DAY 3: How the Chart Works – Candlesticks and Price Action

Last time, I talked about how securing the basics of trading by understanding FX-specific terms and concepts can lay the groundwork for trading.
Today, DAY 3, we will touch on the basics of chart analysis—the candlestick—how to read its formations and the psychology of market participants (buyers and sellers) through “price action.”

Many people say, “Just understanding candlesticks properly before technical indicators can change your world,” so take this opportunity to study it properly.

1. Basic Knowledge of Candlesticks

(1) What is a candlestick?

• A candlestick visualizes each price movement in chronological order.
• It easily summarizes the four prices (open, close, high, and low) to give a clear picture of price action at a glance.
• The name comes from the candlestick shape on the chart.
  
  

(2) Bullish and bearish candles

• Bullish candle: A candlestick where the close is higher than the open (indicating upward movement).
  • Generally represented in green or white.
• Bearish candle: A candlestick where the close is lower than the open (indicating downward movement).
  • Generally represented in red or black.

“More bullish candles suggest an uptrend, more bearish candles suggest a downtrend.” This helps you quickly grasp the market direction.

(3) What the wicks (upper/lower shadows) indicate

• Candlesticks may have a thick body (the real body) and thin lines above and below called “wicks.”
  • Upper wick: Price rose to a high but closed lower due to selling pressure.
  • Lower wick: Price fell to a low but closed back up with buying support.
• Candles with a short body and long wicksindicate large price fluctuations within the period, suggesting intense battles between buyers and sellers.
  
  

2. What is Price Action?

(1) Definition

• Price actionis a method or way of thinking that seeks trading opportunities using only the candlestick movements, without indicators.
• It also connects to important concepts you’ll learn later about technical indicators like moving averages and MACD.
  
  

(2) Interpreting market psychology from candlesticks

• You judge the market’s current momentum and bias (which side has the upper hand) from the candlestick shapes and sequences (consecutive candles).
  • Repeated long upper wicks→ Selling pressure at higher prices; there may be little room for further upside.
  • Repeated long lower wicks→ Buying support at lower prices; a drop may pause.
  • Consecutive bullish candles→ Uptrend likely continuing; you can consider buying on pullbacks until a reversal signal appears.

If you adopt the mindset that “the market moves according to the consensus of many investors,” candlesticks will start to look like movements of emotion, which is quite interesting.

3. Concrete Examples of Candlesticks and Price Action

Example 1: Pin Bar

• A candlestick with an extremely long wick on either the top or bottom.
• For example, when a “long lower wick bullish candle” appears,it means there was a sharp sell-off to the downside, but eventually buyers pushed the price back up.
• This is one of the patterns traders pay close attention to as a signal of a likely bottoming (strong buying near support).
  
  

Example 2: Engulfing (Two-Candle Reversal)

• The body of the next candle completely engulfs the body of the previous candle.
• For example, a bullish candle that fully engulfs a preceding bearish candleis often interpreted as a buying surge that can herald an uptrend
• In FX, you don’t focus on a single candle; looking at the relationship with surrounding candles makes it easier to identify turning points.
  
  

Example 3: Consecutive bullish or bearish candles

• If several candles in a row are bullish or bearish,the trend is more clearly defined.
• Decide whether to wait for a pullback or to look for a breakout—changing your strategy accordingly is important.
  
  

4. The First Steps Using Price Action

1. Carefully observe the candlestick shapes
   • Rather than memorizing pattern names, cultivate a habit of asking, “Why did this shape occur?”
     
2. Look at multiple bars together
   • Pay attention to how 3–5 candles move, not just a single candle.
     
3. Cross-check recent highs and lows with support and resistance lines
   • Where the candlestick shapes align with horizontal support/resistance lines, price movement tends to change more readily.
     
     

5. Deepening with Discretion and Potentially Systematizing Later

• The ability to read candlesticks and price action is an essential skill in discretionary trading.
• On the other hand, when building automated trading (EA), it is common to use logic such as detecting bullish engulfing or pin bars to identify trend reversals.
• First, gain a feel through discretionary trading → then formalize it into rules → and if needed, move toward automation—this progression is natural.
  
  

6. Summary & Preview of Next Time

Summary

1. Candlesticksprovide the most important charting display, showing open, high, low, and close at a glance.
2. Price Actionis a method to read investors’ psychology from the movement and shape of candlesticks.
3. Pay attention to wick and body lengths, and the relationship with surrounding candlesto understand the market’s power dynamics.
4. The discretionary skill of reading candlesticks can also be valuable for automated trading logic.
   
   
   

Next time (DAY 4) theme: Fundamentals – The Relationship Between Economic Indicators and Markets

• It’s important to understand how not only technicals but also key indicators and news affect the market.
• When you experience large price moves, you’ll more clearly feel the importance of risk management.

If you can adopt the perspective of “candlesticks move like this because of such economic events,” the markets will seem even more interesting. See you tomorrow!

If you’re interested in automated trading, please also check out the link below.
https://www.gogojungle.co.jp/users/147322/products

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