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Forex Candlestick Charts
Basic Forex Candlestick Chart Patterns
A long body is a forex candlestick chart with a very long body when compared with other recent candles. White bodies show intense buying pressure, where as black bodies show intense selling pressures. Long white candles are generally bullish, but are also found at blowout tops, so they must be interpreted with surrounding candles. Similar long black candles are generally bearish, but are also found at capitulation bottoms. Long bodies with no upper and lower shadows are called Marubozo's. Marubozo's are more powerful than long candles as they show a steady advance (or decline if black) throughout the trading period. A short candle is the opposite of a long candle and usually implies consolidation, as the stock Forex market traded in a narrow range during the period. Short candles with long upper and lower shadows are called spinning tops, and are potential reversal signs, as it shows that despite trading in a wide range, the security closed close to the open. A spinning top becomes a doji as the closing price approaches the open price.
Forex Candlestick Chart: Long Days The Long Days indicate the great difference between the open price and the close price for a trading day. The shadow lines are much shorter than the real body.
Forex Candlestick Chart: Short Days The Short Days indicate the small difference between the open price and the close price for a trading day. Both the body and the shadow lines are very short.
Forex Candlestick Chart: Marubozu Marubozu means there are no shadows from the bodies. A White Marubozu is a long white body with no shadows which indicates a bullish trend. It usually becomes the first part of a bullish continuation or a bullish reversal pattern.
A Black Marubozu is a long black body with no shadows. It usually implies bearish continuation or bearish reversal.
Forex Candlestick Chart: Spinning Tops The Spinning Tops have longer shadow than the real body. The colour of the real bodies are not very important. The pattern indicates the indecision between the bullish and bearish trends.
Forex Candlestick Chart: Stars and Rain Drops A Star appears when a small body gaps ABOVE the previous day's long body. Stars are part of more complicated candlestick patterns, especially the reversal patterns.
A Rain Drop appears when a small body gaps BELOW the previous day's long body. Rain Drops are part of the more complicated patterns, especially the reversal patterns.
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Reversal Forex Candlestick Chart Patterns
Forex Candlestick Chart: Dark Cloud Cover In an uptrend the market gaps open, but loses ground to fall below the midpoint of the previous day. The Dark Cloud Cover pattern suggests an opportunity for the shorts to capitalize on the next day's open: a warning sign to bullish investors. The Dark Cloud Cover pattern is the opposite of the Piercing Line pattern.
Forex Candlestick Chart: Engulfing An engulfing occurs when the candle body engulfs the previous candles body. White engulfing candles are bullish engulfings, where as black engulfing candles are bearish engulfings. Bullish engulfings are commonly found at short term bottoms, where as bearish engulfings at tops. Many candlesticks, such as dojis, hammers, hanging mans need confirmation of a trend change with an engulfing (bullish engulfing at bottoms, bearish engulfings at tops).
Occurring in a downtrend, the Engulfing depicts an opening at a new low, followed by a high buy-in that closes at or above the previous day's open. This signifies that the downtrend has lost momentum and the bulls may be gaining strength.
Occurring in an uptrend, the Engulfing depicts an opening at a new high, followed by a high volume sell-off that closes at or below the previous day's open. This signifies that the uptrend has been hurt and the bears may be gaining strength.
Forex Candlestick Chart: Evening Star In an uptrend, the market builds strength on a long white day and gaps open on the second day. However, the second day Forex market trades within a small range and closes at or near its open. This scenario generally shows an erosion of confidence in the current trend. Confirmation of the trend reversal is the black third day.
Forex Candlestick Chart: Harami After a long white day at the high end of an uptrend, a black candlestick opens lower than the previous day's close. Trading is typically light and the day ends with a close lower than the open and within body of the first day; a signal that the current uptrend is losing strength. The Harami indicator should be confirmed with the next trading day's candlestick following the reversal trend.
o A long
body followed by a shot body with opposite colour.
After a long black day at the low end of a downtrend, a white candlestick opens higher than the previous day's close. The price is driven up, as many shorts are covered, which encourages further buy-ins. The Harami indicator should be confirmed with the next trading day's candlestick following the reversal trend.
Forex Candlestick Chart: Morning Star Doji In a downtrend, the market bolsters the bearish trend with a long black day and gaps open on the second day. However, the second day Forex market trades within a small range and closes at or near its open. This scenario generally shows the potential for a rally, as many positions have been changed. Confirmation of the trend reversal is given by the white third day.
o The first
day is a black day which indicates the trend of the market.
Forex Candlestick Chart: Piercing Line In a downtrend the market gaps open, but rallies strong to close above the previous days midpoint. This pattern suggests an opportunity for the bulls to enter the market and support the trend reversal. The Piercing Line pattern is the opposite of the Dark Cloud Cover.
Forex Candlestick Chart: Three Black Crows In an uptrend three long black days occur with consecutively lower closes. Three Black Crows pattern suggests that the market has been at a high price for too long, and investors are beginning to compensate for it.
Forex Candlestick Chart: Three White Soldiers In a downtrend three long white days occur with consecutively higher closes. Generally this suggests future market fortitude, as a reversal is in progress that is building on moderate upward steps.
