Candlestick patterns are very powerful for predicting the price direction of the market. There are over 20 different types of candlesticks in forex trading, and identifying them is always a challenge for beginners. In this article, we are going to walk you through a step-by-step guide to identify different types of candlesticks in forex trading.
Trading candlestick pattern is a very good trading strategy. Research has shown that traders that are very good at identifying different types of candlesticks in forex trading always see trading opportunities.
What is candlesticks in forex trading?
Before we dive into the different types of candlesticks in forex trading and how to identify them, it is very important that we understand what a candlestick is.
A candlestick is a way of displaying information about an asset’s price movement. A candlestick chart is very helpful in technical analysis; it enables traders to interpret the price information of stocks.
Candlesticks in forex trading exist in different time frames; we have a minute candlestick, an hour candlestick, a five-minute candlestick, and so on.
In each of these timeframes, it takes different time for the candles seen in the chart to form. For instance, in a minute timeframe, it takes 60 seconds for each of the candles seen on the chart to form.
The candlesticks in forex trading has three basic features. They are:
The body: the body of a candlestick represents the open-to-close range.
Wick: A wick is a line found on a candle in a candlestick chart that is used to indicate where the price of a stock has fluctuated relative to the opening and closing prices.
The color: it denotes the direction of market movement—a green (or white) body indicates an increase in price, while a red (or black) body indicates a drop in price.
Individual candlesticks form patterns over time, which traders can use to identify key support and resistance levels. There are numerous candlesticks in forex trading that show a market opportunity; some reveal the balance between buying and selling pressures, while others reveal continuation patterns or market indecision.
There are many different types of candlesticks in forex trading. It is very important that you familiarize yourself with the basics of them and how they can inform your decisions before you start trading.
How to start reading candlesticks in forex trading?
The best way to start reading candlestick patterns is to practice entering and exiting trades from the signal they (this candlestick pattern) give. This should be done in a risk-free way in order to avoid losses. As a beginner, you can develop your skills in a risk-free environment by opening a trading demo account; there are lots of brokers that support a demo account for beginners in forex trading. To find one, check out our post on the Best Forex Broker for Beginners in 2021.
It’s worth noting that, while candlestick patterns are wonderful for quickly identifying trends, they should be used in combination with other forms of technical analysis to confirm the overall trend.
Types of candlesticks in forex trading.
In terms of price movement, two main types of candlestick patterns exist: a bullish pattern and a bearish pattern. A bullish candle pattern indicates that the market is about to enter an uptrend following a price decrease. This reversal pattern indicates that bulls are taking control of the market and may even push prices higher, signaling that it is time to enter a long position.
On the other hand, when sellers outnumber buyers in an uptrend, a bearish pattern develops. The pattern suggests that sellers have regained control of the market and that the price may continue to fall.
When it comes to market trends, there are numerous types of candlestick patterns. These patterns signal whether the price will go up or down.
Below are some of the different types of candlesticks in forex trading and how they are identified.
-
Evening Star:
A stock-price chart pattern known as an “evening star” is employed by technical analysts to predict when a trend is likely to reverse. It’s a three-candle bearish candlestick pattern with a giant white candlestick, a small-bodied candle, and a red candle.
Usually, evening star pattern forex has a candlestick with a very small body.
Evening star patterns are connected with the apex of a price rise, indicating that it is nearing its end.
-
Morning Star
A “morning star” is a visual pattern made up of three candlesticks that technical analysts interpret as a bullish signal. A morning star appears after a downtrend and marks the beginning of an upward trend. It’s a sign of the prior price trend reversing.
Traders look for the formation of a morning star, and then use additional indications to confirm that a reversal is taking place.
3. bullish Engulfing candle.
In a day’s timeframe, a bullish engulfing pattern is characterized by a white candlestick that ends higher than the previous day’s candlestick.
When a short black candlestick indicating a bearish trend is followed the next day by a long green candlestick indicating a bullish trend, the body completely overlaps or engulfs the previous day’s candlestick.
-
Bearish Engulfing candle
A bearish engulfing pattern is a chart pattern that indicates that lower prices are on the way. An up (green) candlestick is followed by a massive down (black or red) candlestick, which engulfs the smaller up candlestick.
The pattern is significant because it indicates that sellers have surpassed buyers and are driving the price lower than buyers were able to achieve.
-
Hammer:
The Hammer candle is a candlestick with a very long tail (wick) and a short body. A harmer indicates that although there was much selling pressure before, buyers later drove the price back up.
-
Inverse hammer
The inverted hammer is a candlestick pattern that appears after a downtrend and is often seen as a trend reversal indicator. The inverted hammer looks like an upside-down version of the hammer candlestick pattern, and it’s known as a shooting star when it emerges in an uptrend.
The difference between the hammer candlestick and the inverted hammer candlestick is that the upper wick is longer than the lower wick.
-
Piercing line.
The piercing line is a two-stick pattern as well, consisting of a long red candle followed by a long green candle.
There is normally a significant gap between the closing price of the first candlestick and the opening price of the green candlestick. The price is pushed up to or above the previous candle’s mid-price, indicating significant buying pressure.
-
Three white soldiers .
Over the course of three days (on daily timeframe), the three white soldiers’ pattern will appear. It consists of a series of long green candles with short wicks that open and close higher each day than the day before.
It’s a powerful bullish indicator that appears after a downtrend and indicates a sustained increase in buying pressure.
-
Shooting star.
A shooting star is the same shape as an inverted hammer; the only difference is that a shooting star is found mainly in an uptrend and has a lower body with a very long upper wick.
Typically, the market will open slightly higher, rally to an intra-day high, and then close at a price just above the open.
10. Three black crows.
Three black crows is a bearish candlestick pattern that predicts a current uptrend’s reversal. Three consecutive long red candles with short or non-existent wicks make up the three black crow candlestick pattern. Each session begins at a similar price to the previous one, but selling pressures drive the price lower with each close.
Traders interpret this pattern as the start of a bearish downtrend, as sellers have outpaced buyers for three trading days in a row.
11. Continuation candlestick pattern.
A continuation pattern occurs when a candlestick pattern does not indicate a change in market direction. These can aid traders in identifying a period of market rest, such as when there is market indecision or price movement that is neutral.
-
Doji
The candlestick resembles a cross or plus sign when the open and close of a market are almost at the same price point.
The pattern of this doji depicts a struggle between buyers and sellers with no net gain for either side. A doji is a neutral signal on its own, but it appears in reversal patterns like the bullish morning star and bearish evening star.
Disclaimer.
Forex trading is a game of chance; it is either you win or you lose. We are not financial advisers and are not in any way accountable for any of your losses while trading. The information provided in this post is from our research and is not always perfect. Please do your own research.
Wow!
This is the best Forex trading text for the year. Highly recommended for all beginners, very simple and precised.
Thanks for your compliment; INVESTOR PONTAIN, Use the share button to make sure this gets across to your friends.