Analyzing Candlestick Chart Patterns

 

You will come across many candlesticks chart patterns for trading forex. Each candlestick pattern has a story to tell, predicting certain trends in the forex. Traders who follow patterns in candlesticks charts are more likely to identify different types of price movements, faster. Moreover the dynamic characteristics and flexible nature of Japanese candlestick patterns makes them popular besides being colorful as compared to other traditional charts in forex. Interestingly, candlesticks chart patterns analysis has become immensely popular among traders.

 

Here are some common candlesticks chart patterns:

 

Hammer
The Hammer is a bullish reversal pattern in candlestick chart, developing during a downtrend. Having black bodies with long or short shadows, the hammer indicates that the bottom is near, reflecting that the prices will go up again. The long shadow is about two or three times of the real body, with little or no upper shadow. As a word of concern, when you see a hammer, it doesn’t mean that that you should place a buy order. You should look for more bullish confirmation to do so.

 

Candlestick Star
Star patterns in candlesticks charts have a small real body, which shoes indecision by both the bulls and the bears. What makes the appearance of the candlestick star much more significant is the strength in direction of the trend. Some of the star candlesticks patterns are the Morning star, Evening Star and shooting star.

 

Doji
Doji candlesticks chart pattern is looked upon as of the most important patterns in candlesticks charts. Reflecting the balance between supply and demand in the markets, it is a clear trend reversal signal. Doji is an indication of indecision of investors. If the Doji candlesticks pattern makes an appearance after a long uptrend, it is a sign for the traders that the trend has already peaked or is either close to peaking. But if it is seen after a long downtrend, it shows that the prices have been forced down. It is very important to for the traders to understand and recognize Doji pattern.
 

Harami
The Harami candlestick pattern is a doji reversal pattern, preceding by a long white real body. The traders get to see a bullish or bearish Harami pattern.A bearish Harami pattern in candlesticks charts occurs if there is a large bullish candle on first day followed by a smaller bearish or bullish candle on second day. You see a bullish Harami, if there is a large bearish candle on first day followed by a smaller bearish or bullish candle on second day.


Umbrella
Umbrella candlestick pattern is a kind of a doji, having no upper shadow but with a long lower shadow. The lower long shadow represents the buying pressure, indicating that there are plenty of sellers still are around. Interpreted as a reversal pattern, this pattern can be recognized with a horizontal line, with a long lower shadow. The umbrella candlesticks chart pattern indicates that sellers dominating during the day trading, driving the prices lower, but by the end of the day, the buyers resurfaced and successfully pushed the prices back to the opening level.

 

Spinning tops

When you see the candlesticks having a long upper shadow, long lower shadow and small real bodies, then they are called spinning tops patterns in candlesticks charts. This basic candlesticks patterns reflects the indecision between the buyers and sellers. The White Spinning Top and black Spinning Top candle patterns are the two kind of spinning tops. The White Spinning Top is seen after a long rally communicating weakness among the bulls. The Black Spinning Top on the other hand communicates weakness among the bulls and warns about a potential change.


 
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