Why Candlestick Patterns Matter

Candlestick charts are one of the most effective ways to analyze forex price action. Each candlestick shows the opening, closing, high, and low price for a given period. Patterns formed by candlesticks often signal potential market moves.

Learning these patterns helps you spot reversals, continuations, and entry opportunities.

1. Doji

• Description: Open and close prices are nearly equal, forming a cross-like candle.
• Signal: Market indecision. May indicate a trend reversal if seen at the top or bottom of a trend.

2. Hammer

• Description: Small body at the top, long lower shadow, little or no upper shadow.
• Signal: Bullish reversal when found after a downtrend. Buyers are stepping in.

3. Inverted Hammer

• Description: Small body at the bottom, long upper shadow.
• Signal: Possible bullish reversal, but needs confirmation with the next candle.

4. Shooting Star

• Description: Opposite of hammer. Small body at the bottom with a long upper shadow.
• Signal: Bearish reversal when seen after an uptrend.

5. Bullish Engulfing

• Description: Small bearish candle followed by a large bullish candle that engulfs the first.
• Signal: Strong bullish reversal.

6. Bearish Engulfing

• Description: Small bullish candle followed by a larger bearish candle.
• Signal: Strong bearish reversal.

7. Morning Star

• Description: A three-candle pattern. First a bearish candle, then a small indecisive candle, followed by a strong bullish candle.
• Signal: Bullish reversal after a downtrend.

8. Evening Star

• Description: Opposite of morning star. Bearish candle comes last.
• Signal: Bearish reversal after an uptrend.

9. Three White Soldiers

• Description: Three consecutive bullish candles with higher closes.
• Signal: Strong bullish continuation.

10. Three Black Crows

• Description: Three consecutive bearish candles with lower closes.
• Signal: Strong bearish continuation.

How to Use Candlestick Patterns Effectively

• Always confirm with technical indicators (RSI, MACD, moving averages).
• Look for patterns at support and resistance levels.
• Use higher timeframes (H1, H4, Daily) for stronger signals.
• Avoid trading on patterns alone. Combine with risk management.

Example in Action

Imagine EUR/USD is in a strong downtrend. A hammer candlestick forms at a support level. If the next candle confirms with a bullish close, it may be an entry signal for a buy position with a stop-loss below support.

Final Thoughts

Candlestick patterns give you powerful insights into market psychology. Learn these 10, combine them with other tools, and you will improve your decision-making in forex trading.

Call to Action:
Open a demo account with a trusted broker and practice spotting these candlestick patterns on live charts.