The use of Japanese candlesticks for trading stocks and commodities is quite common.  In the foreign exchange market, however, many investors wrongly believe that as this market is, in essence, a 24 hour interbank trading market, one cannot truly determine opening and closing prices in order to produce candlestick charts. As such, candlesticks can actually become a hidden advantage for an investor with the proper perspective.

The 24 market is irrelevant to candlesticks

The fact that currencies are traded around-the-clock is irrelevant. For an FX investor who wants to use candlesticks, one would simply need to create an artificial market session relevant to the currency pairs under consideration for trading purposes.  The data is available and the technology exists such that an individual can carve out the relevant time period necessary in order to produce opening, high, low, and closing prices.  Based on this time period, an investor will be able to produce candlestick charts and recognize the patterns and signals that are generated within the created market.

In fact, because of this ability, the investor is able to create a market that is truly relevant to the currencies.  As a result, the trader can produce a session based upon the overlapping activity of the two currencies when both markets are open in the respective countries involved.  It is at this time the greatest activity is occurring and consequently, the most relevant price data information for investment decisions should be taken under consideration.  Trading in Europe as regards to the Japanese yen and American dollar exchange rates, which would be very light in the first place, would also mask the true market trends.

Using the candlestick patterns to identify price activity

Once the relevant market trading periods are isolated and the charts are produced, the candlestick patterns recognized will be more relevant in order for the trader to identify the forces in place driving price activity. The use of candlestick charts is an extremely popular technique used in most markets as a forecasting tool.  Most patterns are easily recognizable and can be learned by anyone in a relatively short period of time.  The individual patterns and formations that arise represent the psychological character of the market.  They reflect upon the emotions of the traders and have been shown to clearly be able to predict the probability of whether prices will rise, fall, or reverse their direction.

Candlesticks do give Forex traders an edge

Given the misconceptions concerning the foreign exchange market, candlestick indicators are underutilized, and therefore, offer astute individuals the possibility to have an advantage over counterparts concerning the recognition of pending bearish and bullish price movements. 

As with all analytical indicators, the effectiveness of the use of candlesticks in the investment activity of foreign exchange markets will be dependent upon the experience and skills of the individual trader.  They represent a powerful tool for successful investing in foreign exchange, especially when used in conjunction with other investment research techniques.  For over 300 years, investors have used candlestick chart formations for their benefit. There is no reason why a foreign exchange trader cannot do the same.  In fact, given the misconceptions and myths commonly associated with the Forex markets, candlesticks actually do represent a hidden weapon.