Forex Candlestick Chart: A Comprehensive Guide for New Main Operators

Why Candlestick Chart Patterns Have Become the Standard for Professional Traders

In the world of Forex trading, many investors succeed by relying solely on candlestick chart pattern analysis. This tool is essential because it appears on all trading platforms and clearly reflects market sentiment through visual patterns.

Candlestick charts have a long history, dating back over 200 years in Japan, where Japanese rice traders used them to track price behavior, eventually becoming a globally accepted analytical method.

Fundamentals: Key Components of Each Candlestick

A candlestick is a chart that records price movements over a specified period and consists of four pieces of information:

• Opening price (the starting level)
• Closing price (the ending level)
• Highest price (the peak during that period)
• Lowest price (the trough during that period)

Differentiation by color:

• White (Bullish) candlestick (: Occurs when the closing price is higher than the opening price, indicating strong buying pressure.
• Black (Bearish) candlestick ): Occurs when the closing price is lower than the opening price, indicating strong selling pressure.

The wick components: The lines extending from the body of the candlestick show the strength of the battle between buyers and sellers.

You can use these wicks in any timeframe, from the shortest (15 minutes) to longer periods (weekly).

Candlestick Specifications and Meanings

The length of the wicks indicates volatility levels:

When the wicks are short, the high and low prices during that period are close to the open and close prices, indicating stable price agreement in the market.

When the wicks are very long, prices fluctuate greatly during that period, reflecting uncertainty and struggle between two sides.

Reasons Why Traders Choose Candlestick Chart Patterns

Ability to display market psychology: The buying and selling forces are expressed through candlestick patterns, unlike simple line charts that only show closing prices.

Simplicity and effectiveness: Candlestick patterns are easy to interpret. When combined with other tools like trend lines and support-resistance levels, accuracy increases.

Proven success through historical experience: This method has demonstrated success since ancient times. For example, Japanese rice traders used candlestick charts, earning respect and status.

Basic Patterns: Foundational Elements to Master

( Doji: Sign of balance

Special characteristics: The open and close prices are the same or very close, indicating that buying and selling forces are in equilibrium.

Four types of Doji:

• Standard Doji: Shows price movement up and down, reflecting intense struggle.
• Gravestone Doji: Long upper wick, indicating rejection of buying pressure.
• Dragonfly Doji: Long lower wick, indicating rejection of selling pressure.
• Four Price Doji: Very rare in the market, indicating extreme indecision.

Usage: Observe the candlestick before the Doji to determine if a trend reversal is imminent. Wait for confirmation from the next candlestick.

) Marubozu: Sign of strong control

Special characteristics: Candlesticks with no wicks at all, indicating one side has full control.

• White Marubozu: Open equals the low, close equals the high, showing full buying power.
• Black Marubozu: Open equals the high, close equals the low, showing full selling power.

Spinning Top: Sign of hesitation

Special characteristics: Short body with long wicks, indicating no clear winner in the battle.

Contextual analysis:

• In an uptrend, it may suggest weakening buying pressure.
• In a downtrend, it may indicate weakening selling pressure.

Single Candlestick Patterns: Reversal Signals

Hammer and Hanging Man

Hammer ###Hammer###: Appears after a downtrend

• Long lower wick, short body
• Indicates buyers are stepping in
• Wait for the next candlestick to confirm

Hanging Man (Hanging Man): Appears after an uptrend

• Similar to Hammer but at the top of a trend
• Suggests buying momentum may be waning

( Inverted Hammer and Shooting Star

Inverted Hammer: After a downtrend

• Long upper wick, short body
• Shows buyer effort

Shooting Star: After an uptrend

• Similar to Inverted Hammer
• Indicates seller effort

Double Candlestick Patterns: Stronger Signals

) Bullish Engulfing and Bearish Engulfing

Bullish Engulfing ###Bullish Reversal###:

• A black candle followed by a much larger white candle
• The white candle clearly engulfs the black one
• Indicates a trend reversal to the upside

Bearish Engulfing (Bearish Reversal):

• A white candle followed by a much larger black candle
• The black candle clearly engulfs the white one
• Indicates a trend reversal to the downside

( Tweezer Tops and Tweezer Bottoms

Tweezer Tops )Top Clamps###:

• Two consecutive candles with equal long upper wicks
• Indicate rejection attempts
• Signal a reversal from uptrend to downtrend

Tweezer Bottoms (Bottom Clamps):

• Two consecutive candles with equal long lower wicks
• Indicate rejection of selling attempts
• Signal a reversal from downtrend to uptrend

Three Candlestick Patterns: Complex Signals

( Morning Star and Evening Star

Morning Star )Morning Star###: Reversal from downtrend

• First candle: continues downtrend
• Second candle: Doji indicating indecision
• Third candle: long white candle confirming reversal

Evening Star (Evening Star): Reversal from uptrend

• First candle: continues uptrend
• Second candle: Doji indicating indecision
• Third candle: long black candle confirming reversal

( Three White Soldiers and Three Black Crows

Three White Soldiers )Three White Soldiers###:

• Three consecutive increasing white candles
• Indicate increasing buying pressure
• Strong bullish signal

Three Black Crows (Three Black Crows):

• Three consecutive decreasing black candles
• Indicate increasing selling pressure
• Strong bearish signal

( Three Inside Up and Three Inside Down

Three Inside Up )Three Inside Up###:

• Reversal from downtrend to uptrend
• First candle: long downtrend candle
• Second candle: inside the first
• Third candle: closes above the high of the first, confirming buy signal

Three Inside Down (Three Inside Down):

• Reversal from uptrend to downtrend
• First candle: long uptrend candle
• Second candle: inside the first
• Third candle: closes below the low of the first, confirming sell signal

Summary and Application

Remember that candlestick chart patterns are just part of analysis

Successful Forex trading requires combining:

• Candlestick pattern recognition
• Overall market condition understanding
• Fundamental analysis
• Careful risk management

Trading risk: The success rate of candlestick patterns is often below 50%, so decisions must be made cautiously, considering market conditions, fundamental analysis, and money management.

Mastering candlestick pattern reading takes time and continuous practice. Start with basic patterns, then gradually learn more complex ones. With dedication and diligent market observation, you will develop skills beneficial for Forex trading.