Candlestick Charts in Forex Explained


I was learning from ur pre videos…but after reading this ,i got clear all my doubts.. If the higher timeframe is in a downtrend and the breakout is to the upside, then chances are, the breakout will fail. That’s why you often see a strong move down into Support, and then BOOM, the price does a 180-degree reversal. One possible entry technique is to go short when the price breaks and close below Support. But when the trend is getting weak, the retracement move no longer has small bodied candles, but larger ones.

How do you read a forex candlestick?

Upper shadows represent the session high and lower shadows the session low. Candlesticks with short shadows indicate that most of the trading action happened near the open and close. Candlesticks with long shadows show that prices extended well past the open and close.

Rayner Teo is an independent trader, ex-prop trader, and founder of TradingwithRayner. Your great books, Price action trading secret and Candlestick chart has impacted positively into my trading acknowledge. Though, I’m still noobs on this but i would like to apply this method on my trading. This trading technique is wonderful and the important of it is to know the 4 relating component, which is opening, high, low and close. Yes, you can apply these concepts to other markets like bonds or cryptocurrencies.

Morning Star and Evening Star

It is considered that the most accurate patterns are reversal ones, like the hammer candlestick pattern, the hanging man, the dark cloud cover, and so on. Continuation patterns are also important, for example, three black crows, three white soldiers, bullish rising three and bearish rising three, and so on. This article will help you understand trader psychology and analyse candlestick chart patterns to trade in financial markets successfully. You can practise your technical analysis skills on the free demo account without registration with LiteFinance. Over the years, Japanese traders had developed various Candlestick patterns based on historical price movements. Every trader should invest their time and learn these patterns as it will provide a deeper knowledge and understanding of reading forex charts in general.

Appropriately named, they are supposed to forecast losses for the base how to read candlestick patterns in forex, because any gain is lost by the session’s end, a sure sign of weakness. The Japanese analogy is that it represents those who have died in battle. Dragonfly and gravestone dojis are two general exceptions to the assertion that dojis by themselves are neutral. In most Candle books you will see the dojis with a gap down or up in relation to the previous session. In Forex, nonetheless, the dojis will look a bit different as shown in the picture below.

How do I read a candlestick chart?

Get ready to receive cutting edge analysis, top-notch education, and actionable tips straight into your inbox. To learn more about Ezekiel’s method of trading backed by mathematical probability, you can check out his one core program. Find the approximate amount of currency units to buy or sell so you can control your maximum risk per position. In our crypto guides, we explore bitcoin and other popular coins and tokens to help you better navigate the crypto jungle. Measure the volatility and monitor other market sentiment changes. IG International Limited is licensed to conduct investment business and digital asset business by the Bermuda Monetary Authority.

This powerful trading technique has helped legendary guru trader Larry Williams to turn $10,000 into $1 million in less than a year. One can learn about Candlesticks and with some effort, one can memorise Candlestick Patterns quickly and apply this knowledge in a short time. It’s like a combination of a line chart and a bar chart, where each bar represents all four important pieces of information for an interval.

How to Read Candlestick Patterns in Forex – The Definitive Guide

There are many candlestick patterns in the stock market, however, two main categories are bullish and bearish patterns. Through your sentiments and the way, you are going to implement your strategy you can choose the one which fits you the most. Stock Candlestick charts are one of the most favored methods for traders who rely on technical analysis. Through the candlestick charts, they are allowed to predict future changes in the marketplace.


On a non- chart, this candle pattern would show an inside candle in the form of a doji or a spinning top, that is a candle whose real body is engulfed by the previous candle. The difference is that one of the shadows of the second candle may break the previous candles extreme. In Forex charts though, there is usually no gap to the inside of the previous candle.

