Forex for a trader
Forex trading candlestick patterns

Forex trading candlestick patternsBasic Japanese Candlestick Patterns. Japanese candlesticks with a long upper shadow, long lower shadow and small real bodies are called spinning tops . The color of the real body is not very important. The pattern indicates the indecision between the buyers and sellers. The small real body (whether hollow or filled) shows little movement from open to close, and the shadows indicate that both buyers and sellers were fighting but nobody could gain the upper hand. Neither buyers nor sellers could gain the upper hand, and the result was a standoff. If a spinning top forms during an uptrend, this usually means there aren’t many buyers left and a possible reversal in direction could occur. If a spinning top forms during a downtrend, this usually means there aren’t many sellers left and a possible reversal in direction could occur. Sounds like some kind of voodoo magic, huh? “I will cast the evil spell of the Marubozu on you!” Fortunately, that’s not what it means. Marubozu means there are no shadows from the bodies. Depending on whether the candlestick’s body is filled or hollow, the high and low are the same as its open or close. Check out the two types of Marubozus in the picture below. A White Marubozu contains a long white body with no shadows.

The open price equals the low price and the close price equals the high price . A Black Marubozu contains a long black body with no shadows. The open equals the high and the close equals the low . This is a very bearish candle as it shows that sellers controlled the price action the entire session. It usually implies bearish continuation or bearish reversal. Doji candlesticks have the same open and close price or at least their bodies are extremely short. A doji should have a very small body that appears as a thin line. Prices move above and below the open price during the session, but close at or very near the open price. Neither buyers nor sellers were able to gain control and the result was essentially a draw. There are FOUR special types of Doji candlesticks. The length of the upper and lower shadows can vary and the resulting forex candlestick looks like a cross, inverted cross or plus sign. The word “Doji” refers to both the singular and plural form. When a Doji forms on your chart, pay special attention to the preceding candlesticks.

If a Doji forms after a series of candlesticks with long hollow bodies (like White Marubozus), the Doji signals that the buyers are becoming exhausted and weakening. In order for price to continue rising, more buyers are needed but there aren’t anymore! Sellers are licking their chops and are looking to come in and drive the price back down. If a Doji forms after a series of candlesticks with long filled bodies (like Black Marubozus), the Doji signals that sellers are becoming exhausted and weak. In order for price to continue falling, more sellers are needed but sellers are all tapped out! Buyers are foaming in the mouth for a chance to get in cheap. While the decline is sputtering due to lack of new sellers, further buying strength is required to confirm any reversal. In the next following sections, we will take a look at specific Japanese candlestick pattern and what they are telling us. Hopefully, by the end of this lesson on candlesticks, you will know how to recognize different types of forex candlestick patterns and make sound trading decisions based on them. Best 5 Forex Candlestick Patterns for Day Trading. Forex candlestick patterns are crucial for the success of your price action technical analysis. Along with chart patterns, traders constantly use candlestick patterns for day trading to open and close different trades. This is so because every Forex candle pattern contains a tradable potential. For this reason, I will dedicate the following material to the best 5 candle patterns Forex indicators and the way they should be traded when spotted on the chart.

What are the Forex Candlestick Patterns? Forex candlestick patterns are special on-chart formations created by one or few Japanese candlesticks. There are many different candlestick pattern indicators known in Forex, and each of them has specific meaning and tradable potential. Forex traders constantly use candlestick chart patterns for day trading to foretell potential price moves on the chart. Forex candlesticks help them guess where the price will go and they buy or sell currency pairs based on what the pattern is telling them. Therefore, you should also spare time to examine the best candlestick patterns for intraday trading if you want to be a successful Forex trader. Type of Candlestick Patterns for Day Trading. There are two types of Forex candlestick patterns for day trading – continuation and reversal candle patterns. Let’s now briefly go through each of these two kinds. Continuation Forex Candle Patterns. Continuation Forex candle patterns are the ones that come after a price move and have the potential to continue the price action in the same direction. The truth is that continuation candle patterns are not very popular in Forex trading.

The reason for this is that they are not that many. In comparison to that, reversal candlestick patterns are dominating the Forex charts. Reversal Forex Candle Patterns. The reversal Forex candle patterns are the ones that come after a price move and have the potential to reverse the price action. Compared to continuation candle patterns, the reversal candle pattern indicators are the majority of the candle patterns you will meet on the Japanese candlestick charts. Best 5 Candlestick Patterns Explained with Examples. In this relation, you should not be surprised that the best 5 candlestick patterns for day trading are reversal patterns. 5 of the most profitable Forex candlestick indicators are: The Doji Family Tweezer Tops Tweezer Bottoms The Hammer Family Three Inside Ups Three Inside Downs Evening Star Morning Star. Notice that I have separated these into “families” or in their bullish and bearish versions since they refer to the same thing but upside down. Let’s now explain each of these with examples. Doji Candle Patterns. The Doji candle family consists of single candle formations where the price action opens and closes at the same price.

Every Doji candlestick symbolizes the equalization of the bearish and the bullish forces. This means that the current price trend is getting exhausted and it is likely to be reversed. The Doji Forex pattern could appear after bullish moves as well as after bearish moves. Despite that, the function of the pattern stays the same – to reverse the price action. Since the Doji candle closes at the same level where it opened, the candle looks like a dash. Yes, but this is not the only Doji candle pattern known in Forex trading. There are other Doji candlesticks too. Below you will find the most popular Doji candlestick pattern types. The confirmation of all of the Doji patterns comes when with the finish of a candle that closes in the direction that is opposite to the trend. This candle is the first indication that the reversal is beginning. Tweezer Tops and Tweezer Bottoms. The Tweezer Tops is a double candlestick pattern Forex indicator with reversal functions. The pattern comes at the end of bullish trends and signalizes about the beginning of a fresh bearish move.

