Different Types of Candlesticks Patterns in Forex

[2kool4skool]

Candlestick patterns are essential tools for technical analysis in forex trading. They provide insights into market sentiment, trend reversals, and potential price movements. Here are some common candlestick patterns used by forex traders:

1. Doji:
   • A Doji has an open and close price that are nearly the same.
   • It indicates indecision in the market and potential trend reversal.
   • Types of Doji include the standard Doji, Long-Legged Doji, and Dragonfly Doji.
2. Engulfing Patterns:
   • Bullish Engulfing:
     • Occurs in a downtrend.
     • The second candle's body completely engulfs the first candle's body.
     • Signals a potential reversal to the upside.
   • Bearish Engulfing:
     • Occurs in an uptrend.
     • The second candle's body completely engulfs the first candle's body.
     • Signals a potential reversal to the downside.
3. Hammer and Hanging Man:
   • Hammer:
     • Appears at the bottom of a downtrend.
     • The candle has a small body and a long lower shadow.
     • Signals potential bullish reversal.
   • Hanging Man:
     • Appears at the top of an uptrend.
     • The candle has a small body and a long lower shadow.
     • Signals potential bearish reversal.
4. Shooting Star and Inverted Hammer:
   • Shooting Star:
     • Appears at the top of an uptrend.
     • The candle has a small body and a long upper shadow.
     • Signals potential bearish reversal.
   • Inverted Hammer:
     • Appears at the bottom of a downtrend.
     • The candle has a small body and a long upper shadow.
     • Signals potential bullish reversal.
5. Morning Star and Evening Star:
   • Morning Star:
     • A three-candle pattern.
     • Begins with a bearish candle, followed by a Doji or small bullish candle, and then a strong bullish candle.
     • Signals potential bullish reversal.
   • Evening Star:
     • A three-candle pattern.
     • Begins with a bullish candle, followed by a Doji or small bearish candle, and then a strong bearish candle.
     • Signals potential bearish reversal.
6. Three Black Crows and Three White Soldiers:
   • Three Black Crows:
     • A bearish reversal pattern.
     • Consists of three consecutive long bearish candles.
     • Signals potential continuation of a downtrend.
   • Three White Soldiers:
     • A bullish reversal pattern.
     • Consists of three consecutive long bullish candles.
     • Signals potential continuation of an uptrend.
7. Double Top and Double Bottom:
   • Double Top:
     • Forms after an uptrend.
     • Two peaks at approximately the same price level.
     • Signals potential reversal to the downside.
   • Double Bottom:
     • Forms after a downtrend.
     • Two troughs at approximately the same price level.
     • Signals potential reversal to the upside.
8. Head and Shoulders:
   • Head and Shoulders Top:
     • Forms after an uptrend.
     • Consists of three peaks – a higher peak (head) between two lower peaks (shoulders).
     • Signals potential reversal to the downside.
   • Head and Shoulders Bottom:
     • Forms after a downtrend.
     • Consists of three troughs – a lower trough (head) between two higher troughs (shoulders).
     • Signals potential reversal to the upside.

 

[Fin_Trader]

I also use candlestick patterns in my trading to confirm market entries according to my trading strategy. I especially like how the absorption model works. But we need to add that on higher timeframes it works out much better and more often than on small timeframes and the potential for price movement there is also quite high, which makes it possible to earn more.