Forex Demo – Reading Candlesticks

Let’s get back to where we’ve ended on the previous tutorial. You’ve learnt how to Buy and Sell with your demo account on Meta Trader 4. Let’s switch the Barcharts to something that’s more fancy, Candlesticks!

Brief History of Candlesticks

The use of candles were started by the Japanese in the 60s in the rice futures market. Then there’s this guy by the name of Munehisa Homma, who’s considered the “God of Markets” and father of candlesticks who used candlesticks for technical analysis.

I’m not gonna bore you here. If you’re interested in finding out more on the history of candlesticks, check it out here.

Now Back to Meta Trader 4

Back to where we left off. Look at the top, next to the ‘Expert Advisors‘ button, you will see a green little candle button just in the middle. Check it. Voila! You have candles instead of bars on your charts now

Zoom in?

Bet you couldn’t see the difference yet even after switching it to Candles. Zoom in! Use your keyboard and press ‘Ctrl’ with ‘+’ and you’ll zoom right in. Alternatively, you can use the button with the magnifying glass with a plus sign on the top.

To zoom out, use ‘Ctrl’ with ‘-’ or the button with the magnifying glass with a minus sign on the top.

Candles explained

I’m dropping notes based from a pdf tutorial from stockcharts.com that I find pretty useful and suggest you download them to study them.

In order to create a candlestick chart, you must have a data set that contains open, high, low and close values for each time period you want to display. The hollow or filled portion of the candlestick is called “the body” (also referred to as “the real body”). The long thin lines above and below the body represent the high/low range and are called “shadows” (also referred to as “wicks” and “tails”). The high is marked by the top of the upper shadow and the low by the bottom of the lower shadow. If the currency pair closes higher than its opening price, a hollow candlestick is drawn with the bottom of the body representing the opening price and the top of the body representing the closing price. If the currency pair closes lower than its opening price, a filled candlestick is drawn with the top of the body representing the opening price and the bottom of the body representing the closing price.

Compared to traditional bar charts, many traders consider candlestick charts more visually appealing and easier to interpret. Each candlestick provides an easy-to-decipher picture of price action. Immediately a trader can see compare the relationship between the open and close as well as the high and low. The relationship between the open and close is considered vital information and forms the essence of candlesticks. Hollow candlesticks, where the close is greater than the open, indicate buying pressure. Filled candlesticks, where the close is less than the open, indicate selling pressure.

So How do you actually read candles on the demo platform?

We’ll zoom in further to look at the Candlestick chart and explain how it looks exactly. Zoom in 3 times on the chart so your candles will look exactly like mine, click on the ‘Data Window’ button as circled on the screenshot. Mouse over any candles that you might wanna examine. You’ll have the data of the candle’s opening date and time, highs and lows, closing as well as volume of the particular candle.

Bullish Candle

We’ll show a bull candle as an example. (Layman terms, if you LONG/ buy a position and if it is bullish (higher than your current price more than your pips spread, it’s good news)

Bearish Candle

It’s exactly the opposite of your Bullish candle, has a white body in Meta Trader 4 (by default). Layman terms, if you SHORT/ sell a position and the candle becomes bearish (lower than your current price minus away the pips spread, it’s good news)

The Doji Candle (Neither Here Nor There)

This happens when neither the sellers or buyers can take control of the market. This candle is easy to spot as there is a upper and lower shadow, but the real body seem to be missing (or rather denoted by a thin line).

There you go! You’ve learned how to denote the highs and lows, know what is a bull candle, bear candle and a doji. Best way to see how it works is to open up a 5 minute chart, and look at it changing every 5 minutes (Not trading though, just by looking at the changes. tsk, take it easy)
We’ll discuss more on the formations and trend on Candlestick Formations in the next episode.

Related Articles:

- Quick Start – Installing Forex Demo, Meta Trader 4

- Forex Demo – Buying and Selling with Meta Trader 4