The first candle of the Tweezer Top candlestick formation is usually the last of the previous bullish trend. The second candle of the Tweezer Top pattern should have an upper shadow that starts from the top of the previous shadow. At the same time, the upper shadows of the two candles should be approximately the same size. The Tweezer Tops has its opposite equivalent that is called Tweezer Bottoms. The Tweezer Bottoms Forex pattern has absolutely opposite structure. The pattern comes after price drops and signalizes upcoming bullish moves. The first candle of the Tweezer Bottom is usually the last candle of the previous bullish trend. The second candle of the Tweezer Bottom pattern should have a lower shadow that starts from the bottom of the previous shadow. At the same time, the lower shadows of the two candles should be approximately the same size. The confirmation of the Tweezer Candlesticks comes with the candle that manages to close beyond the opposite side of the pattern. This candle is a strong indication that the trend is reversing. The Hammer candlestick pattern is a single candle pattern that has three variations depending on the trend they take part in. Every Forex candlestick that belongs to the Hammer family has a small body and a big upper or smaller shadow. At the same time, the other shadow is either missing or very small. You will guess right if you are wondering if the name of the Hammer candle family comes from the structure of the candles. The candles in the Hammer family are four, and they all have reversal character.

Let me meet you with these candles now: I have shown the bullish and the bearish version of each candle. Notice that it doesn’t matter which of the two candles you will receive. The meaning is the same. Hammer Candlestick Chart Pattern. The first candle on the sketch is the Hammer candlestick chart pattern. The candle emerges during bearish trends and signalizes that a bullish move is probably on its way. The Hammer candle has a small body, a long lower shadow and a very small or no upper shadow. Traders use the Hammer candlestick to open long trades. Inverted Hammer Candlestick Pattern. The Inverted Hammer candle has absolutely the same functions as the Hammer candle, but it is upside down. The Inverted Hammer has a small body, a big upper shadow, and a small or no lower shadow. Same as the Hammer candle, the Inverted Hammer candlestick comes after bearish moves and signalizes that a fresh bullish move might be emerging.

Traders use the Inverted Hammer pattern to open long trades. Hanging Man Candle Pattern. The Hanging Man candlestick is absolutely the same as the Hammer candlestick pattern. It has a small body, a long lower shadow and a very small or no upper shadow. However, the Hanging Man Forex pattern occurs after bullish trends and signalizes that the trend is reversing. In this relation, the Hanging Man candle pattern is used by traders to open short trades. Shooting Star Candlestick Pattern. The Shooting Star candle pattern has the same structure as the Inverted Hammer candle. It has a small body, a long upper shadow and a tiny or no lower shadow.

However, the Shooting Star Forex candle comes after bullish trends and signalizes that the bulls are exhausted. As a result, a reversal and a fresh price decrease usually appear afterward. In this relation, Shooting Star candlestick chart pattern acts as a signal to short Forex pairs. The confirmation of the Hammer, Inverted Hammer, the Shooting Star and the Hanging Man comes with the candle which closes in the direction opposite to the trend. This candle is likely to be the first of an eventual emerging trend. Three Inside Up and Three Inside Down Candlestick Patterns. The Three Inside Up is another reversal candle pattern indicator that comes after bearish trends and foretells fresh bullish moves. It is a triple Forex candlestick pattern that starts with a bearish candle. The pattern continues with a bullish candle, which is fully engulfed by the fist candle, and which closes somewhere in the middle of the first candle. The pattern ends with a third candle, which is bullish and breaks the top of the first candle.

The first candle of the Three Inside Up candle pattern is usually the last candle of the previous bearish trend. The Three Inside Up has its opposite equivalent – the Three Inside Down candlestick pattern. The Three Inside Down is a mirror image of the of the Three Inside Up. It comes after bullish trends and usually begins fresh bearish moves. The Three Inside Down candlestick pattern starts with a bullish candle, which is usually the last of the previous bullish trend. The pattern continues with a second candle – a bearish one that is fully engulfed by the first candle and closes somewhere in the middle of the first candle. The pattern then continues with a third candle, which is bearish and goes below the beginning of the first candle. The confirmation of the Three Inside Up and the Three Inside Down candlestick patterns comes with the third candle that closes beyond the beginning of the first candle of the pattern. Morning Star Candle and Evening Star Candle Pattern. The Morning Star candle pattern is another three bar formation that has reversal functions. The Morning Star candlestick chart pattern comes after bullish trends and signalizes eventual price reversal. The pattern starts with a bullish candle that is long, and it is usually the last candle of the previous bullish trend. Then it continues with a very small candle that could sometimes even be a Doji star, and it is possible that this candle sometimes gaps up. The third candle of the pattern is bearish and goes below the middle point of the first candle, and it could also gap down from the second candle. The opposite equivalent to the Morning Star Forex figure is called Evening Star candlestick pattern.

The Evening Star Forex figure is a mirror version of the Morning Star that comes after bearish trends and signalizes their reversal. The Evening Star candle pattern starts with a bearish candle that is long, and it is usually the last candle of the previous bearish trend. Then it continues with a very small candle that could sometimes even be a Doji star, and it is possible that this candle sometimes gaps down. The third candle of the pattern is bullish and goes above the middle point of the first candle of the pattern. It could also gap up from the second candle. The confirmation of the Morning Star and the Evening Star candlestick reversal patterns comes with the end of the third candle. If the pattern emerges meeting the requirements of the three candles then you can trade in the respective direction. Best Forex Candlestick Patterns Cheat Sheet. I have created a simple candlestick pattern cheat sheet for your convenience. It contains all the sketches shown above. You can use these Forex candlestick patterns for day trading by simply peeking at the cheat sheet to confirm the patterns. Save the image on your PC, or simply print it for your convenience. Real Examples of Candle Pattern Indicators. Now that you are familiar with the structure of the best candlestick patterns for intraday trading, I suggest that we go through coupe chart examples of how these work in trading. The first example on the chart shows the Three Inside Up and the Three Inside Down chart pattern indicators in action.

