How To Read A Candlestick Chart: Reading Candlestick Charts - Talking Points

How to Read a Candlestick Chart
Dec 21, 2018 1:44 PM +01:00David Bradfield, Markets Writer
READING CANDLESTICK CHARTS – TALKING POINTS:

• Candlestick charts differ greatly from the traditional bar chart
• Traders generally prefer using candlestick charts for day-trading because they offer an
enjoyable visual perception of price
• It’s important to understand the key components of a candle, and what they indicate, to
apply candlestick chart analysis to a trading strategy
WHAT IS A CANDLESTICK CHART?
A candlestick chart is simply a chart composed of individual candles, which traders use to
understand price action. Candlestick price action involves pinpointing where the price opened for a
period, where the price closed for a period, as well as the price highs and lows for a specific period.
Price action can give traders of all financial markets clues to trend and reversals. For example,
groups of candlesticks can form patterns which occur throughout forex charts that could indicate
reversals or continuation of trends. Candlesticks can also form individual formations which could
indicate buy or sell entries in the market.
The period that each candle depicts depends on the time-frame chosen by the trader. A popular time-
frame is the daily time-frame, so the candle will depict the open, close, and high and low for the
day. The different components of a candle can help you forecast where the price might go, for
instance if a candle closes far below its open it may indicate further price declines.
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INTERPRETING A CANDLE ON A CANDLESTICK CHART

The image below represents the design of a typical candlestick. There are three specific points
(open, close, wicks) used in the creation of a price candle. The first points to consider are the
candles’ open and close prices. These points identify where the price of an asset begins and
concludes for a selected period and will construct the body of a candle. Each candle depicts the
price movement for a certain period that you choose when you look at the chart. If you are looking
at a daily chart each individual candle will display the open, close, upper and lower wick of that
day.
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Open price:
The open price depicts the first price traded during the formation of the new candle. If the price
starts to trend upwards the candle will turn green/blue (colors vary depending on chart settings). If
the price declines the candle will turn red.
High Price:
The top of the upper wick/shadow indicates the highest price traded during the period. If there is no
upper wick/shadow it means that the open price or the close price was the highest price traded.
Low Price:
The lowest price traded is the either the price at the bottom of the lower wick/shadow and if there is
no lower wick/shadow then the lowest price traded is the same as the close price or open price in a
bullish candle.
Close Price:
The close price is the last price traded during the period of the candle formation. If the close price is
below the open price the candle will turn red as a default in most charting packages. If the close
price is above the open price the candle will be green/blue (also depends on the chart settings).
The Wick:
The next important element of a candlestick is the wick, which is also referred to as a ‘shadow’.
These points are vital as they show the extremes in price for a specific charting period. The wicks
are quickly identifiable as they are visually thinner than the body of the candlestick. This is where
the strength of candlesticks becomes apparent. Candlesticks can help traders keep our eye on
market momentum and away from the static of price extremes.
Direction:
The direction of the price is indicated by the color of the candlestick. If the price of the candle is
closing above the opening price of the candle, then the price is moving upwards and the candle
would be green (the color of the candle depends on the chart settings). If the candle is red, then the
price closed below the open.
Range:
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The difference between the highest and lowest price of a candle is its range. You can calculate this
by taking the price at the top of the upper wick and subtracting it from the price at the bottom of the
lower wick. (Range = highest point – lowest point).
Having this knowledge of a candle, and what the points indicate, means traders using a candlestick
chart have a clear advantage when it comes to distinguishing trendlines, price patterns and Elliot
waves.
Bar Chart vs Candlestick Chart

As you can see from the image below, candlestick charts offer a distinct advantage over bar charts.
Bar charts are not as visual as candle charts and nor are the candle formations or price patterns.
Also, the bars on the bar chart make it difficult to visualize which direction the price moved.
HOW TO READ A CANDLESTICK CHART

