How To Read Candlestick Charts In Forex Trading


The bottom of the body tells you the opening price and the top of the body tells you the closing price. You may see a thin line extending from the top or bottom of the body. The shadow indicates the highest trading price for the period. The Ichimoku chart indicator is intimidating at first, but once broken down; every trader will find the application helpful. The chart meshes three indicators into one and offers a filtered approach to the price action for the currency trader.

forex candlestick patterns

It can be said to be simple and easy, but there are also certain risks. There is no way to be 100% correct, so investors must have a clear direction. It is common knowledge that you must use a stop loss in trading, and pay attention to the upward trend of the international market.

For the black ones, the top is the open price and the bottom is the closing price. The little «sticks» on the top and bottom of each candle indicate the highest and lowest price fluctuations during that time period. Unlike candlestick charts or bar charts, with line charts, you want to look at the chart as a whole. While you’ll typically see many ups and downs as you move along the X-axis, pay attention to whether the overall trend is for the exchange rate to increase or decrease. Line charts don’t show as much detail as either candlestick charts or bar charts.

At the same time, he is one of the leading experts on forex candlestick patterns. The third is to learn to use trading tools to analyze the candlestick charts. For example, traders who often make foreign exchange transactions know that there are many lines on the foreign exchange candlesticks chart. At the same time, investors can also draw their own lines for trend analysis, which is clear at a glance. Finally, of course, there is also some professional analysis software, investors can consider based on their individual situation. The chart above shows a bearish Harami pattern that forms during uptrends and signals that a trend reversal might be ahead.

So, the get plotted along the time scale as per the range of trading prices. An inverted hammer at the bottom of a downtrend is a bullish trend reversal signal. It indicates that the buyers were able to resist selling pressure as sellers were not able to take the price down much. A hammer formation at the top of an uptrend is called a Hanging Man and is a bearish signal indicating the end of the uptrend. The long lower wick indicates that the buyers have tried to keep the prices up but the sellers are gaining control.

There are dozens of different patterns that can be formed, each with its own meaning. In this blog post, we’ll break down 20+ of the most common candlestick chart patterns and explain what they indicate. The image below represents the design of a typical candlestick. There are three specific points used in the creation of a price candle.

Candlestick Patterns in Forex and What do They Mean

The low price for the interval is defined by the bottom of the vertical bar. The highest point, at the tip of the wick, is the highest exchange rate for the pairing for the selected period. When you choose a currency pair, for example, EUR/USD, the chart you generate will show you how many US dollars you can buy for one Euro. You will also need to look at the market conditions in the entirety to formulate your trading strategy. In this example, the stock was on an upward trend but the retracement to Rs. 710 was a temporary correction. If the waves get shorter, it might be a signal of trend exhaustion and possibly the end of a trend.


Once you have mastered the identification of simple Candlestick patterns, you can move on to trading more complex Candlestick patterns like the Bullish and Bearish 3-Method Formations. There are many chart time frames to choose from and it is completely up to you to decide which time frame suits you and your trading style best. Recognize that short bodies mean there was little buying or selling pressure. Candlesticks with short bodies represent little price movement. Candlesticks with long bodies represent strong buying or selling pressure and a lot of price movement. Investopedia requires writers to use primary sources to support their work.

How do Forex Chart Timeframes work?

As with all trading tools, attain firsthand knowledge and experience by tracking and following them on a regular basis so you can spot them quickly. Candlesticks are building blocks for technical analysis and strategy development. High is the highest trade price for the candlestick period and is also displayed as a wick, which is a vertical line. These patterns are common and reliable examples of bullish two-day trend continuation patterns in an uptrend. A depth chart is the graph of all the pending orders for a particular asset. As with the hammer formation, a trader would place a stop loss below the bullish engulfing pattern, ensuring a tight stop loss.

