A Complete Guide to Forex Candlestick

Patterns 2021
December 26, 2020 | 10:43 am | Forex Blog Articles

Candlestick Pattern   Triangle Pattern

Table of Contents
 An in depth look at one of the most popular ways to analyze price charts and confirm
existing setups
 Why Forex Traders Prefer Candlestick Charts
 The Difference Between Bullish and Bearish Candlestick Patterns
 Let’s take a look at a few examples of bullish and bearish candlestick patterns.
o Bullish candlestick patterns
o Bearish Candlestick Patterns
o More Famous Candlestick Patterns
 Forex Candlestick Patterns Bottom Line

An in depth look at one of the most popular ways to

analyze price charts and confirm existing setups
Before making their way to the forex market, candlestick patterns had been in use for
hundreds of years by Japanese rice farmers. Developed in the 17th century, farmers
developed the idea in order to track and speculate on the price of rice in the market.
Today, the method of candlestick pattern analysis has evolved to become one of
the most commonly used technical analysis tools in the forex market. 
The patterns themselves are quite simple and are formed when they display the
open, high, low, and closed of a given trading period. The opening to the high is
represented by a line, the high to the low represented by a bar, and the low to the close
represented by another line. The resulting shape is candlestick, hence the name
candlestick patterns. 

Why Forex Traders Prefer Candlestick Charts

A large reason why candlestick patterns have gained such great popularity amongst
forex traders is because of the relative accuracy they are able to show potential
price movements. Depending on which candlestick pattern you decide to examine
(there are many and we’ll get to them in just a moment), a candlestick pattern can
help you decide which currency pair to buy or sell. When read correctly, they are an
incredibly useful and reliable tool in any forex trader’s repertoire. 

The Difference Between Bullish and Bearish

Candlestick Patterns
Over the years many different candlestick patterns have been sought out and named.
We’ll cover individual patterns down below but here we’ll start with bullish
patterns. bullish patterns abide by two main principles. First, these patterns need
to form within a downturn (if they don’t, they’re merely a continuation pattern).
Second, the majority of bullish reversal patterns need bullish confirmation in
order to be revealed as such. 

Moving in the other direction, just like bullish patterns needing bullish
confirmation, bearish patterns require bearish confirmation. Bearish reversal
patterns can also form with one or more candlesticks. This reversal points to the
fact that selling pressure exceeded buying pressure for a few days. 

Let’s take a look at a few examples of bullish and

bearish candlestick patterns.
Bullish candlestick patterns

Here is a list of bullish candlestick patterns:

Hammer

As the name suggests, this candlestick resembles a hammer in shape. One of the
simplest candlestick patterns, the hammer is made up of one candle with a long
lower wick connected to a short body at the top of the candle. A hammer has little
to no upper wick. Most traders consider the hammer to be valid once the lower wick is
twice as long as the upper part of the candlestick body. The body of the candle must be
at the top end of the trading range. 

Bullish Hammer

Inverse Hammer

While the hammer candle pattern occurs when a price trades lower than it opened
at, the inverted hammer almost always occurs at the bottom of a
downtrend. These candles are generally warnings of coming price changes. 

Inverse Hammer

Bullish Engulfing
The first pattern on this list that involves more than one candle, the bullish engulfing
pattern is a two candle reversal pattern. After the first dark candle appears, a
second larger and hollow one forms and engulfs the body of the first one. This
pattern appears in a downward trend and on the second day of the pattern’s
appearance, price opens lower than the day before. However, buying pressure pushes
the price up past the previous high which makes the price an eventual win for buyers. 

Bullish Engulfing

Piercing Line

Another price pattern similar to the bullish engulfing candle, the piercing line is an
indication of a potential short-term reversal from a downward trend to an upward
trend. The piercing line pattern takes into account a first day opener close to the high
and a closing near the low. In between there is an average trading range. To confirm
this pattern, the close must be a candlestick covering at least half of the previous day’s
body.

Piercing Line
Morning Star

Moving on from two candles to three, the morning star pattern is three candles
which follow a downward trend and it is used to indicate the beginning of an
upward ascent. This pattern is a precursor to the reversal of the previous price
movement.

