Candlestick Patterns in Forex
Candlestick charts were formulated by the Japanese, and are widely used in forex. Successful forex traders should know how to identify patterns in candlestick charts. Based on the patterns in candlestick charts, they can make decisions on buying or selling forex pairs.
There are many types of candlestick patterns, and the most important ones are explained below.
Spinning Tops Candlestick Patterns
These are candlesticks which have an upper shadow and lower shadow (both long), and small bodies. The body’s colour is not very significant. This pattern denotes likely indecision between buyers and sellers.
The small body shows that there has been little movement from the opening to the closing point, and the long shadows show that in the tussle between buyers and sellers, no one has gained an upper hand.
Marubozu Candlestick Patterns
These are candlesticks whose bodies have no shadows. The highest point and the lowest point are the same as the opening or closing point. There are two types of Marubozu candlestick patterns, namely the White Marubozu and the Black Marubozu.
White Marubozus contain long white bodies with no shadows. In this pattern, the opening price equals the lowest price, and the closing price equals the highest price. This pattern indicates bullishness.
Black Marubozus contain long black bodies with no shadows. Here, the opening price equals the highest price, and the closing price equals the lowest price. This pattern denotes bearishness.
Engulfing Candlestick Patterns
Bullish engulfing patterns include a large white body that engulfs a small black real body in a downtrend.
Conversely, bearish engulfing patterns are seen in the chart when bearishness overtakes bullishness i.e. a long black body engulfs a small white body in an uptrend.
Three white soldiers candlesticks pattern
When there long bullish candlesticks are following a downtrend, the three white soldiers candlesticks pattern is said to have been formed. This pattern indicates that a reversal has taken place.
The first candle is called the reversal candle, which either concludes the downtrend or denotes that the consolidation period that followed the downtrend has ended.
The second candle that follows should be bigger than the first candle’s body. The second candle also has to be near its highest point, with a very small wick or none at all.
The third candle should be the same size as the second candle and have a small shadow or no shadow at all.
Three Black Crows Candlesticks Pattern
In the three black crows patter, three bearish candles follow an uptrend, which indicates that a reversal is on the cards.
The second candle should have a bigger body than the first candle. It should be close to its lowest point or be at the lowest point itself.
The third candle should be larger than the second candle, or be the same size. It should either have a very small shadow or no shadow at all.
To conclude, knowledge of identifying the above candlesticks (spinning tops, Marubozus, engulfing candlesticks, three white soldiers and three white crows) is an asset to every trader.