There are various ways to use and read a candlestick chart. Candlestick chart analysis depends on
your preferred trading strategy and time-frame. Some strategies attempt to take advantage of candle
formations while others attempt to recognize price patterns.
Interpreting single candle formations
Individual candlesticks can offer a lot of insight into current market sentiment. Candlesticks like
the Hammer, shooting star, and hanging man, offer clues as to changing momentum and potentially
where the market prices maytrend.
As you can see from the image below the Hammer candlestick formation sometimes indicates a
reversal in trend. The hammer candle formation has a long lower wick with a small body. Its closing
pricing is above its opening price. The intuition behind the hammer formation is simple, price tried
to decline but buyers entered the market pushing the price up. It is a bullish signal to enter the
market, tighten stop-losses or close out a short position.
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Traders can take advantage of hammer formations by executing a long trade once the hammer
candle has closed. Hammer candles are advantageous because traders can implement ‘tight’ stop-
losses (stop-losses that risk a small amount of pips). Take-profits should be placed in such a way as
to ensure a positive risk-reward ratio. So, the take-profit is larger than the stop-loss.
Recognizing price patterns in multiple candles

Candlestick charts help traders recognize price patterns that occur in the charts. By recognizing
these price patterns, like the bullish engulfing pattern or triangle patterns you can take advantage of
them by using them as entries into or exit signals out the market.
For example, in the image below we have the bullish engulfing price pattern. The bullish engulfing
is a combination of a red candle and a blue candle that ‘engulfs’ the entire red candle. It is an
indication that it could be the end of a currency pairs established weakness. A trader would take
advantage of this by entering a long position after the blue candle closes. Remember, the price
pattern only forms once the second candle closes.
As with the hammer formation, a trader would place a stop loss below the bullish engulfing pattern,
ensuring a tight stop loss. The trader would then set a take-profit. For more forex candlestick charts
check our forex candlesticks guide where we go in depth into the advantages of candlestick charts
as well as the strategies that can be implemented using them.
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Top 10 Candlestick Patterns To Trade the Markets
Feb 6, 2019 10:22 AM +01:00Warren Venketas, Analyst
Candlestick patterns are important tools in technical trading. Understanding them allows traders to
interpret possible market trends and form decisions from those inferences. There are various types
of candlestick patterns which can signal bullish or bearish movements. This article will briefly
touch upon what candlestick patterns are and introduce the top 10 formations all traders should
know to trade the markets with ease.
WHAT ARE CANDLESTICK PATTERNS?

A candlestick is a single bar which represents the price movement of a particular asset for a specific
time period. The information it displays includes the open, high, low and close for that time period.
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Candlestick patterns take into account one or more candlesticks to assist technical traders in
developing inferences about future movements and price patterns of the underlying asset. These are
displayed graphically on a chart, which is utilized for market analysis. Our guide to reading
candlestick charts is a great place to start to learn how to interpret candlesticks for trading.
CANDLESTICK PATTERNS CAN BE BULLISH OR BEARISH

In order to recognize and apply the most commonly used candlestick patterns to a trading strategy,
traders need to understand how the inclination of these patterns can affect the market direction
(trend). The tables below summarize the two main categories of price movement that candlesticks
can indicate. Many of these patterns are featured in our top 10 list below.
Bullish Candlestick Patterns:
CANDLESTICK PATTERN DIRECTION
Morning Star Bullish (Reversal)
Bullish Engulfing Bullish (Reversal)
Doji Bullish/Bearish (Indecision)
Hammer Bullish (Reversal)
Bullish Harami Bullish (Reversal)
Piercing Pattern Bullish (Reversal)
Inside Bars Bullish (Continuation)
Long Wicks Bullish/Bearish (Reversal)
Bearish Candlestick Patterns:
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CANDLESTICK PATTERN DIRECTION
Evening Star Bearish (Reversal)
Bearish Engulfing Bearish (Reversal)
Doji Bearish/Bullish (Indecision)
Bearish Harami Bearish (Reversal)
Dark Cloud Cover Bearish (Reversal)
Inside Bars Bearish/Bullish (Continuation)
Long Wicks Bearish/Bullish (Reversal)
Shooting Star Bearish (Reversal)
TOP 10 CANDLESTICK PATTERNS TRADERS SHOULD KNOW
1 - EVENING STAR AND MORNING STAR

