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November 20, 2020

Candlestick Patterns in Forex and What They Mean

Candlestick Patterns in Forex and What They Mean

The Forex candlesticks originated from Japan a very long time ago, and they have become popular since then. What makes them the preferred charting type for many Forex traders is that every single candlestick contains information about the opening price, closing price, the highest price point, and the lowest price point for every given period.

These Japanese candlesticks often form patterns that predict future price movements. Some of them predict bullish price movements, and others suggest bearish price movements. They may appear as a single, two, or three candlestick patterns.

Here are the most common candlestick chart patterns in Forex: Bullish Candlestick and Bearish Candlestick (with images).

All Bullish Candlestick Patterns

There are eight common Forex bullish candlestick patterns. All these patterns either suggest the beginning of a new uptrend or a continuation of a major uptrend.

This is a list of the all the bullish candlestick patterns in forex:

Candlestick Pattern Name Description
all types of candlestick patterns Bullish Exhaustion/ Hammer A candlestick that has a long wick underneath it with a tiny body at the top. This candlestick could either be bullish or bearish. What marks it out as a bullish candlestick pattern is its small body sitting on a long wick.
all types of candlestick patterns Bullish Engulfing Made up of two candlesticks, a bearish followed by a bullish. It is called bullish engulfing because the size of the bullish candle completely engulfs the bearish candle before it.
all types of candlestick patterns Bullish Railroad Made up of two candlesticks of almost equal sizes, a bearish followed by a bullish. When they follow each other, it is often a sign that the market is taking a sharp turn towards the uptrend.
all types of candlestick patterns Bullish Marubozu A long bullish candlestick with no wicks (or negligible wicks) that suggests an uptrend continuation.
all types of candlestick patterns Morning Star Made up of three candlesticks. The first candlestick is bearish. The second candle is a small candle with a negligible body and very little wicks. It looks more like a “plus” sign. The third candle is a bullish candlestick that suggests a turnaround in the market bias. The bullish candlestick doesn’t always have to be as big as the first bearish candle.
all types of candlestick patterns Three White Soldiers Made up of three bullish candlesticks with little or no wicks. This often suggests a bullish continuation.
all types of candlestick patterns Three Inside Up Harami Made up of three candlesticks, a bearish followed by two bullish candlesticks. The first bullish candlestick after the bearish candlestick is small compared to the previous bearish candlestick. But the next bullish candlestick engulfs the bearish candlestick to suggest the market is making a strong move towards the uptrend.
all types of candlestick patterns Bullish Tweezers Tweezers are almost similar to exhaustion candlesticks, only that bullish tweezers come in twos and often have shorter wicks. A bearish candlestick comes first, and it’s followed by a bullish candlestick.

All Bearish Candlestick Patterns

Bearish candlestick patterns in Forex are the direct opposites of their bullish counterparts. They suggest a continuation of a major downtrend or the beginning of a new downtrend.

These are the most common types of bearish candlestick patterns in Forex.

Candlestick Pattern Name Description
all candlestick patterns Bearish Exhaustion/Shooting Star A candlestick that has a long wick above it with a tiny body underneath. This candlestick could either be bullish or bearish. What marks it out as a bearish candlestick pattern is a small body underneath a long wick.
all candlestick patterns Bearish Engulfing Made up of two candlesticks, a bullish followed by a bearish. It is called bearish engulfing because the size of the bearish candle completely engulfs the bullish candle before it.
all candlestick patterns Bearish Railroad Made up of two candlesticks of almost equal sizes, a bullish followed by a bearish. When they follow each other, it is often a sign that the market is taking a sharp turn towards the downtrend.
all candlestick patterns Bearish Marubozu A long bearish candlestick with no wicks (or negligible wicks) that suggests a downtrend continuation.
all candlestick patterns Evening Star Made up of three candlesticks. The first candlestick is bullish. The second candle is a little candle without a body and very little wicks. It looks more like a “plus” sign. The third candle is a bearish candle that suggests a turnaround in the market bias. The bearish candlestick doesn’t always have to be as big as the first bullish candle.
all candlestick patterns Three Black Crows Made up of three bearish candlesticks with little or no wicks. This often suggests a bearish continuation.
all candlestick patterns Three Inside Down Harami Made up of three candlesticks, a bullish followed by two bearish candlesticks. The first bearish candlestick after the bullish candlestick is small compared to the previous bullish candlestick. But the next bearish candlestick engulfs the bullish candlestick to suggest the market is making a move towards the downtrend.
all candlestick patterns Bearish Tweezers Bearish tweezers are almost similar to bearish exhaustion candlesticks, only that bearish tweezers come in twos and often have shorter wicks. A bullish candlestick comes first, and it‘s followed by a bearish candlestick.

Neutral Candlestick Pattern

The only common neutral candlestick pattern is the Doji. The Doji forms when the market is undecided whether to go up or down. In the end, what forms is a candlestick with a small body and short wicks above and below the body.

list of all candlestick patterns

Still on the candlesticks

Because of the way a candlestick is derived, the opening price of a new time period is often close to the closing price of the previous time period. This makes the Forex charts look like a continuous flow of candlesticks in trends moving up and down. Trade opportunities abound in these charts.

A common anomaly on the charts is when there is a gap in Forex prices. But even this anomaly has trading opportunities for those who know how to interpret them.

Conclusion

Before there was the MT4 trading platform or even computers, all these candlestick patterns have been there. And till today, they still do a great job of predicting potential price movements.

However, just as it is with many other Forex trading tools or concepts, Forex candlestick patterns are not meant to be used in isolation. You may have to combine them with some other Forex trading tools to get the best out of them.

By the way, if you easily get tired of staring at Forex charts, what you need is this chart overlay indicator that gives your MT4 a fresh, modern look. The indicator also makes your chart look more compact and easier to analyze.