Japanese candlestick patterns were first seen in the 18th century by Munehisa Homma, a trader. Since then, it has come a long way and is currently even used by modern Forex traders. There are a lot of trading indicators nowadays, but compared to all of these, candlestick patterns are known to be reliable and accurate as long as you know how to use it correctly.
Candlestick Patterns in Forex Trading
Japanese candlestick patterns are different from the bar charts and line charts which are also common patterns nowadays. Candlestick pattern proves to give insightful information and most importantly, they are so easy to interpret. Four things represent different candlestick – Close, Open, Higher Price, and Lowest Price
- Close – refers to the price when the candle was closed
- Open – refers to the price of candlestick pattern
- Highest Price – the highest value that the price reached throughout a time frame
- Lowest Price – the lowest value that the price reached throughout a time frame
There are also two types of candles – the bearish candle and the bullish candle. The bearish candle is moving down whilst, the close price is found below the open price. As for the bullish candle, it works oppositely with a bearish candle.
Trading Candlestick Patterns on Forex Trading
A candlestick chart seen on Forex trade gives out information regarding the behavior of the seller and buyer visually. It is easy to interpret for a specific period like 1 to 4 hours or every day. Most Forex traders utilize this so-called forex candlestick patterns together with other additional confirmation such as chart patterns, support and resistance or indicators. It is the best way to determine higher probability trading setups.
There are different types of candlestick patterns – the single candlestick pattern, triple candlestick pattern, and dual candlestick pattern.
Single Candlestick Patterns
It is made up of one candle that provides information regarding buyers and sellers. Examples of widely used single candlestick patterns include Doji Candlestick Pattern, Spinning Tops Candlestick Pattern, Hammer Candlestick Pattern, and Shooting Star Candlestick Pattern.
- Shooting Star Candlestick Pattern – if you see this candlestick following a strong uptrend, it will indicate a reversal. This usually occurs following a strong uptrend.
- Hammer Candlestick Pattern – if you see this candlestick following a downtrend, it means that the signs are reversal. This usually appears with a long lower wick, a small body, and a small upper wick.
- Spinning Tops Candlestick Pattern – this candlestick usually presents undefined characteristics. It could mean bullish or bearish and appears the same as the Doji candlestick.
Double Candlestick Patterns
It is made up of two candles. The most widely used double candlestick pattern is the Bullish and Bearing Engulfing Pattern.
Bullish Engulfing and Bearish Engulfing – this pattern is made up of two candles. Both Bullish and Bearish have reversal characteristics.
Triple Candlestick Pattern
This time, we have the triple candlestick pattern which has three candles. The most used triple candlestick pattern is the Morning Star and Evening Star.
Morning Star and Evening Star – both of these patterns contain reversal characteristics. The morning star portrays the reversal of bearish while the evening star is the reversal of bullish.