• The evening and morning star candlestick patterns occur at the end of upwards/downward
trends respectively and tend to indicate reversal patterns.
• The names come from the star shaped formation of the arrangement.
• As you can see from the image below, the first candlestick is in the direction of the trend,
followed by a bullish or bearish candle with a small body. The third candlestick is seen in
the direction of the reversal, ideally closing passed the halfway point of the first candlestick.
• Trading this candlestick pattern will require a confirmation candle in the direction of the
respective reversal – for example, traders will look for a bearish candle after the evening
star.
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2 - BULLISH & BEARISH ENGULFING
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• A bullish or bearish engulfing candlestick pattern may indicate reversal patterns.
• A bullish engulfing candlestick formation shows bulls outweigh bears. As the pattern below
shows, the green body (bulls) covers completely the first candlestick (bears).
• A bearish engulfing candlestick pattern is small green (or bullish) candle followed by a
larger red (bearish) candle immersing the small green candle.
3 – DOJI
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• The Doji candlestick chart pattern is associated with indecision in the market of the
underlying asset. This could mean potential reversal of the current trend or consolidation.
• This pattern can occur at the top of an uptrend, bottom of a downtrend, or in the middle of a
trend.
• The candlestick itself has an extremely small body centered between a long upper and lower
wick.
4 – HAMMER
• The Hammer candle is viewed as a bullish reversal usually occurring at the bottom of
a downward trend.
• This candle formation includes a small body whereby the open, high, low and close are
roughly the same. There is a long lower wick beneath the body which should be more than
twice the length of the candle body. The body may be bullish or bearish, however bullish is
considered more favorable.
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5 – BULLISH & BEARISH HARAMI
• A Bullish or Bearish Harami may indicate reversal patterns.
• The word “Harami” means “pregnant” in Japanese, and the name has been given to this
candlestick pattern because it resembles a pregnant woman. The second candle in the pattern
must be contained within the body of the first candle as seen in the images below. This holds
true for both bullish and bearish Harami’s.
• A downtrend precedes a bullish Harami and an uptrend precedes that of a bearish Harami.
6 – DARK CLOUD COVER
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• The Dark Cloud Cover pattern is seen as a bearish reversal pattern.
• This candlestick pattern must occur during an uptrend. As seen in the image below, the
bullish candle is followed by a bearish candle.
• This bearish candle must confirm certain criteria to validate the Dark Cloud Cover pattern:
1. The opening price must by higher than the previous days close.
2. The closing price must close below the midpoint of the previous bullish candle.
• The Dark Cloud Cover pattern looks similar to that of the Bearish Engulfing pattern. The
difference between the two relates to the second candlestick. Bearish Engulfing pattern has
the second candlestick opening above the close of the first, whilst the Dark Cloud Cover
opens above the high of the first candle and closes below the midpoint of the first
candlestick body.
7 – PIERCING PATTERN
• The Piercing Pattern is viewed as a bullish candlestick reversal pattern, at the end of a
downtrend or during a pullback within an uptrend, or at the support.
• There are two components of a Piercing Pattern formation:
1. Bearish candle
2. Bullish candle
• A Piercing Pattern occurs when a bullish candle (second) closes above the middle of bearish
candle (first) in a downward trending market.
• The open price of the second candle should gap down at market open and ensue by closing
above the mid-point of the previous candle as indicated below.
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• Both the Piercing and Dark Cloud Cover patterns have similar characteristics. The difference
is that the piercing line is a bullish reversal pattern as mentioned above, whilst the Dark
Cloud Cover pattern is a bearish reversal pattern.
8 – INSIDE BARS
• The Inside Bar pattern is utilized in trending markets whereby the high and low of the Inside
bar is within the parameters of the previous candle or “mother bar”.
• Inside Bars are traded within the direction of the trend – if the market is in a downtrend,
the trader would look to continue with a short position with the presence of an Inside Bar.
The same principal is applied in an uptrend.
• Trading in the direction of the trend is not always a given as key levels of support/resistance
can indicate a reversal. Classically, the entry points for traders is positioned above or below
the high or low of the mother bar depending on the direction of the trade.
• An inside bar is also similar to a bullish or a bearish harami candlestick pattern. The main
difference being that with an inside bar, the highs and lows are considered while the real
body is ignored.
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9 – LONG WICKS
• Long Wicks candlestick patterns often indicate a reversal in the trend.
• Long Wicks occur when prices are tested and then rejected. The wick indicates rejected
prices.
• Identifying the trend is important to interpret the significance of the Long Wick.
• Identifying key levels and price action is often used in conjunction with Long Wick patterns.
10 – SHOOTING STAR
• A Shooting Star is a bearish candle with a long upper wick, little or no lower wick and a
small real body near the day's low. It comes after an uptrend, and potentially indicates
a trend reversal to the downside.
• The distance between the high and opening price of the candle must be more than twice as
large as the Shooting Star's body. The distance between the lowest price for the day and the
closing price must be very small or nonexistent.
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Forex Candlesticks: A Complete Guide for Forex Traders
Dec 7, 2018 4:40 PM +01:00David Bradfield, Markets Writer
WHAT ARE CANDLESTICKS IN FOREX?