See that after each of these two patterns the price action creates a turning point and the price reverses the previous trend. You should open a short trade at the Three Inside Down pattern and a long trade at the Three Inside Up Pattern. You should place your Stop Loss orders at the opposite side of the patterns as shown in the image. This is a Tweezer Bottoms Forex candle pattern. See that the lower shadows of the two candles start and end approximately at the same level, which confirms the validity of the pattern. As a result, the price action reverses, which triggers a long trade. At the same time, you should put a stop loss order below the lowest point of the pattern. Now let’s go through the Morning Star candle pattern and the Hanging Man candlestick. Both patterns have the ability to end a bullish trend and to start a fresh bearish move. You should approach both patterns with a short trade, and you should sell upon their confirmation placing Stop Loss orders above their high.

As you see, in both cases the price decreases after the confirmation of the pattern. Lastly, we will discuss a Doji candlestick pattern that comes after a bearish trend. Our Doji candlestick analysis shows that the price ends the bearish move and starts a fresh bullish move. You should trade in bullish direction here placing a Stop Loss order below the lowest point of the Doji star candle. Stop Loss Orders on Forex Candle Patterns. You should always use a Stop Loss order when trading Forex candle patterns. As you have probably seen on the trading images above, the best place for your stops on candle trades is at the opposite side of the patterns. If you are trading a bullish candlestick pattern, place your Stop Loss order below the formation. If you are trading a bearish candlestick pattern, then you should place your Stop Loss order above the candle figure on the chart. Take Profit Orders and Targets on Forex Candlesticks.

The rule of thumb says that you should trade every candle pattern for a minimum price move equal to the size of the pattern measured from the tip of the upper shadow to the tip of the lower shadow. In some cases, the price action will continue further than that. Therefore, use the basic price action rules to determine further exit points on the chart. If you spot another candle pattern during you trade that suggests the end of the trend, you should simply exit your trade and collect your profit. Forex candlestick patterns are crucial for the price action technical analysis of currency pairs. The candlestick pattern indicators form on the Japanese candlestick charts that visualize the price action of Forex pairs. There are two main types of candle patterns Forex indicators: Continuation candle patterns – not very popular in Forex trading Reversal candle patterns – widely used to profit on the Forex market The best Forex candlestick patterns for day trading have reversal character. These are: The Doji Candlestick Patterns – Doji, Long Legged Doji, Dragonfly Doji, Gravestone Doji, and Four Price Doji Tweezer Tops and Tweezer Bottoms The Hammer Candle Pattern Family: Hammer, Inverted Hammer, Shooting Star, and Hanging Man Three Inside Up and Three Inside Down Evening Star and Morning Star Candle Patterns You should place your Stop Loss orders at the opposite side of the candle pattern you are trading. Stay in each candle trade for a minimum price move equal to the size of the pattern. Extend your targets by applying price action rules. GET STARTED WITH THE FOREX TRADING ACADEMY. Damyan is a fresh MSc International Management from the International University of Monaco. During his bachelor and master programs, Damyan has been working in the area of financial markets as a Market Analyst and Forex Writer. He is the author of thousands of educational and analytical articles for traders. When being in bachelor school, he represented his university in the National Forex Trading Competition for students in Bulgaria and got the first place among 500 other traders.

He was awarded a cup and a certificate at an official ceremony in his university. Candlestick Patterns Graph. Technical traders use candlestick patterns to help predict future price movements. This graph marks some commonly used candlestick patterns over recent market rates, and uses colors to show if the patterns are bullish, bearish, or neutral. Candlestick patterns, like any other type of indicator, do not predict market movements correctly all the time. Do not make your trading decisions solely based on these patterns. Note: Not all instruments (metals and CFDs in particular) are available in all regions. How to use this graph. Click the Update button to refresh the chart with the latest candlesticks. Mouse over any candlestick to see opening, high, low, and close values (in the upper right of the chart).

Mouse over a pattern to identify it by name. (Our online tutorial provides candlestick formation definitions.) Draw a box on the graph to zoom in. Double-click (or click the Update button) to zoom back out. Use the check boxes under the graph to include or filter out patterns. When you click to include SMA or EMA overlays, you can then modify their period settings. Note that patterns are easier to spot when the market is moving quickly, rather than when the market is slowly ranging. Contracts for Difference (CFDs) or Precious Metals are NOT available to residents of the United States. This is for general information purposes only - Examples shown are for illustrative purposes and may not reflect current prices from OANDA. It is not investment advice or an inducement to trade. Past history is not an indication of future performance. © 1996 - 2018 OANDA Corporation.

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These documents can be found here. OANDA Japan Co., Ltd. First Type I Financial Instruments Business Director of the Kanto Local Financial Bureau (Kin-sho) No. 2137 Institute Financial Futures Association subscriber number 1571. 21 easy Candlestick patterns ( and what they mean ) Candlestick patterns – 21 easy patterns. learning just a few key candlestick patterns WILL improve your ability to recognize trading opportunities. and, enter better trades! The Japanese have been using these patterns for centuries, to trade rice of all things! so, there is a rich history to the art of candlestick trading. candlestick patterns are an integral part of technical analysis , Candlestick patterns emerge because human actions and reactions are patterned and constantly replicate and are captured in the formation of the candles. by recognising these patterns and applying the the lessons that the patterns teach, can and does yield results in your trading! CANDLESTICK PATTERNS TRADING STRATEGIES. And isn’t that the aim of trading? Now I know what your thinking! e. DON’T SHOW ME ANOTHER ‘ESSENTIAL’ LIST THAT I GOTTA MEMORIZE!

Don’t think of this as a list to memorize. Think of this as a guide that you jump in and out of , whenever you need to jog your memory! For the most part Candlestick patterns are about spotting market turns , If you can spot a turn, then you can profit from it. The value of candlestick patterns to spot trading opportunities is a thorny topic among the trading community, but there have been statistical studies on the accuracy of technical analysis and the results are pretty convincing. I have broken down the patterns into 3 categories: Equal open and close candles. ( known as doji candles ) Short body candles. Long body candles. Within these categories are both bullish reversal and bearish reversal patterns . When you think you see a familiar candlestick pattern in your charts, You can double check the pattern in this guide and make an informed choice on what to do next. Equal open and close, Doji patterns. The basic doji candlestick pattern is when a candle’s open and close are almost equal. The shadows can vary in length. So the candlestick looks like an inverted cross, a simple cross, or plus sign.

