Forex Basics | Technical Analysis

Forex Candlestick Patterns

Technical analysis in forex requires the identification of price patterns formed on the chart. Identification can be done by mere recognition of specific formations on the chart or through the use of technical indicators. Talking about specific formations on the chart, some can be recognized on almost all chart types while some can be recognized with candlesticks only. The latter are referred to as forex candlestick patterns.

Forex candlestick patterns can only be spotted on a Japanese candlestick chart. This type of chart was first used in Japan by commodity traders who sought to understand the movement of commodity prices. It was later adopted for forex trading and has since risen to become very popular. Arguably, the most popular type of forex chart. There are specific formations on this type of chart usually involving two to three candles, at most four which serves as reliable signals to predict market movement.

Forex candlestick patterns are advantageous because they can be used to identify precise market entry points. Because of this same reason they can be incorporated into different trading strategies and analysis to define market entry points.

Types of Forex Candlestick Patterns

There exist several types of forex candlestick patterns which for the purpose of this post I am going to be dividing into four categories. These categories will be based on whether it is a bullish or bearish pattern, and if it is a reversal or continuation pattern. The categories are therefore as follows:

  • Bullish reversal candlestick patterns.
  • Bullish continuation candlestick patterns.
  • Bearish reversal candlestick patterns.
  • Bearish continuation candlestick patterns.
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Bullish Reversal Candlestick Patterns

These are patterns which appear at the end of a downtrend. They signal the turning of a downtrend into an uptrend.
Examples of these patterns are:

Bullish Continuation Candlestick Patterns

These patterns signal they continuation of a previously established bullish trend.
Examples of these patterns are:

Bearish Reversal Candlestick Patterns

These patterns signal the beginning of a downtrend. They appear at the end of an uptrend.
Examples of these patterns are:

Bearish Continuation Candlestick Patterns

These candlestick patterns signify the continuing of a downtrend. These can appear after a rally in an established downtrend.
Examples of these patterns are:

In conclusion, forex candlestick patterns are a great way of identifying imminent market movement, which when done right can make you a lot of money. However, you should be sure you know how it works before pouring money into it. To be able to spot more trading opportunities in the forex market, you should also learn forex chart patterns.

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