The most popular time frame is the daily one, where the candle indicates the open, close, and high and low for one single day. The foreign exchange markets are affected by political, social, and environmental factors that are difficult to predict or manage. Bar charts represent the high, low, opening, and closing price for the interval represented by each bar.

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The long, thin wicks of the candlestick extend from a wide section known as the real body. The real body represents the price range between the open and close of that time period’s trading. When the real body has a black or red fill, it means the close was lower than the open. If the real body is empty or green, it means the close was higher than the open. As a type of price-charts, candlestick charts are often used by technical traders to perform technical analysis and predict future price-movements based on past price-action.

Candlestick chart analysis provides easily readable information. For example, when the close is higher than the open, you know immediately because the body is green. If this happens several days in a row, you can assume a short-term uptrend is in place. If you look at a bar chart, this information is not as easy to identify.

How to Read Candlestick Charts for Beginners

The Y-axis would follow hour-long intervals so you could progress the movement of the exchange rate. This relatively simplistic view of overall rate movement can supplement your analysis on other charts. For example, if you’ve noted a down-trend in the last 24 hours, you could check on the line chart to determine whether the lowest point is down overall, or coming down from a spike. Since you’re typically looking at a bigger picture with line charts, you may want to set a longer time period for your line chart. The maximum length of time you can set depends on the service you’re using to generate your chart.

  • The first one is a large bearish candle and the second one is a smaller bullish candle.
  • Work can help develop your knowledge of the many different candlestick chart patterns.
  • If you go and buy that currency pair right away, that’s a HUGE mistake.
  • The next chart shows a common double top pattern, followed by a pullback signalled by a hanging man pattern.
  • These charts allow traders to find the exact price opening for a while and when the prices closed.
  • In fact, a chart that represents the open, high, close, and the low price for a given period is actually referred to as an OHLC Forex chart.

For example, if the bars are moving steadily upwards, that indicates that the rate is increasing over time. You would love my articles related to Credit Cards, Travel, Shopping, Tax Saving. I share transparently how I am making passive income from multiple sources online. In a consolidation phase, neither the buyers or sellers are in control.

Introducing Candlestick Charts

Candles that close green or red may mislead amateur forex traders into thinking that the market will keep moving in the direction of the previous closing candle. If there is no upper wick, then the high price is the open price of a bearish candle or the closing price of a bullish candle. Opposite to a bullish harami, a bearish harami occurs in an uptrend and a bearish trend reversal. Candle A must be a bullish candle, while candle B must be a bearish candle with the body shorter that the body of candle A. A relatively long upper wick indicates a strong rejection of higher prices above the closing price or above the opening price . The same is true on long lower wicks, indicating strong rejection of lower prices.

To better understand how candlesticks work and how candlestick charts are constructed, let’s take a funny example. No candle pattern predicts the resulting market direction with complete accuracy. Whenever making trading decisions based on technical analysis, it’s usually a good idea to look for confirming indications from multiple sources. As you can see, the candle might look the same but the previous trend and its direction give different signals.

Fill out the to get started and you’ll have your own stock trading account within minutes. Learn how to determine price movements and increase your potential to earn in the markets. Understanding candles in Forex varies a lot as various components allow you to forecast different aspects. For example, if a candle closes considerably below its opening point, it may hint towards a further decline in the prices.

Although the last 4 hour candlestick for the day may suggest some short term weakness, because it closed off its highs for the interval. Further analysis is required on lower time frames to determine whether the buyers or sellers are likely to remain in control. On the other side, a Dragonfly Doji comes without upper wicks, i.e. the opening and closing prices are located right at the highest price of the trading period. A Doji pattern usually signals indecision in the market, as neither buyers nor sellers managed to push the price above/below the opening price.

#2. Know What is Price – Action Analysis

By now, you should have a good idea about what a Candlestick is and how to read simple and complex Candlestick patterns. So, let us now try to read trading charts to see how we can trade using these patterns. While there many different patterns, we will discuss some of the most popular Candlestick patterns that can help in reading a price chart like a professional trader.

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