The global currency market is huge. In fact the total dollar amount traded per day dwarfs every other market in the whole world. The forex market tuns over approximately $3 trillion per day, and is the most active market in the whole world. More and more people are getting interested in forex trading each year because of the dynamics and liquidity of the market.
Many people do not understand how forex trading works. In a general sense, if you do business in a foreign country, you are going to get paid in the currency of that country. To make use of the payment, it is generally exchanged for your local currency at a given exchange rate. This is the underpinning for all forex trading, which also involves speculation about currency movements. Traders bet on the likely future direction of the currency based off of elements such as GDP, trade surplus, debt levels, and even election results.
Like other tradeable instruments, currencies offer great liquidity and price action. Prior to a few months ago it was not unheard of for forex brokers to offer clients 100:1 leverage or higher. This means you could control $1 million worth of currency just by putting up $10,000.00 , or sometimes as little as $4000.00. There are some new regulations that have been set on the major currencies, setting them at a maximum of 50:1 leverage. Minor currencies are set at 20:1. For example, 1 lot of the EUR/USD can control $50,000 underlying currency, and a 10 lot can control $500,000.
Because forex is such an active market, there are many players that are in it only for pure speculation. This means they have no vested need to exchange currency, they are looking to make money off of forex price movements. Just like the stock market, currencies have a quoted bid and ask and can have wide trading ranges each day. Many traders who look to speculate on forex use candlestick charts. Basically, these type of charts will categorize price action into open, high, low and close. Depending on the arrangement of this data, the interpretation can be either bullish or bearish.
Candlestick charts can be drawn based on almost any time frame, but a popular one for forex trading is 15 minute periods of time. Traders generally group patterns of candles into the bullish (up) or bearish (down) category. The pattens themselves can be a single bar, or often a combination of bars. The interpretation of any pattern is purely based on historical price behavior when that pattern is seen. Remember, a candle chart is merely a re-interpretation of the actual buying and selling sentiment as it happened in the market. The best traders learn to watch the price action, and then know to go long (buy) or short (sell) when a certain candlestick pattern appears.