What Does Candlestick Mean?
A price chart that displays the high, low, open, and close for a security each day over a specified period of time.

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Great information, I had always wondered. How does one go about having a strategy reliant on this method though? I always though it was just good data to have.

It is a statistic to provide a possible future forcast. It was invented by a Japanese rice trader who wanted to monitor the market. It's easy to read and use. On top of that it allowed him to predict future market prices. This can be very useful with forex.

It's a very good idea to use, but shouldn't be someone's only method of data analysis.

Here's a good video about it: YouTube - Candlestick Patterns for Trading 2

A good, longer example of a Candlestick analysis chart

Candlestick Trading usually refers to forex trading following certain patterns that are best displayed using the candlestick charts. There are many different candlestick patterns. For example, there is "Bullish Engulfing Pattern" and Bearish Engulfing Pattern". Both of these are reversal patterns and are considered to be some of the most profitable candlestick patterns to trade. When the candle body engulfs the previous candles body, this is called an "engulfing" pattern. Bullish engulfing patterns are usually found at price bottoms and bearish engulfing patterns are found at price tops.

To trade engulfing candlestick patterns, you're looking for an end of a run up or run down in price. This does not have to be a strong trend but it does need to have some momentum that appears to be coming to an end. A good indication of a trend coming to an end is when the bodies of the candles are getting smaller in size. That means the momentum may be running out and this is when you should be looking for a reversal in price action. This could also be the beginning of a consolidation period, so you need to be aware of that.

When price is going up, we look for an "up" candle immediately followed by a "down" candle, where the body of the "down" candle engulfs the previous "up"' candle. This is the setup we want to see and we take the short trade immediately following the close of this candlestick. Next, we count how many pips away the top of the highest last 2 candles are, including the wick, and add 5 pips. This is our Stop Loss. Our Take Profit target should be set to twice this value. For example, if our stop loss is 33 pips away, then our take profit should be at least 66 pips. Money management, or your risk to reward ratio, are key in this business. A long trade would be similar to a short trade except we're looking for a downtrend reversal to get into a trade.

So would one prefer to see a large body of a candle, or a short body? I'm not quite sure what that could mean, I know the stems are the high/low of the day, but what good does a large or small body mean

Hi Forum:
Its preferred to see a large body in a candlestick, when you see a short body it’s called a Dojy, and it means that there is a lot of uncertainty in the market and so you shouldn´t enter in the market.
Tell me if I can help in something!
Diane Samuelsson
Cambridge University

Hey thanks for that info. is quite useful. I do have a question, if I see a Dojy, but according to the indicators I use and the strategy I'm developing, shoul I stay off the market anyway? For example, I've made a downtrend line and both the resistance and support indicates me that at certain point the market will go up again, and at the last candlesticks are Dojys, does that means that they will break the support? Thanks for any advice and have a nice day

I can also share my knowledge on Candlestick i hope it may help you somewhere actually this i have explained earlier also.
Candlesticks with a long upper shadow, long lower shadow and small real bodies are called spinning tops. The color of the real body is not very important.
The pattern indicates the indecision between the buyers and sellers
Spinning Tops
The small real body (whether hollow or filled) shows little movement from open to close, and the shadows indicate that both buyers and sellers were fighting but nobody could gain the upper hand.
Even though the session opened and closed with little change, prices moved significantly higher and lower in the meantime. Neither buyers nor sellers could gain the upper hand, and the result was a standoff.
If a spinning top forms during an uptrend, this usually means there aren’t many buyers left and a possible reversal in direction could occur.
If a spinning top forms during a downtrend, this usually means there aren’t many sellers left and a possible reversal in direction could occur.

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forex secrets ebook

Good information.
I recommend Steve Nison's book for Candlestick Charting. He gives a lot of useful formations, and shows how he incorporated them into his trading.

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FXCode Inc.
Custom Indicators Developer