Data is represented by using different graphical interpretations such as line charts, bar charts and candlestick charts. Candlestick charts are also known as Japanese candlesticks. They are widely used in practice because they allow traders to work with 'Price Action Theory'. This makes it one of the most effective tools for technical examination. Depending on what sort of a pattern it forms, candlestick charts predict the direction a current pair would possibly move in, with the reversal pattern, in a given time-frame. The two main candlestick patterns which have been followed closely by traders are explained below.

1 - Bullish Hammer and Hanging Man

A candlestick is made up of two parts, a shadow and a body. Simply put, a "shadow" is a line representing the value prices have taken over a period of time, however, it excludes the present value of prices. The "body" is the distance between the opening and closing price. If a candle is formed at the end where its shadow is below its body, then the candle will be known as a bullish hammer; meaning that the price would, in all probability move upwards.

On the other hand, a candle that indicates or anticipates a downward movement is called a hanging man. It is formed at the peak where the 'body' is above the 'shadow'. At this point, the candle's price is sealed below its starting price. This point indicates the level at which sellers start trading actively.

2 - Inverted Hammer and Shooting Star

Another type of graph connected with a bullish hammer, known as an 'inverted hammer', is one that is formed at the end but has its body below the shadow while the closing price is above the opening price. It signifies that the price is likely to move upward, because buyers have started to enter at that point.

In contrast, a bearish hammer which is known as a Shooting Star is one that is formed at the peak. The body is below the shadow and the closing price is usually below the starting price.

The Functionality

Candlestick patterns are widely used by traders who make use of technical analysis when trading. It allows them to determine the levels below which they will not trade. To comment on their effectiveness, Japanese candlesticks tend to be reliable for one-hour, four-hour and daily charts only. Because there are swing traders and banks that place their positions on long-term basis, a trader wishing to follow them with 15 minute information using a candle stick chart would be less successful than if he or she would have been with charts that cater to a larger time-frame. Using EMA lines in combination with Japanese candlesticks is very effective. The 200 EMA line, offers a basic indication of whether the trend is bullish or bearish, allowing a trader to trade big lots once the 200 EMA line's results are confirmed by candlestick charts. Also, the types of candlesticks mentioned in the preceding paragraphs explain the same trends further and even work wonderfully on trendy values of currencies including, but not limited to AUD/USD.

Candlestick charts are a vital tool that all traders must fully comprehend. As Japanese rice traders found out hundreds of years ago, traders' emotional behavior with regards to the trading of any asset have a significant effect on that asset's movement. Candlesticks assist investors to evaluate the feeling of the market and be in a better position to predict future trends.

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