• Forex candlesticks provide a range of information about currency price movements, helping
to inform trading strategies
• Trading forex using candlestick charts is a useful skill to have and can be applied to all
markets
What could possibly be more important to a technical forex trader than price charts? Forex charts
are defaulted with candlesticks which differ greatly from the more traditional bar chart and the more
exotic renko charts. These forex candlestick charts help to inform an FX trader’s perception of price
movements - and therefore shape opinions of trends, determine entries, and more.
All currency traders should be knowledgeable of forex candlesticks and what they indicate. After
learning how to analyze forex candlesticks, traders often find they can identify many different types
of price action far more efficiently, compared to using other charts. The added advantage of forex
candlestick analysis is that the same method applies to candlestick charts for all financial markets.
Individual candlesticks often combine to form recognizable patterns. Test your

knowledge with our forex trading patterns quiz!
FOREX CANDLESTICKS EXPLAINED

There are three specific points that create a candlestick, the open, the close, and the wicks. The
candle will turn green/blue (the color depends on the chart settings) if the close price is above the
open. The candle will turn red if the close price is below the open.
If you have the chart on a daily setting each candle represents one day, with the open price being the
first price traded for the day and the close price being the last price traded for the day.
• Open price: The open price depicts the first traded price during the formation of a new
candle.
• High price: The top of the upper wick. 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.
• Low price: The bottom of the lower wick. If there is no lower wick, then the low price is the
open price of a bullish candle or the closing price of a bearish candle.
• Close price: The close price is the last price traded during the formation of the candle.
The image below shows a blue candle with a close price above the open and a red candle with the
close below the open.
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See our page on How to Read a Candlestick Chart for a more in depth look at candlestick
charts
WHY FOREX TRADERS TEND TO USE CANDLESTICK CHARTS RATHER THAN

TRADITIONAL CHARTS
Candlestick charts are the most popular charts among forex traders because they are more visual.
Candlestick charts highlight the open and the close of different time periods more distinctly than
other charts, like the bar chart or line chart.
Candlestick charts have certain advantages:
• Forex price movements are perceived more easily on candlestick charts compared to others.
• It is easier to recognize price patterns and price action on candlestick charts.
• Candlestick charts offer more information in terms of price (open, close, high and low) than
line charts.
However, there are some disadvantages of 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.
• Candlestick charts may clutter a page because they are not a simple as line charts or bar
charts.
HOW TO TRADE FOREX USING CANDLESTICK CHARTS

