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.
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. There are two types of Forex candlestick patterns for day trading — continuation and reversal 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. 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.
In this relation, you should not be surprised that the best 5 candlestick patterns for day trading are reversal 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. 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.
I have shown the bullish and the bearish version of each candle. The meaning is the same. 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. 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.
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. 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. 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. 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. 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 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. 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 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. 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. 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. 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. At the same time, you should put a stop loss order below the lowest point of the pattern.
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.More...