressure, possibly signaling a reversal from uptrend to downtrend.

Inverted Hammer and Shooting Star

Inverted Hammer: Appears in a downtrend, with a small body and a long upper wick, showing buyers are trying to push prices higher.

Shooting Star: Appears in an uptrend, with a small body and a long upper wick, indicating strong selling pressure.

Bullish Engulfing and Bearish Engulfing

Bullish Engulfing: A black candlestick followed by a larger white candlestick that completely engulfs the previous one, indicating buyers have regained control.

Bearish Engulfing: A white candlestick followed by a larger black candlestick, indicating sellers have regained control.

Tweezer Tops and Tweezer Bottoms

Tweezer Tops: Two candlesticks with equal-length upper wicks, signaling a potential reversal from uptrend to downtrend.

Tweezer Bottoms: Two candlesticks with equal-length lower wicks, signaling a potential reversal from downtrend to uptrend.

Three-Candlestick Patterns: High-Impact Signals

Morning Star and Evening Star

Morning Star: Appears in a downtrend, consisting of a long black candlestick, a Doji or small candle, followed by a large white candlestick, indicating a potential bottom.

Evening Star: Appears in an uptrend, opposite of Morning Star, signaling a potential top.

Three White Soldiers and Three Black Crows

Three White Soldiers: Three consecutive large white candles, increasing in size, indicating strong buying momentum.

Three Black Crows: Three consecutive large black candles, increasing in size, indicating strong selling momentum.

Three Inside Up and Three Inside Down

Three Inside Up: In a downtrend, a black candle followed by a smaller candle within its range, then a white candle closing above the first candle’s high, signaling a bullish reversal.

Three Inside Down: In an uptrend, the opposite pattern indicating a bearish reversal.

Important Trading Tips

Do Not Rely Solely on Candlestick Patterns

While candlesticks are powerful, their success rate is often below 50% if used alone. A better approach is to combine candlestick analysis with other tools such as fundamental analysis, market conditions, and additional technical indicators.

Make Cautious Decisions

Chart trading requires risk management. No matter how perfect a pattern looks, always wait for confirmation from the next candlestick before acting on a signal.

Summary

Reading chart trading and candlestick patterns is a skill that requires practice. It involves understanding basic candlestick components, the significance of colors, wicks, and bodies, from single to three-candlestick patterns. Each pattern tells a different story about the battle between buyers and sellers. Successful traders are those who learn to interpret these candlestick signals carefully, combined with risk management and confirmation.