Continuation Forex Candlestick Chart Patterns
Forex Candlestick Chart: Falling Three Methods In a downtrend, a long black day occurs, following by three days of small real bodies that fall into a short uptrend. On the fifth day, the bears come in strong to close at a new low. This small uptrend, in between two long black days, is consistent with investors taking a break. The downward should continue.
Forex Candlestick Chart: Rising Three Methods In an uptrend, a long white day occurs, following by three days of small real bodies that fall into a short downtrend. On the fifth day, the bulls come in strong to close at a new high. This small downtrend, in between two long white days, is consistent with investors taking a break. The upward trend should continue.
Single-Candle Forex Candlestick Chart Patterns
Forex Candlestick Chart: Doji's
Doji's are powerful reversal indicating candlesticks and are formed when the security opens and closes at the same level, implying indecision in the stock price. Depending on the location and length of the shadows, doji's can be categorized into the following formations: doji, long legged-doji, butterfly doji, gravestone doji, 4 price doji, etc. Doji's become more significant when seen after an extended rally of long bodied candles (bullish or bearish) and are confirmed with an engulfing.( a long candlestick formed over the next period which engulfs the doji body).
A long legged-doji is formed when the stock opens at a level, Forex market trades in a considerable trading range only to close at the same level as it opened. Long legged-doji's become more powerful when preceded by small candles, as a sudden burst of volatility in a relative unvolatile stock, can imply a trend change is coming.
Dragonfly Doji's are doji's that opened at the high of a session, had a considerable interperiod decline, then find support to rally back to close at the same level as the open. Dragonfly Doji's are often seen after a moderate decline, and are bottom reversal indicators when confirmed with a bullish engulfing.
Gravestone Doji's are the opposite of the Dragonfly Doji and are top reversal indicators when confirmed with bearish engulfings. As the name implies, gravestone doji's look like a gravestone, and could signal impending doom for a stock. 4 price doji's occur when the stock opens, Forex market trades and closes at virtually the same level for the period. These are very rare, except with thinly Forex market traded securities.
Forex Candlestick Chart: Dragonfly Doji There is a sharp sell off after the market opens during an uptrend. However, by the end of the trading day, the market closes at or near its high for the day. This signifies the potential for further sell-offs. Since the certainty for a Hanging Man indicator is low, the trend reversal can be confirmed by a black candlestick or a large down gap on the next trading day accompanied by a lower close. If the open and the close are identical, the indicator is considered a Dragonfly Doji. The Dragonfly Doji has a higher reliability associated with it than a Hammer.
o The long lower shadow is about two to three times of the real body. o Little or no upper shadow. o The real body is at the upper end of the trading range. o The colour of the real body is not important.
Trend:
Bearish
Forex Candlestick Chart: Gravestone Doji As the market opens below the close of the previous day, the bulls rally briefly, but not enough to close above the previous day's close. As this leaves shorts in a losing position, the Inverted Hammer presents the potential for an upcoming rally. Confirmation of the trend reversal would by an opening above the body of the Inverted Hammer on the next trading day. If the open and the close are identical, the indicator is considered a Gravestone Doji.
o Small real body at the upper end of the trading range. o Upper shadow usually at least three times as long as the real body o No (or almost no) lower shadow
Trend:
Bullish
Forex Candlestick Chart: Hammers/ Hanging Man
Hammers and hanging man's are short body candle's with little or no upper shadow, and a lower shadow at lease twice as long as the candle body. Hammers are formed after declines, and hanging man's after advances. When confirmed they become powerful reversal signals, especially the hammer. The expression "hammers out a bottom" refers to when after the open, the downtrend in a stock continues, until at some point, enough buying interest is generated, to bring prices close to where they open. Confirmation comes from a bullish engulfing, showing the Forex market trader that the up trend is established. The color of the hanging man/hammer is unimportant, but some consider white hammers and black hanging man's more potent reversal signals.
There is a sharp sell off after the market opens during a downtrend. However, by the end of the trading day, the market closes at or near its high for the day. This signifies a weakening of the previous bearish sentiment, especially if the real body is white (the close is higher than the open price). Since the certainty for a Hammer indicator is low, the trend reversal can be confirmed by a higher open and an even higher close on the next trading day. If the open and the close are identical, the indicator is considered a Dragonfly Doji.
o The long lower shadow is about two to three times of the real body. o Little or no upper shadow. o The real body is at the upper end of the trading range. o The color of the real body is not important.
Trend:
Bullish
Forex Candlestick Chart: Shooting Star The market gaps open above the previous day's close in an uptrend. It rallies to a new high then loses strength and closes near its low: a bearish change of momentum. Confirmation of the trend reversal would by an opening below the body of the Shooting Star on the next trading day. If the open and the close are identical, the indicator is considered a Gravestone Doji. The Gravestone Doji has a higher reliability associated with it than a Shooting Star.
o A very long upper shadow. o The small real body at the lower end of the price range. o The real body gaps away from the prior real body.
Trend:
Bearish
Forex Candlestick Chart: Hollow Red Candles Stocks that have a red, hollow candlestick at the end of their daily chart.
Forex Candlestick Chart: Filled Black Candles Stocks that have a black, filled-in candlestick at the end of their daily chart.
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