The Skill Of Recognizing Forex Candlestick Patterns
The recognition of forex candlestick patterns can be traced back to eighteenth century Japan. A famous rice trader developed a metaphor for predicting how the price of rice would rise or fall, according to supply and demand. He accumulated a fortune by correctly predicting price trends. He was able to buy low and sell high with the aid of his charting system, and this was the foundation of his fortune.
Forex markets are probably just as old as rice markets. But the volume and speed of contemporary forex markets can be traced to the early nineteenth century when electronic communication began to develop. This enabled traders to deal in massive numbers across the world.
Forex markets are situated in virtual space, captured on computer screens. Just as in days of old, traders must be sharp and acquisitive. Technology presents them with opportunities to trade in a wide range of things, from simple commodities like iron and coal, to super sophisticated derivative contracts on the future price of a bank share. Any trader who was reborn and introduced to modern markets would be amazed, but would in all probability recognize the essential atmosphere of a market.
Across the world forex markets operate continuously five days of every week. Small fluctuations in price lead to trends, as the value of currencies vary against each other. Traders who can consistently exploit trends and trend reversals stand to make good money, but on the negative side there are risks of substantial loss.
The risk of loss counterbalances the opportunity for profit. This is where the value of a system like candlestick charting comes in. Where their ancient counterparts may have studied sacks of grain with sticks planted in them modern traders watch computer screens intently. An ancient method is applied in modern practice.
Like hunters studying signs, traders are looking for signs. Every movement in a chart represents a rise or fall in the value of one currency in relation to another. As the values vary configurations emerge, and it is in these slight movements that traders see trends that they can follow. If they recognize the signs and interpret them correctly profits can be made.
In the forex markets price fluctuations are fast and furious. Skill in interpreting signal slight reversals of rising or falling trends is essential for success. Huge profits may await traders who can spot a changing trend, buy low, lock in profits and follow the trend until they can sell at a high.
The configurations that traders look for have exciting names derived from the history of candlestick charting. There is the Doji, the Spinning Top and the Pregnant Woman. Some of the names sound forbidding but forex trading profits can be made from falling as well as rising trends. This has always been the case for astute traders.
Patterns emerge over varying time periods. There are minute charts, five minute charts, hourly and charts covering days, months and years. Each chart has its own significance; each chart has patterns that may signal rises, falls and reversals. Recognition of these candlestick patterns requires skill and experience.
Successful interpretation of candlestick pattern requires a marriage between young and old. On the one hand there is the clear objective reasoning that is associated with human evolution since the Enlightenment. On the other hand there is the magic and the mystery associated with instinctive behavior. Primitive instincts like fear and greed permeate markets and account for many irrational moods. The accurate perception of forex candlestick patterns helps traders cope with capricious markets.
Article Source: FxTradingStock.com
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Learn more about Forex Candlestick Patterns. Stop by our site where you can find out all about Candlestick Pattern Recognition and what it can do for you.
by: Sharon Stenning
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Word Count: 608
Date: Thu, 9 Dec 2010
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