The doji conveys an even struggle between the forces of the market, both side pushing with no net gain is achieved. The doji can be both a reversal pattern and a continuation pattern. Abandoned Baby: Reversal pattern. This candlestick pattern looks like it sounds, the parents have walked off and left the baby behind! This is a reversal pattern which can occur at the end of a run in prices. It is pretty rare to find, but it is pretty reliable when it does happen. It happens over three candles, the middle candle is a doji which has gapped away from the previous candle. The final candle gaps back the opposite direction. The gaps leave a clear distance between the shadow of the doji candle and both shadows of the first and third candle, leaving it abandoned. This is another turning point candlestick pattern which most accurate on a daily chart. Occurring at both a bullish and bearish reversals, it consists of two candles the first candle brings the market to the high or low. The next candle is a doji which lies inside the range of the real body of the previous candle.

The dragonfly normally appears at reversals. The open and close of the candle are at or near the high of the day. The shadow can vary in length, but is usually quite long. The Dragonfly doji is quite a powerful reversal indicator and does point to large moves ahead. This is another three candlestick pattern . It is normally associated with a bullish reversal. The first candle is a clear downtrend with a long body. The next day opens lower but trades in a very narrow price range. The last day reverses prices higher and should close at or above the midpoint of the first. This candlestick pattern is the opposite of the morning star.

Again, a three day pattern and is associated with a bearish reversal. The first candle is an uptrend with a long body. The next day opens higher but trades in a very narrow price range. And the last day reverses lower and should close at or below the midpoint of the first candle. Also known as the reverse dragonfly, simply because it is flipped over! The candlestick pattern shadow can be any length but the open and close are at or near the low of the day. It can be a bearish reversal pattern, but is more often found within the downtrend, signalling that the downtrend is set to continue. Long shadows are on of the more reliable candlestick patterns. Candles with a long top shadow and short lower shadow show us that buyers dominate the market, these can lead to or continue a bull run in prices. On the other end. Candles with a long lower shadow and short upper shadow show us that sellers dominate the market and these candles can lead to or continue a bear run in prices.

Similar to the doji version, except the middle candle has a short body. It is a three day pattern and is associated with a bearish reversal. The first candle is an uptrend with a long body. The next day opens higher but trades with a short real body. And the last day reverses lower and should close at or below the midpoint of the first candle. Again, this pattern is similar to the doji version except the middle candle has a short body. A three day pattern and is associated with a bullish reversal. The first candle is an downtrend with a long body. The next day opens lower but trades with a short real body. And the last day reverses higher and should close at or above the midpoint of the first candle. This candle is one of those dual meaning candlestick patterns. It can be a bullish reversal pattern, happening near the low of a trend. But it can also occur during the downtrend.

The hammer candle forms when a the price moves lower after the open, and then rallies to close significantly higher than the low. The candlestick ends up looking like a like a square hammer with a long handle. The hammer candle happens at the start or during a decline. This is a bullish reversal pattern. The inverted hammer candle forms when a the price moves higher after the open, it then declines to close significantly lower than the low. Again, these candlestick patterns end up looking like a like a hammer with a long handle. The hammer candle happens at the end of a decline. This candle is an indication of a market ready to rally! Showing a bullish impulse. It forms when the price drops after opening to form a long shadow, then price rallies to close at the highs of the candle. The real body of the candle forms the head, and the long shadow forms the guy’s ‘hanging legs’! Nobody knows how a spinning top will fall once it stops spinning!

And as such the spinning top candle indicates indecision in the market. After the candle closes the market will tend to move away from the spinning top quite rapidly. So it is part of the trend following group of candlestick patterns. The candle forms with a short real body and an equal upper and lower shadow. This is one of the particularly reliable bearish candlestick patterns. It is signalling that a top is in place and a trader should close any long positions or get ready to short the market. The market gaps higher on opening, and then rallies to a high. Prices will then decline to close only slightly above the open. The form of the candle looks as if a star is shooting down towards the ground. Upside Gap with Two Crows: This is a bearish pattern that happens over 3 daily candles. The first candle is a long green candle, the second candle happens with an upward gap open with a small real body. The final candle is a long red candle which engulfs the second candle, but the close of the day remains above the open of the first day. This one is technically part of the family of bearish candlestick patterns, but, it usually indicates a corrective reversal within an uptrend, therefore it is hard to trade but can be used more as an indication the the trend is set to continue. Long body candlestick patterns. Dark cloud cover candlestick patterns indicate an incoming bearish reversal.

A two candle pattern, the first candle is a long green bullish candle. The next candle opens higher but reverses and declines, the candle then closes below the center of the first candle. This is on of the strong reversal candlestick patterns. There is both a bearish and bullish engulfing pattern. The bearish engulfing candle happens at the end of an uptrend, and the bullish at the end of the downtrend. The first candle has a small real body, the reversal candle is long, ideally with short shadows, the real body of the second candle fully engulfs the first candle. The strength of the reversal can be gauged based on how many of the previous candles that the engulfing candle swallows up! The more ‘swallowed candles’, the more powerful the following reversal move will tend to be. This is another of the two candle bullish reversal candlestick patterns. The first candle is long and red bringing the market lower. The next candle opens at new lows but rallies to close at a point which ‘pierces through the centreline of the previous candle.

Candlestick Sandwich: The candlestick sandwich is also a bullish reversal pattern over three days action. The pattern forms with two red candles surrounding one green candle in the middle, creating a sandwich! The closing prices of both red candles must be very close, this action creates a support base to trade off. Three green Soldiers: This candlestick pattern creates a stairway for higher prices. It is a bullish reversal pattern formed with three candles. The three candles are green, each consecutive candle opens within the real body of the previous candle. The close of each day brings the market to new highs, signalling an uptrend is about to take off. Look, you reached the end! Like I said at the start, use this article as a ‘go to guide’ when you see some candlestick pattern price action that could be forming a reversal in the market you trade! This guide should be a help in spotting those candle patterns as they form and, and then you can trade on what the pattern suggests will happen next. If you liked reading about candlestick patterns and want to learn more about technical analysis, why not check out our guide to day trading strategies! If you liked this article, give it a share! Good luck in your trading! Warning! This E-Book improve your trading dramatically.

