Forex Education Part 6 – Basic Candlestick Definitions

Throughout your Forex education, you will learn a variety of candlestick definitions and variations, all of which are essential to your Forex trading. To start with however, there are a few, basic candlestick definitions that you should know about, which will hopefully be of use prior to your Forex trading course. Please note that candlesticks defined below are fit for any type of chart (Forex, commodity etc.) and any type of time range (1 min, 2 min, 3 min chart etc.)

Long candlesticks – these come in two types; long white candle and long black candle. Whilst there is no official definition of this type of candle, hopefully it is clear about the type of candle referred to here. This is the type of candle with a long rectangular real body. It may or may not have shadows on each end but the focus is on the middle part of the candle. At the start of your Forex education you should know that this type of candle suggest an overpowering strength from the bulls or the bears; depending on its colour. So, if the bulls are in control the candle would be white and if the bears are in control the candle would be black.

Spinning Tops – these type of candles have a much smaller real body than long candlesticks. Whilst long candlesticks provide a hint of the power bulls or bears may have, a spinning top provides us with a clue that a fight is or might be on the cards. For instance, if Forex chart in your Forex trading course is on an upwards rally, take note of the area surrounding a rally reversal. A lot of the time spinning tops appear at the top of the rally which gives us a clue that the upward movement is losing steam. The bears have decided to jump in try and stop the bull's rally. In a session where you see a spinning top, the bears are literally putting up a fight.
Whilst they may not stop the rally straight away (sometimes they do) they certainly become a candle that the bulls take notice off at this stage. Some spinning tops may have long shadows and some may not; the focus is on the real body. Please note that just because a spinning top appears, it doesn't mean that the rally will change directions. It may simply cause a temporary stall or have no effect whatsoever because the bulls simply have too much of a foot on the gas to allow any barriers in their rally. Spinning tops appear in a variety of candlestick formations such as harami, hammers, morning and evening stars.

Doji – these type of candles provide us with a similar clue to spinning tops but with a slight difference; equality of power. A doji candle therefore has the same open and the same close (or an open and close that are very close to one another). No matter how high or low the shadows are, at the end of the Forex trading session the bulls and the bears are of equal power. This also, signifies a hint of a trend reversal. However, without a confirmation in the next session that the trend is indeed going to reverse, the candle is simply a hint rather than a cause. The same rule also applies to spinning tops.

By: Dragan Lukic

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