Understanding Forex: Candlestick Charts
Forex trading is a hugely popular activity for many, and choosing the right tools and indicators for analysis can make all the difference in successful trading. Candlestick charts can provide a wealth of information about trends and patterns that may not be readily visible on a line chart or bar chart. This article will explain the key components to be aware of when looking at candlestick charts and how to easily interpret this type of chart.
Breaking Down the Anatomy of a Candlestick Chart
In order to understand a candlestick chart, it’s helpful to think of the individual components. Each visual indicator on the chart is made up of a body and the tail. The body of the candle is made up of the opening and closing values of the currency pair, which for a candlestick chart is typically expressed in pips. The tail of the candle is the difference between the high and low values of the trade, which is typically expressed in pips.
Using these two components, you can get a clear picture of the trend for any given trade. If the body of the candle is green, it means that the opening value of the pair was lower than the closing value, the pair gained pip, and it is in an uptrend. If, on the other hand, the body is red, it indicates that the pair lost pips over the trading period and is in a downtrend.
Using Ratio Tail with Body Candlesticks to Guide Your Trading
Using ratio tail with body candlesticks can be a helpful tool when looking for entry and exit points in the trading arena. When the tail is at least two times as long as the body of the candle, traders typically refer to it as a “ratio tail with body”. This type of candlestick is interpreted as a bullish signal, since the larger length of the tail of the candle is indicative of profit-taking by some traders. This indicates that the price of the currency pair is likely to increase in the following trading period.
In addition to using this type of candlestick as a bullish signal, traders may also use it to establish entry points for Expert Advisor (EA) open orders. Using a ratio tail with body candlestick serves as an indicator that the price of the currency pair will likely increase in the following trading period, making it an ideal time to establish a buy order.
Candlestick charts can provide traders with a wealth of information about the performance of any given currency pair. By understanding the components of a candlestick chart and looking for ratio tail with body candlesticks, traders can easily interpret these charts and use this information to inform their trading decisions. With a little practice and patience, traders can make use of candlestick charts to accurately predict trends and place the right orders to maximize their profits.
What is a Ratio Tail with Body Candle?
A Ratio Tail with Body Candle is a technical indicator in the Japanese candlestick trading technique that is used by forex traders. This type of candlestick formation occurs when the top or bottom shadow extends beyond the body of the candle. When the ratio of this tail is outside the average range of other candles in the pattern, it signals that the strength of the trend is getting stronger or weaker. The size of the ratio tail in comparison to the body of the candle can also indicate potential market opportunities.
How to Identify a Ratio Tail with Body Candle?
The key to identifying a Ratio Tail with Body Candle is by looking for candles with a ratio greater than the average ratio of previous candles in the same chart pattern. This type of candlestick formation can be spotted by the long upper or lower shadow that extends beyond the body of the candle. The ratio of the extreme price to the open or close can help signal the intensity of the trend. This type of candle formation is most often seen in trending markets.
EA Open Order Strategy when Using Ratio Tail with Body Candle
When using a Ratio Tail with Body Candle in forex trading, it is important to combine this with multiple time frame analysis and other indicators such as an exponential moving average (EMA) to filter false signals. The EA open order strategy when using Ratio Tail with Body Candle is to buy when the ratio tail is large and extends from the body of the candle lower than the average ratio of other candles. Similarly, this strategy would suggest shorting when the ratio tail is higher than the average ratio. As with any trading strategy, it is important to determine your entry and exit points and know how to manage risk potential.