9 Powerful Forex Trading Strategies. 42 pages E-Book teaching you the most successful Trading Strategies. Strategies include Momentum and Role Reversal, Heikin-Ashi, RSI and Moving Average Crossover, Candlesticks and more. This E-Book contains step-by-step instructions, examples to teach you how to trade profitably. Japanese Candlestick Patterns In Forex Trading. Japanese Candlestick Patterns. • A Brief History of Japanese Candlestick Charting Patterns. Candlestick charts originated in Japan during the 18th century. Since no defined currency standard existed in Japan during this time rice represented a medium of exchange. Various feudal lords deposited rice in warehouses in Osaka and would then sell or trade the coupon receipts, thus rice become the first futures market. In the 1700s legendary Japanese rice trader Homma Munehisa studied all aspects of rice trading from the fundamentals to market psychology.

Homma subsequently dominated the Japanese rice markets and built a huge fortune. His trading techniques and principles eventually evolved into the candlestick methodology which was then used by Japanese technical analysts when the Japanese stock market began in the 1870s. The method was picked up by famed market technician Charles Dow around 1900 and remains arguably the most popular form of technical analysis chart in use by today’s traders of financial instruments. • Why use Candlestick Charts? Candlestick charts show the same information as bar charts but in a graphical format that provides a more detailed and accurate representation of price action. Candlestick charts visually display the supply and demand situation by showing who is winning the battle between the bulls and the bears. Candlestick charts reveal another dimension of the given period’s price action by pictorially displaying the force (or lack of force) behind each price bar’s movement. Candlestick formations make all single bar and multi-bar patterns significantly easier to spot in real time, thus increasing your chances of catching high probability trade setups. In addition, because candlestick charts use the same data as bar charts (open, high, low, and close), all Western technical signals used on a bar chart can easily be applied to a candlestick chart. Candlestick charts offer everything bar charts do and more, using them is a win-win situation because you can use all the trading signals normally used on bar charts with the added clarity and additional signals generated by candlesticks. Candlesticks charts are more fun to look at. • The Anatomy of a Candle. Candlesticks have a central portion that displays the price distance between the open and the close. This area is known as the real body or simply the body. The price distance between the open and the high for the period being analyzed is called the upper shadow, sometimes referred to as an “upper wick” as well. The highest price paid for a particular period is the marked by the high of the upper shadow.

The price distance between the close and the low for the period being analyzed is called the lower shadow, sometimes referred to as a “lower wick”. The real body displays the opening and closing price of the security being traded. Closing prices have added significance because they determine the conviction of the bulls or bears. If the security closed higher than it opened, the real body is white or unfilled, with the opening price at the bottom of the real body and the closing price at the top. If the security closed lower than it opened, the real body is black, with the opening price at the top and the closing price at the bottom. Depending on the price action for the period being analyzed a candlestick might not have a body or a wick. To better highlight or visualize price movements, modern candlestick charts (especially those displayed digitally) often replace the black or white of the candlestick real body with colors such as red (for a lower closing) and blue or green (for a higher closing). • Core Candlestick Patterns. There are multiple forms of candlestick patterns; here is a brief overview of the most popular and widely used single and multi-bar patterns commonly used today. Bullish Candle. Signals uptrend movement, they occur in different lengths; the longer the body, the more significant the price increase.

Bearish Candle. Signals downtrend movement, they occur in different lengths; the longer the body, the more significant the price decrease. Long Lower Shadow. These candles provide a bullish signal, the lower shadow must be at least the size of the real body; the longer the lower shadow the more reliable the signal. Long upper shadow These candles provide a bearish signal, the upper shadow must be at least the size of the real body; the longer the upper shadow the more reliable the signal. Hammer. The hammer is a bullish signal that occurs during a downtrend. The lower shadow should be at least twice the length of the real-body. Hammers have little or no upper shadow.

When a hammer occurs during an uptrend it is known as a “hanging man” and is a bearish signal. Because of the bullish long lower shadow however, this pattern needs bearish confirmation by a close under the hanging man’s real body. Shooting Star. This candle has a long upper shadow with little, or no lower shadow, and a small real body near the lows of the session that develops during or after and uptrend. Harami. The Harami is a two-candlestick pattern in which a small real body forms within the prior session’s larger real body. Doji. The Doji is a candlestick in which the session’s open and close are the same, or almost the same. There are a few different varieties of Dojis, depending on where the opening and closing are in relation to the bar’s range. Dragonfly doji. The Dragonfly Doji has a long lower shadow, the open, high, and close are at or very near the session’s high. This pattern often signals reversal of downtrend. Gravestone doji. The Gravestone Doji has a long upper shadow, the open, low, and close are at or very near the session’s low. This pattern often signals reversal of an uptrend. High wave candle long-legged doji.

This candle has a very long upper or lower shadow and a small real body. If the opening and closing price are the same the candle has no real body and is then called a Long-Legged Doji. The first picture is a high wave candle the second is a Long-Legged Doji. Engulfing candles. The bullish engulfing pattern consists of large white real body that engulfs a small black real body in a downtrend. The bearish engulfing pattern occurs when the bears overwhelm the bulls and is reflected by a long black real body engulfing a small white real body in an uptrend. Spinning tops. Spinning tops are simply candles with small real bodies. • How Candlestick patterns translate into Nial Fuller’s Price Action Setups. My favorite price action setups consist of the pin bar, the inside bar, and my proprietary fakey setup. The above candlestick patterns can easily be condensed down to one of my three price action setups or may be applicable to more than one of my price action setups. It can be difficult to keep track of the various forms of candlestick patterns. This is why I feel like my three main price action setups do a great comprehensive job of including all the relative candlestick patterns and make them easier to understand in the context of daily price action. Let’s take a look at some charts with examples of some of the various candlestick patterns converted into my price action setups. Pin Bars.

