Focus Point: Behind The Forex Candles
The candlestick chart is what we watch to see where the price is moving in the forex market. Did you ever stop to think about what is happening behind the candlesticks to think of why a price is moving the way that it is? Many forex traders do not understand the reason that currency pairs move the way that they do and that is one of the biggest keys in becoming a profitable forex trader.
Some traders rely on indicators instead of knowing what is going on to make the market move. If you just trade indicators without having a greater understanding of the market over a period of time the market will beat those traders because if you understand what is happening you can make more educated trades.
To move the price of a currency takes a large amount of money, for example it takes millions of dollars just to move the price half a pip in peak trading times. So where does all this money come from? The answer to that is the big time movers in the forex market. These movers are the central banks corporate investors, brokers and investment fund companies. The other smaller players in the market are the retail traders or the “dumb money” as the institutional traders like to say. The retail traders are the individual investors and do not have enough money to move the price at all.
Now that we know who is behind the candles, now we need to know what are they doing and how can I profit from this information. Analyzing candles and determining if large amount of cash is flowing in or out of a pair based on candlesticks is a trading strategy called price action. When traders learn to recognize price action in the charts that can help them find entry points that will determine price direction.
One other important element in price action is that there must be large amount of volume during the markets to get true price action signals. Which means that larger time frame charts such as the daily charts are more reliable when using price action candlestick analysis. If you do want to trade lower time frame charts for trading (such as the one hour) make sure that the candlestick that you base your entry on, is during peak market trading times. A lower time frame candlestick, such as the one hour will be less accurate than the daily candles because daily has more data and much more volume behind it.
In conclusion traders can get a competitive edge in trading if they learn more about candlesticks. If you study price action, traders can find targeted entries which in the long run may enhance a traders success.
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