Candles and Chart Types – Whiteboard Wednesday with GKFX

by May 10, 2018Forex Course, GKFX0 comments

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Join David Morrison every Wednesday as he discusses trading strategies, concepts and more.

This Week he talks about candlestick formations and chart types.

Hello and welcome to whiteboard Wednesday with me David Morrison senior market strategist at GKFX.

Today we’re going to start a bit of a mini series within whiteboard Wednesday looking at chart types and then developing that out and looking at candlesticks and candlesticks patterns.

But today we’re going to start with the basics of charting and charting types.

Now the simplest is a line chart and all the line chart is is a series of data points quite often sort of the close of a particular time period.

Now that time period can be as little as a minute, five minutes going up to a month but then you take the close of that typically and that produces a single individual dot and then the line comes when you join those dots together to give you some kind of pattern and that pattern is a very simple but visual look at what prices have done over time and we can see that time is there along the x-axis and price on the Y.

Now a line chart in itself doesn’t give us an awful lot of information but it can sort of give us an idea it can tell us whether a market is ranging or a market is trending whether it’s going up or down. but to get some more information we move on to something called a bar chart now a bar chart as you can see here in the next diagram.

Again price against time and and most charts are price against time although there is point and figure which we might deal with in a later whiteboard Wednesday which is something different altogether but we’re looking at price against time and a bar as I’ve drawn here is simply the difference between the price of the high of the price in a particular period that it’s low but then we have a tab here on the left showing where the price opened up for the session or the time period and then when it closed so we can get a very clear idea of what happened in that particular time period from looking at the bar.

Then, of course, we put the bars together each one over the time period and we then see a pattern forming.

But, perhaps the clearest and most helpful chart type is a chart that’s comprised of candlesticks or Japanese candlesticks and the reason for this is because it and it also adds a dimension of color and that of course is very helpful when we’re trying to sort of quickly establish what might be happening to prices over time.

So here’s a really a look at what is make what a candle is made up of and we can see here two candles pretty much identical.

The only difference is the color and typically a candle where prices are opened higher than where they opened so sorry I beg your pardon the price that has closed higher than when it opened is colored in green and where we have a candle where the close is lower than the open it’s in red that’s sort of a typical candlestick color scheme.

Now the other things to look out for here the difference between the closed and the open is the body of the candle and that’s the bit that’s going to be colored in either green for a market that has closed at a higher level than when it opened and then the body here you can see has been filled in red and this is where the price has closed below the opening price.

So those are the two things to look out for in the first instance but the other thing here that is important to look at is the wick or the shadow.

Now you have the wicks on the shadows both below and above the candle and this is where you have seen prices go up to their high point and then fall back and have sort of closed and created this body here and you can see that this is the low and then of course prices have come back in here to make a close up here and then we’ve got this body filled in, so a candlestick gives us a wealth of information but on their own they can tell us something about price.

But not only but also about value and also about sort of how traders and investors and market participants are actually feeling in terms of sentiment and the candle is a very good way of expressing the market sentiment.

So if I just cross over here we’ve seen what the basic candle looks like but of course there are all kinds of different candles and this is something that we’re going to be looking at over the weeks to come, for instance we could have something like this where we have a high a low and actually prices have opened pretty much where they closed so the opening price here the closing price here basically there is no real body to that candle and that is called a doji and you get many different types of doji’s you can have them with small bodies you could have prices opening and closing up here near the high of the day opening closing down here near the low of the day.

But then the principal factor there is that the opening and closing levels are pretty much the same or very close to being the same and that suggests that buyers and sellers are evenly matched that there’s no there’s an indecision in the market and that’s what that candle is representing.

Now on its own it might tell us something but it with putting together in a pattern of candles that are coming before and after it can tell us a lot more and we’ll look at that as I say in the weeks to come so thank you for watching.