The pin bar can include the following previously described candlestick patterns; long lower shadow candles and long upper shadow candles, hammers and shooting stars, dragonfly and gravestone dojis. Inside Bars. Inside bars can technically encompass any candlestick pattern because they are simply a series of at least two candlesticks where the first candlestick completely engulfs the entire range of the subsequent candlestick, however, more often than not inside bars end up being spinning tops or dojis. Note, the inside bar is different from the “engulfing pattern” because it includes the entire range of the bar, from high to low, where as the engulfing pattern only includes engulfment of the real body of the candle. I generally trade inside bars in the context of a strongly trending market as they are often great entry points into trends. However, often times inside bars will occur at major market turning points as well as the previous trend loses momentum, pauses and forms an inside bar, and then changes direction. The Fakey Setup My fakey setup is essentially a multi-bar pattern that consists of a false break from an inside bar pattern or a key level. The fakey can consist of a number of different candlestick patterns. Often times the fakey setup will consist of a bullish or bearish engulfing pattern which is completely engulfing the range of a spinning top or doji candle which gives rise to a false break bar that can take the form of any of the candlesticks above that qualify as pin bars. In Conclusion.

Candlestick charts offer a more vivid depiction of price action than what a standard bar chart can provide. Candlestick patterns in and of themselves are useful, however there are many different names and interpretations of candlestick patterns which often can induce confusion and can be hard to keep track of. You will find that my price action educational material condenses all of the important candlestick patterns into 3 simple yet highly effective price action setups. I feel that my take on candlestick patterns expressed via my proprietary ideas on price action trading is a much more efficient, simple, and profitable way to trade candlesticks and I think after studying my forex trading course you will feel the same way. The 5 Most Powerful Candlestick Patterns. Candlestick charts are a technical tool that pack data for multiple time frames into single price bars. This makes them more useful than traditional open-high, low-close bars (OHLC)? or simple lines that connect the dots of closing prices. Candlesticks build patterns that predict price direction once completed. Proper color coding adds depth to this colorful technical tool, which dates back to 18th century Japanese rice traders. Steve Nison brought candlestick patterns to the Western world in his popular 1991 book, "Japanese Candlestick Charting Techniques." Many traders can now identify dozens of these formations, which have colorful names like bearish dark cloud cover, evening star and three black crows. In addition, single bar patterns including the doji and hammer have been incorporated into dozens of long - and short-side trading strategies. (For related reading, see: Candlestick Charting: What Is It? ) Candlestick Pattern Reliability. Not all candlestick patterns work equally well. Their huge popularity has lowered reliability because they've been deconstructed by hedge funds and their algorithms. These well-funded players rely on lightning-speed execution to trade against retail investors and traditional fund managers who execute technical analysis strategies found in popular texts.

In other words, hedge fund managers use software to trap participants looking for high-odds bullish or bearish outcomes. However, reliable patterns continue to appear, allowing for short - and long-term profit opportunities. (See also: The Multiple Strategies of Hedge Funds .) Here are five candlestick patterns that perform exceptionally well as precursors of price direction and momentum. Each works within the context of surrounding price bars in predicting higher or lower prices. They are also time sensitive in two ways. First, they only work within the limitations of the chart being reviewed, whether intraday, daily, weekly or monthly. Second, their potency decreases rapidly three to five bars after the pattern has completed. Top 5 Candlestick Patterns. This analysis relies on the work of Thomas Bulkowski, who built performance rankings for candlestick patterns in his 2008 book, "Encyclopedia of Candlestick Charts." He offers statistics for two kinds of expected pattern outcomes: reversal and continuation. Candlestick reversal patterns predict a change in price direction, while continuation patterns predict an extension in the current price direction. In the following examples, the hollow white candlestick denotes a closing print higher than the opening print, while the black candlestick denotes a closing print lower than the opening print.

(See The Basic Language of Candlestick Charting for more information.) The bullish three line strike reversal pattern carves out three black candles within a downtrend. Each bar posts a lower low and closes near the intrabar low. The fourth bar opens even lower but reverses in a wide-range outside bar that closes above the high of the first candle in the series. The opening print also marks the low of the fourth bar. According to Bulkowski, this reversal predicts higher prices with an 84% accuracy rate. The bearish two black gapping continuation pattern appears after a notable top in an uptrend, with a gap down that yields two black bars posting lower lows. This pattern predicts that the decline will continue to even lower lows, perhaps triggering a broader-scale downtrend. According to Bulkowski, this pattern predicts lower prices with a 68% accuracy rate. The bearish three black crows reversal pattern starts at or near the high of an uptrend, with three black bars posting lower lows that close near intrabar lows. This pattern predicts that the decline will continue to even lower lows, perhaps triggering a broader-scale downtrend. The most bearish version starts at a new high (point A on the chart) because it traps buyers entering momentum plays. According to Bulkowski, this pattern predicts lower prices with a 78% accuracy rate. (For related reading, see How Do I Build a Profitable Trading Strategy When Spotting a Three Black Crows Pattern?

) The bearish evening star reversal pattern starts with a tall white bar that carries an uptrend to a new high. The market gaps higher on the next bar, but fresh buyers fail to appear, yielding a narrow range candlestick. A gap down on the third bar completes the pattern, which predicts that the decline will continue to even lower lows, perhaps triggering a broader-scale downtrend. According to Bulkowski, this pattern predicts lower prices with a 72% accuracy rate. (See also: How Is an Evening Star Pattern Interpreted by Analysts and Traders? ) The bullish abandoned baby reversal pattern appears at the low of a downtrend, after a series of black candles print lower lows. The market gaps lower on the next bar, but fresh sellers fail to appear, yielding a narrow range doji candlestick with opening and closing prints at the same price. A bullish gap on the third bar completes the pattern, which predicts that the recovery will continue to even higher highs, perhaps triggering a broader-scale uptrend. According to Bulkowski, this pattern predicts higher prices with a 70% accuracy rate.

