Many traders dream of a Forex candlestick patterns cheat sheet that would help them find the right solution for reacting to currency price fluctuations. To master the art of trend forecasting, start by learning the most popular candlestick patterns that will be presented in this article.
What Is a Candlestick in Forex Trading?
A deep knowledge of technical analysis allows a trader to perfectly navigate the Forex market even without deepening into the fundamental analysis. Therefore, acquaintance with the indicators that a trader can rely on is necessary for the successful opening and closing of orders. With the help of Forex candlestick patterns, you can easily predict the further movement of currency prices.
Market trends on Forex can change strongly and unambiguously, or there may be a period of uncertainty. At this point, the risks are higher, but the possible profit is more substantial. Trend reversals occur when buyer dominance is replaced by seller dominance or vice versa. For such cases, the Engulfing candles category is used:
- The Bullish Engulfing pattern shows that the trend is changing sharply in favor of a price rising, and the market is starting to expand.
- The Bearish Engulfing pattern indicates a narrowing of the market and a reversal of the trend in favor of lowering the price.
Learn how to read Forex candlesticks to see all the trends and predict them in advance. If you do not want to delve into all the details of technical analysis, use the best Forex robots. They perfectly know all trading algorithms and will become your indispensable assistants.
How to Read Candlestick Charts in Forex Trading?
Candlesticks are a universal tool for technical analysis because they can be used to discover a lot of useful information:
- The dominance of buyers or sellers in the market;
- Probability of a trend reversal;
- The most optimal point for a timely stop loss or take profit;
- Volatility and price dispersion, and much more.
Get to know the most popular Forex candles to use them effectively in your trading strategies. Thanks to this information, you will know how to read candlestick charts in Forex trading.
Hammer Candlestick Pattern
The reversal of the price in favor of the dominance of the bullish trend can be seen in the Hammer candle pattern Forex. In this case, it will be a green candle with a short body at the bottom of the downtrend. But at the same time, it will have a long lower wick, which indicates a period of increased competition between sellers and buyers.
On the Forex candlestick patterns cheat sheet, this figure also indicates a trend reversal but in favor of the bearish market. Such a red candle is formed at the top of an uptrend and has a short red body and a very high upper wick. It shows that after the opening of the market, there were attempts to continue the upward trend, but they ended in failure. This means that the downtrend will now dominate the market for some time.
Forex candlesticks may have practically no body but look like two intersecting lines. The vertical one shows the length of the shadow, while the horizontal one indicates that the opening and closing prices were almost identical. The Doji pattern has several variations and is interpreted in conjunction with other indicators.
When you see that among two candles of different colors, one is slightly higher or slightly lower, this shows an emerging trend. But sometimes on Forex candle charts, a bar of the opposite color is within the price range of the previous one. This suggests that after a sharp jump or fall in the price of an asset, it is stabilizing.
Unlike the inside bar, Key Reversal Forex candlestick patterns show that the price range of an asset is starting to enlarge. Trading on this day opens at a lower or higher price than the day before and closes at a higher or lower price depending on the bullish or bearish trend. This signals a possible further trend change, but in some cases, it can also be a short-term price correction.
Morning and Evening Star
Forex candle charts can give unambiguous signals, or they can give hope, i.e. the first signs that a trend is reversing. These patterns include Morning and Evening stars and consist of three candles. The middle bar has a very short body and is painted in any color, as the previous or the next one. The body color of the third bar will indicate in which direction the trend is turning.
Understanding Forex candlesticks includes recognition of when there is a stable trend in the market and when there is a struggle between opposites. Marubozu Candle has no shadows, or at least no top or bottom wicks. This means that either buyers or sellers were in complete control of the trading session.
This pattern belongs to those types of candles in Forex that indicate the exhaustion of the previous trend. In this case, it says that the rise in the price of the asset is completed, and a fall will follow. The bar closes the uptrend and has a very long wick at the bottom, a short one at the top, and a small body.
The Piercing Line
To understand this Forex candlestick meaning, pay attention to whether the bullish candlestick was able to close over the midpoint of the previous bearish candlestick. If yes, then this may indicate that the reversal trend may gain momentum.
Dark Cloud Cover
Forex candlestick names very clearly reflect the essence of changes in the price of an asset. This name indicates that the market is beginning to narrow despite the optimism of the previous day. This is reflected in the candlestick pattern when it starts above the previous day's close but ends below the midpoint of the bullish candlestick.
Bullish Engulfing Candles
This candle pattern Forex indicates a trend reversal towards an increase in the price of an asset. This can be seen from the fact that the bullish candle is much larger than the previous bearish one and covers it. The greater the difference between them, the more obvious this pattern points to the price reversal.
The Master Candle
Market analysts also use Forex candles, which don't necessarily change all the time. An example of this is the Master Candle. In this case, one large candlestick is followed by 4 others in succession, which can be of different colors, but they do not go beyond it. This situation indicates that there was a sharp change in prices and then attempts to stabilize it.
When an approximate balance is reached between the forces of buyers and sellers, a Spinning Top candle appears among other Forex candlestick patterns. It has a short body that is centered on the wicks. This suggests that although the price of the asset fluctuated throughout the day, it was about the same as at the beginning by the closing.
Bearish Engulfing Candles
This pattern shows that the bullish trend is weakening, while the bearish one is gaining strength. This can be seen from the fact that the red candle, coming after the green one, completely covers it.
This pattern of two Forex candlesticks shows that the downward trend has exhausted itself. Trading starts below the previous day's close but breaks out and closes above the midline at the end of the day.
If in a pair of candlesticks, one is large, and the next one is small and colored in the opposite color, such a pattern is called Harami. In translation, this means "pregnant woman" and indicates that the losing trend is gradually beginning to gain momentum.
Which Candle Is Best for Forex Trading?
All Forex candlestick patterns are valuable for a trader as they suggest further price movement. Analysts use over 60 different patterns to determine the best market entry and exit points. However, the 16 presented in the article are the most common and effective. Having learned to see them in the general price movement, you will be able to independently make decisions about opening and closing orders.
The Bottom Line
Now that you have figured out what is a candlestick in Forex trading, start experimenting with different strategies. They will be your best assistants, thanks to which technical analysis will seem not only simple but also very exciting. In the meantime, when you study the features of trading based on these indicators, use the services of Forex robots. By combining different approaches, you will find the perfect balance that will suit your personal trading style.