What are Candlestick Patterns?
Forex Candlestick Patterns represent one of the most popular tools of the technical analysis in forex. Candlestick pattern recognition can give us some insight and help us forecast price behaviour, although it’s wise not to rely on candlestick patterns alone, much more accurate to use more data. That’s because every candlestick graphically shows four pieces of information that are essential when forex trading:
- Opening Price
- Closing Price
- Day High
- Day Low
These fundamental data reveals the “emotion” of the market. An example of a candlestick chart is shown below:
Japanese Candlesticks are made up of bodies (also called “the real body”), which is the hollow or filled portion, with shadows (or “tail”, or also “wicks”) at each end. Candlesticks are either white or black. A white candlestick suggests that the closing price is higher than the opening price: that means the currency price increased during that period. A black candlestick suggests that the closing price is lower than the opening price: that means the currency price decreased during that period.
Most of the candlesticks have Japanese names because the candlestick chart was created in Japan by a Japanese rice trader named Homma from the town of Sakata, who used this chart system to trade rice.
Japanese Candlestick: Long VS Short Bodies
Typically, the longer the body is, the stronger is the pressure. On the other hand, short body candlesticks suggest minimal price movement and express consolidation.
- Long white candlesticks reveal solid buying demand. In long white candlestick the close is far above the open: that means the price moved substantially from open to close and buyers were aggressive. After a long bearish trend, a long black candlestick can forecast a reversal or highlight a support level.
- Long black candlesticks reveal solid selling demand. In long black candlestick the close is far below the open: that means the price fell considerably down from the open and sellers were aggressive. After a long bullish trend, a long black candlestick can forecast a reversal or highlight a resistance level. After a long negative trend a long black candlestick is a sign of panic among traders.
Candlestick Patterns Recognition
|Dark Cloud Cover||Inverted Hammer|
|Dragonfly Doji||Piercing Pattern|
|Evening Star||Shooting Star|
|Gravestone Doji||Tasuki Gap|
|Hammer||Three Black Crows|
|Hanging Man||Three White Soldiers|
Above you can find the major Candlestick Patterns and their explanations. For an easier candlestick recognition, you can use our Candlestick Pattern Indicator.