Morning Star

Three White Soldiers

The three white soldiers is another 3 candlestick pattern which is usually found at the
end of a trend. The pattern is formed when 3 long bullish candles appear after a
downtrend. This is a signal that a reversal has occurred. This is regarded as one of
the most blatant bullish signals you can find in the market. 

Three White Soldiers

Bearish Candlestick Patterns

Here is a list of bearish candlestick patterns:

Hanging Man

The first in our set of bearish candlestick patterns, the hanging man pattern appears during an
uptrend and is a warning that prices may begin to start falling. The pattern is composed of a
real, small body, a long bottom shadow, and a small or no upper shadow. The pattern shows
investors that selling interest is increasing. In order to confirm this pattern, the price of the asset
must decline.

Hanging Man

Shooting Star

The shooting star is similar to the hanging man but instead of a long lower shadow, the shooting
star has a long upper shadow. It also has a small body but has relatively no lower
shadow. This pattern appears when a security opens but doesn’t move far and closes the day in
almost the same position as when it opened. To confirm this pattern, the candlestick has to
materialize when price is advancing. The distance from the highest price and the opening price
has to be twice that of the candle’s body. 
 Shooting Star

Evening Star

The evening star is a three candle pattern used by investors to signal when a trend is almost
ready to reverse. This pattern is most closely associated with the top of a price trend and it
signifies that an uptrend is coming to an end. This candlestick pattern is the opposite of the
bullish indicator, the morning star. 

Evening Star

Bearish Engulfing

A sign of lower prices on the way, the bearish engulfing pattern is made up of an upwards
candle being consumed by a larger, downward candle. This candle signifies that sellers have
taken over buyers and are aggressively moving prices down. This pattern is the opposite of the
bullish engulfing candlestick pattern. 
 Bearish Engulfing

Three Black Crows

Another three candle pattern, the three black crows are a signal that announces the reversal
of an uptrend. The opposite of the three white soldiers, the three black crows appear when
bearish movements overtake bullish movements over the course of three consecutive
trading sessions. The pattern is visualized with three bearish long bodied candles without wicks.

Three Black Crows

Dark Cloud Cover

Another bearish reversal pattern, the dark cloud cover is when a down candle opens up over
the close of the previous up candle. This candle then closes under the middle of the up candle.
This pattern indicates a shift in the movement from the upside to the downside.
 Dark Cloud Cover

More Famous Candlestick Patterns

Here is a list of more famous candlestick patterns

Doji

The Doji candlestick pattern forms when the open and close of a candle is equal. Since it is
equal on both ends, the pattern is neutral, hinting that there is general indecision from
buyers and sellers. It can take several shapes depending on the length of the shadows meaning it
may appear as a cross or a plus sign. This pattern can help to confirm that an important high or
low has occurred. It is also used as a signifier that suggests a short term trend reversal might be
in progress. 

Doji

Spinning Top
This candlestick pattern takes the form of a short body which is centered between top and bottom
wicks. This pattern indicates an indecisiveness about which way a price is likely to move in
the future. Buyers and sellers are both vying for position and neither has won out. They both
pushed the price back and forth but at closing time, the price will settle almost exactly where it
opened.

Spinning Top

Falling Three Method

This five candle bearish pattern emerges from an ongoing downward trend and tells
investors that the bearish period is likely to continue. 

Falling Three Method

Rising Three Method

As the name suggests, this five candle pattern is the opposite of the falling three method
pattern. This candlestick pattern is a signifier that the bullish period is likely to continue. 
 Rising Three Method

Forex Candlestick Patterns Bottom Line

Each candlestick pattern mentioned in this article signifies a different movement or action in the
market. Forex traders who study these patterns, their shapes, compositions, and meanings
for prices can make decisions regarding buying and selling as they see these patterns take
shape.

If you’re a visual worker and can see patterns well, reading candlesticks might be a great way for
you to trade in the forex market. If recognizing patterns is something you struggle with,
candlestick patterns might not be optimal. As with all other tools, it’s necessary to know your
strengths and weaknesses in order to match the appropriate systems with your skills.