(For more, see Using Bullish Candlestick Patterns to Buy Stocks .) Candlestick patterns capture the attention of market players, but many reversal and continuation signals emitted by these patterns don't work reliably in the modern electronic environment. Fortunately, statistics by Thomas Bulkowski show unusual accuracy for a narrow selection of these patterns, offering traders actionable buy and sell signals. (To learn more, take a look at Advanced Candlestick Patterns .) Forex Training Group. If you are a fan of trading with naked charts, without the use of crowded indicators that can cloud your judgement, then this material will definitely appeal to you. In this article, we are going to talk about trading price action using candlestick analysis. I will go through some of the most important candlestick patterns and will explain to you their potential. What are the Japanese Candlesticks? Japanese candlesticks is a visual form for displaying charts invented in the 18 th century by a Japanese rice trader named Munehisa Homma. They differ from bar charts and line charts, because they give more information and can be more easily read. Let’s take a look at the image below: This simple sketch points out all the information a Japanese candlestick will give you. The two candles displayed are a bullish (green) and a bearish (red) candle.

Each candle shows the price at which the candle (the time frame) was opened, the price at which the candle was closed, the highest and the lowest price reached. Note that the bearish candles (red) move downwards, so “close” and “open” places are switched. Now look how Japanese candlesticks looks on a price chart. Much better than the bar or line chart, don’t you think? How to use Japanese candlesticks? A Japanese candlestick chart provides the trader with crucial information about price action at any given point in time. Traders often confirm their signals with Japanese candlestick patterns, improving the odds of success on a trade. Trading price action using candlestick analysis alone is a very common trading technique. Yet, candlestick trading tends to be the most powerful when confirmed with additional indicators or when combined with Support and Resistance zones. Candlestick patterns in Forex are specific on-chart candle formations, which often lead to certain events. If recognized on time and traded properly, they can assist in providing high probability setups.

Forex candlestick patterns are classified within two types – candlestick continuation patterns and candlestick reversal patterns. We will now go through the most common reversal and continuation patterns and we will discuss their potential. Single Candlestick Patterns. Doji (reversal indecision) Doji is a very easy to recognize candlestick. We have a Doji whenever the price closes at the exact same level where it has opened. Thus, the Doji candle looks like a dash with a wick. Note that sometimes there are cases when the price doesn’t move at all from the opening. In these cases the Doji candle is simply a dash with no wicks. Take a look at this image: The Doji candle has a reversal character when it is formed after a prolonged move. The reason for this is that during a bullish (or bearish) market, the occurrence of a Doji candle indicates that the bulls are losing powers and the bears start acting with the same force. Thus, the candle closes wherever it was opened.

Just remember: when you get a Doji on the chart after a prolonged move, there is a chance that the price will reverse its direction. Spinning Tops (undefined) This candle could be bearish and bullish. It has a very small body and longer upper and lower candle wick, which have approximately the same size. Have a look at the image below: The Spinning Tops have undefined character. The reason for this is that this candle indicates that buyers and sellers are fighting hard against each other, but none of them could gain dominance. Nevertheless, if we get this candle on the chart during a downtrend, this means that the sellers are losing steam, even though buyers cannot prevail. Marubozu (continuation) This is another easy to recognize candle. The Marubozu candlestick has a body and no candle wick as shown below: The Marubozu candle is a trend continuation pattern. Since it has no wicks, this means that if the candle is bullish, the uptrend is so strong that the price in the candle is increasing and never reaches below the opening of the bar. Hammer and Hanging Man (reversal) The Hammer candle and the Hanging Man candle have small bodies, small upper wick and long lower wick.

These two candles look absolutely the same. Here they are: These two candles are classified as reversal patterns. The difference between them, though, is that the hammer indicates the reversal of a bearish trend, while the hanging man points to the reversal of a bullish trend. Inverted Hammer and Shooting Star (reversal) The Inverted Hammer and the Shooting Star are the mirror images of the Hammer and the Hanging Man. They have small bodies, small lower candle wick and long upper wick as shown below: The Inverted Hammer and the Shooting Star both exhibit reversal behavior, where the Inverted Hammer refers to the reversal of a bearish trend, while the Shooting Star indicates the end of a bullish tendency. Double Candlestick Patterns. Bullish and Bearish Engulfing (reversal) The Bullish Engulfing is a double bar candlestick formation, where after a bearish candle we get a bigger bullish candle. Respectively, the Bearish Engulfing consists of a bullish candle, followed by a bigger bearish candle. Have a look at this image: The two Engulfing candle patterns indicate trend reversal. In both the Bullish and Bearish Engulfing pattern formation the second candle engulfs the body of the first. The Bullish Engulfing indicates the reversal of a bearish trend and the Bearish Engulfing points the reversal of a bullish trend. Tweezer Tops and Bottoms (reversal) The Tweezer Tops consist of a bullish candle, followed by a bearish candle, where both candles have small bodies and no lower candle wick. The two candles have approximately the same parameters.

At the same time, the Tweezer Bottoms consist of a bearish candle, followed by a bullish candle. Both candles have small bodies and no upper candle wick as shown in the image below: As we said, the two candles of the Tweezers have approximately the same size. Both candlestick patterns have reversal character. The difference between these two formations is that the Tweezer Tops signal a potential reversal of a bullish trend into a bearish, while the Tweezer Bottoms act the opposite way – they could be found at the end of a bearish trend, warning of a bullish reversal. Triple Candlestick Patterns. Morning Star and Evening Star (reversal) The Morning Star candlestick pattern consists of a bearish candle followed by a small bearish or bullish candle, followed by a bullish candle which is larger than half of the first candle. The Evening Star candle pattern is the opposite of the Morning Star pattern. It starts with a bullish candle, followed by a tiny bearish or bullish candle, followed by a bearish candle which is bigger than half of the first candle. The image below will illustrate the two formations: Both of these candlestick groups have reversal character, where the Evening Star indicates the end of a bullish trend and the Moring Star points to the end of a bearish trend. Three Soldiers (reversal) The Three Soldiers candlestick pattern could be bearish or bullish. The Three Bullish Soldiers consists of three bullish candles in a row: A smaller bullish candle A bigger bullish candle, which closes near its highest point An even bigger bullish candle, which has almost no candle wick. At the same time, the confirmed Three Bearish Soldiers should have the following characteristics: A smaller bearish candle A bigger bearish candle, which closes near its lowest point An even bigger bearish candle, which has almost no candle wick. The image below displays a valid Three Bullish Soldiers and Three Bearish Soldiers: The Three Soldiers candlestick pattern has a reversal character. The Three Bullish Soldiers candlestick pattern can end a bearish trends and can bring about a new bullish movement.