However, while reading Candlesticks if you find a tentative pattern like the Doji, it might be a good idea to take a step back or look for opportunities elsewhere. However, while Candlestick charts make it much easier to interpret price action, it lacks the smoothness of the line chart, especially, when the market opens with a large gap. Hence, professional traders often end up using a short time period moving average to get the “feel” of a smooth trend, or lack of trend, in the market. So, it can be a good idea to add a moving average to the chart while using Candlestick charts. Although the same four values are also found in Western-style bar charts, the bar chart uses horizontal lines on the sides of a vertical line to project the opening and closing prices.


The hanging man is also comprised of one candle and it’s the opposite of the hammer. If a hammer shape candlestick emerges after a rally, it is a potential top reversal signal. The shape of the candle suggests a hanging man with dangling legs.

Engulfing Candlestick Patterns

The color of the body is insignificant to identifying the pattern. When spotted, the shooting star alerts crypto traders to the end of a bullish trend. The chart involves rectangle-shaped geometrical figures with a divisor long line, all of them showing the close and opening price and the lowest and highest prices, as well, for a certain period of time. Education Types of CFDs and CFD trading examples Milan Cutkovic Contracts for difference are popular assets for traders globally as they provide a way to access a wide variety of financial markets. The last candle is bearish, breaching the lows of the first candle with a large body. The falling three method can be contrasted with the rising three method, and is the bearish alternative for a five candle continuation pattern.

What Is a Candlestick Pattern? – Investopedia

What Is a Candlestick Pattern?.

Posted: Fri, 24 Mar 2017 18:04:49 GMT [source]

It’s created when the price opens and closes near its high, with the real body generally being small. This means there is little to no difference between the two prices; this leads to indecision of the asset. The three white soldiers are used to predict a reversal of the current downtrend on a candlestick chart. There are three consecutive long body candles in the pattern, that begin within the previous candles body and a close that is higher than the previous candles highest price. The first candle is tall and black, followed by a smaller black or white candle with a short body and long shadows, with the third a tall white candle. The opposite to this pattern is the evening star, which is the bearish version signalling an uptrend into a downtrend.

How do you read candlestick patterns for beginners?

  1. If the upper wick on a red candle is short, then it indicates that the stock opened near the high of the day.
  2. On the other hand, if the upper wick on a green candle is short, then it indicates that the stock closed near the high of the day.

He began trading on the local rice exchange in Sakata, Japan around 1750, keeping records of the market psychology in order to boost his profits. This is done with candlestick patterns, which are specific price patterns formed by candlesticks. If you want to get the most out of what the candlesticks are showing, let’s explore the best candlestick patterns you can ever use. We’re going to show you some candlestick patterns explained with examples. If you understand the psychology behind what the candlesticks are showing, it can make your life as a trader a lot easier. A candlestick price chart is made up of lots of individual candles that have different shapes, which form different candlestick patterns.

bullish engulfing pattern

The hanging man looks the same as the hammer, but it appears during bullish trends and suggests that a correction to the downside might soon materialize. Thus, seeing the Doji candle will often indicate an upcoming price reversal. The Key Reversal pattern is just as the name implies, a reversal formation.


Once you learn how to correctly read candlestick patterns, you can use this skill as part of a broader trading strategy. This can improve the consistency of your market entries and your overall performance as a trader. A candlestick chart is a technical tool for forex analysis that consists of individual candles on a chart, which indicates price action. Candlestick charts are a useful tool to better understand the price action and order flow in the forex market. However, before you can read and explain a candlestick chart, you must understand what it is and become comfortable identifying and using candlesticks patterns. A forex candlestick chart provides information about the behaviours of buyers and sellers in visually and easy to interpret way during a particular time period, it can be 1 Hour, 4 Hour or Daily.

What is the easiest way to identify candlestick patterns?

If the closing price is above the opening price, a bullish candlestick forms. And if the closing price is below the opening price, a bearish candlestick forms. Looking at a single candlestick, a trader can gain valuable information about the battle between buyers and sellers during a trading period.

What is the 3 candle rule?

The pattern requires three candles to form in a specific sequence, showing that the current trend has lost momentum and a move in the other direction might be starting.

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