Using our beginner’s guide to forex candlestick patterns, learn the most popular setups and whether they signal a potential bullish or bearish market move
If you’re a price action trader, then forex candlestick patterns need to be a part of your trading strategy.
Forex candlestick patterns offer a real-time glimpse into whether the bulls or bears are taking charge of a market and therefore allows you to make an informed trading decision.
When used in conjunction with trends and simple support/resistance levels, forex candlestick patterns become one of the simplest and most powerful analysis tools available.
In this beginner’s guide, we go over the basics of a Japanese candlestick, highlight the most popular single, two-candle and three-candle chart patterns, and show you how to trade them.
The Japanese Candlestick
A Japanese candlestick displays all the price information of a forex market’s movement, within a specific time frame.
Candlesticks have become the most popular method of displaying price on a chart and are widely used to help traders conduct technical analysis on a market.
They give traders all the information you need to quickly and easily digest how price has moved over time.
Japanese Candlesticks Explained
Let’s first take a look at the anatomy of a Japanese candlestick.
Keep in mind that each candlestick contains price action within a set period of time, depending on which timeframe chart you’re viewing.
For example, an M15 chart will display fifteen minutes of price action within each candle, while a D1 chart will display an entire day’s price action within each candle.
Popular Candlestick Patterns
Now we understand how to read a Japanese candlestick chart, it’s time to take a look at the most popular forex candlestick patterns.
Each pattern has a bullish and bearish variant to them, made up of the direct opposite price action and therefore indicates a move in opposite directions.
We’ve broken these down into single, two-candle and three-candle chart patterns and show you whether they indicate a price reversal, continuation or indecision.
A doji is a neutral single candle pattern, that indicates indecision between the bulls and bears.
It features little movement up or down and price returns to close back on the same price that it opened.
It shows that the bulls and bears were both fighting equally for control of the market and there was no clear winner at the end.
Many traders misinterpret a doji as a reversal candle, but all it shows is indecision and should instead be viewed as neutral.
A marubozu is a candle that indicates one side is in total control of the market at this particular time.
It features a candle that’s all body and has no wicks on either size.
This means that price opened, instantly traded in the one direction and then closed at the other extreme.
By looking at which colour the body of the marubozu candle closes, you can see who remains in charge.
As a price action trader, support and resistance levels should be at the foundation of any technical analysis you conduct.
If you combine support/resistance levels with forex candlestick patterns that signal reversals at the end of trends, then you have a lot of things pointing toward a successful trade.
Trading forex is all about putting the odds in your favour and by lining all of your ducks in a row, you can give yourself the best chance of success.
Trading forex is all about achieving consistency and always giving yourself the highest odds of being profitable.
Final Thoughts on Forex Candlestick Patterns
This trading guide has given beginner traders a glimpse into the world of forex candlestick patterns and what it means to be a price action trader.
When candlestick patterns are used alongside trends and support/resistance levels, they become a powerful, forward looking market analysis method.
When you look at a chart, you’re now going to see forex candlestick patterns everywhere.
But the best traders are the ones that are able to identify which setups have the best probability of delivering a profitable outcome.