At the same time the Three Bearish Soldiers could be found at the end of bullish tendencies, signaling an upcoming bearish move. Candlestick Chart Analysis. Now that we have gone through some of the more reliable candlestick patterns in Forex trading, we can now see how some of these patterns look on a price chart and how we can use them as part of a price action trading strategy! Have a look at the chart below: This is the daily chart of the EURUSD for the period Jul 21 – Oct 8, 2015. Our candlestick chart analysis shows three successful bearish chart patterns. The first one is an evening star. As we already mentioned, the Evening Star candlestick chart pattern has a bearish character. This is exactly what happens on our chart. We get four bearish candles which corresponds to a drop in price of 126 pips. The second pattern we get from our candlestick analysis is the Hanging Man candle at the end of a bullish trend. After the appearance of the Hanging Man candle, the price of the euro decreased versus the dollar about 387 pips for three days! The third candlestick pattern on our chart is another Evening Star.

At the end of the bullish trend, the Evening Star pattern followed thru with a drop of 40 pips for one day. Let’s now go through another chart example illustrating other Japanese candlestick patterns: This is the 4-hour chart of the USDJPY for the period Aug 28 – Sep 28, 2015. As you see, this chart image is pretty rich with Japanese candlestick patterns. We first start with a Doji candle after a strong price decrease. We get the Doji reversal pattern and we record an increase of 97 Pips. The next candlestick pattern we get is the Three Bullish Soldiers, which appears after a slight price retracement. After the Three Soldiers reversal pattern the USD price increases about 86 pips versus the Yen. The third candle pattern on the chart is the Spinning Top, which as we said has undefined character. This means that after a Spinning Top candle, the price might either increase or decrease, depending on the context of price action at the time. In our case, the price reverses its direction on the following bar, which also forms a Morning Star pattern, and we observe an increase of 138 pips. The price increase after the Spinning Top is immediately followed by another Doji reversal pattern. As a result of that, we get a rapid drop of 182 pips. The last candlestick pattern on the chart is a single Hammer candlestick after a bearish trend. We confirm our Hammer and the price of the dollar increases about 163 pips. Let’s now go to the USDCHF, where we will mainly discuss the bullish and bearish Engulfing Pattern: So, above we have the 4-hour chart of the USDCHF for Jul 22 – Aug 21, 2014. We start with a small Doji candle after a trend correction.

The result we get after the Doji is a rapid price increase of 62 pips. Then after a period of price consolidation, we get a Bearish Engulfing. A single candle drop of 39 pips appears on the chart right after the Engulfing! Not long after, we get another Bearish Engulfing, which comes after a correction in a bearish trend. The price of the USD decreases with 50 pips for about 12 hours after this Bearish Engulfing. 10 days later, we spot a Bullish Engulfing on the chart, which comes after a bearish trend. This is the most profitable price move on this chart, which leads to an increase of 100 pips for three days. This bullish trend finishes with the last chart pattern on the image – a third Bearish Engulfing. This again results in a price reaction to the downside. The overall result from these five price movements is equal to 264 pips.

Let’s analyze another Forex chart using candlestick patterns! This is the 4-hour chart of the Aussie (AUDUSD) for the period Sep 17 – Oct 19, 2015. We start with a Bearish Engulfing after a price increase. We confirm the pattern and we observe a steady price decrease equal to 284 pips for 6 days. Now that’s a strong reaction! The bearish trend ends with a morning star, which points to an eventual reversal. The reversal of the trend follows in more of a consolidation phase. The increase in price from the morning star is equal to 46 pips. The price decreases to the same level and we get another reversal pattern – a Bullish Engulfing!

A strong bullish trend emerges after the Bullish Engulfing pattern. We could have traded the first increase of 110 pips until we get a Doji reversal candle, which resulted in a 66 pip correction. Soon afterward we see another Bullish Engulfing formation. The price records dramatic increases on strong momentum. Furthermore, after a short corrective movement, the bullish trend gets confirmed by the Three Bullish Soldiers candle pattern, which is another confirmation that the bulls definitely dominate! We stay in the market until we get the Bearish Engulfing at the end of the trend. The overall price increase equals 384 pips. After the Bearish Engulfing we get a decrease of 160 pips. Then, after a new increase, we get the Hanging Man candlestick pattern, which is followed by a new price decrease of 80 pips. The total price action in this example equals about 1,000 pips for 1 month, More than enough opportunity to make high probability trade setups using candlestick patterns. As you can see, trading Forex with Japanese candlestick patterns could be very profitable. Japanese candlesticks are the preferred way to display Forex charts, because of the depth of information it provides. Although we discussed 13 successful candlestick pattern trades, there can be many fake signals that show up as well.

Therefore, it is always good to match your candlestick pattern signal with an additional trading tool. This could be a moving average, a volume indicator, a momentum oscillator or Support and Resistance levels based on previous swings. Fibonacci Retracement levels are another good trading tool to confirm candlestick patterns. Try to use uncorrelated technical confluence when trading candlestick signals in order to eliminate as many false signals as possible. When adding an additional layer of confirmation to your candlestick trading strategy, you might even increase your candle pattern success rate to more than 60-65 %.



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