Candlestick formations and price patterns are used by traders as entry and exit points in the market.
Forex candlesticks individually form candle formations, like the hanging man, hammer, shooting
star, and more. Forex candlestick charts also form various price patterns like triangles, wedges,
and head and shoulders patterns.
While these patterns and candle formations are prevalent throughout forex charts they also work
with other markets, like equities (stocks) and cryptocurrencies.
Trading forex using candle formations:
The hanging man:
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The hanging man candle, is a candlestick formation that reveals a sharp increase in selling pressure
at the height of an uptrend. It is characterized by a long lower wick, a short upper wick, a small
body and a close below the open.
It is a bearish signal that the market is going to continue in a downward trend. Learning to
recognize the hanging man candle and other candle formations is a good way to learn some of the
entry and exit signals that are prominent when using candlestick charts.
The chart below shows the GBP/USD on a weekly timeframe. This means that each candle depicts
the open price, closing price, high and low of a single week. The hanging man candle below
(circled) is a bearish signal. Traders use bearish signals like this to enter short trades, a bet on
the GBP depreciating relative to the USD.
If a trader uses the hanging man to execute a short trade, he/she should then place a stop loss and a
take profit with a positive risk-reward ratio.
The Shooting Star

A shooting star candle formation, like the hang man, is a bearish reversal candle that consists of a
wick that is at least half of the candle length. The long wick shows that the sellers are outweighing
the buyers. A shooting star would be an example of a short entry into the market, or a long exit.
Traders could take advantage of the shooting star candle by executing a short trade after the
shooting star candle has closed. Traders could then place a stop loss above the shooting star candle
and target a previous support level or a price that ensures a positive risk-reward ratio. A positive
risk-reward ratio has been shown to be a trait of successful traders.
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The Hammer
The hammer candle formation is essentially the shootings stars opposite. It is a bullish reversal
candle that signals that the bulls are starting to outweigh the bears. It is characterized by its long
wick and small body. A hammer would be used by traders as a long entry into the market or a short
exit.
The image below is an example of how a forex trader would use the hammer candle formation to
enter a long trade, while placing a stop-loss below the hammer candle and a take profit at a high
enough level to ensure a positive risk-reward ratio.
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TRADING WITH THE HAMMER CANDLE: MAIN TALKING POINTS
The hammer candlestick pattern is frequently observed in the forex market and provides important
insight into trend reversals. It’s crucial that traders understand that there is more to the hammer
candle than simply spotting it on a chart. Price action and the location of the hammer candle, when
viewed within the existing trend, are both crucial validating factors for this candle.
This article will cover:
• What is a hammer candle pattern?
• Advantages and limitations of the hammer chart pattern
• Using a hammer candlestick pattern in trading
• Further reading on trading with candlestick patterns
WHAT IS A HAMMER CANDLESTICK?

The hammer candlestick is found at the bottom of a downtrend and signals a potential (bullish)
reversal in the market.The most common hammer candle is the bullish hammer which has a small
candle body and an extended lower wick – showing rejection of lower prices.The other pattern
traders look out for is the inverted hammer, which is an upside-down bullish hammer.
Bullish Hammer Candlestick
The hammer candlestick appears at the bottom of a down trend and signals a bullish reversal. The
hammer candle has a small body, little to no upper wick, and a long lower wick - resembling a
‘hammer’.
The pattern indicates that the price dropped to new lows, but subsequent buying pressure forced the
price to close higher, hinting at a potential reversal. The extended lower wick is indicative of the
rejection of lower prices.
Inverted Hammer Candlestick

The inverted hammer candlestick, like the bullish hammer, also provides a signal for a bullish
reversal. The candle is, as the name suggests, an inverted hammer. The candle has a long extended
upper wick, a small real body with little or no lower wick.
The candle opens at the bottom of a downtrend before the bulls push price upwards – reflected in
the extended upper wick. Price does eventually return down towards the opening level but closes
above the open, to provide the bullish signal. Should the buying momentum continue, this will be
seen in the subsequent price action moving higher.
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ADVANTAGES AND LIMITATIONS OF THE HAMMER CANDLESTICK
Hammer candles have their advantages and their limitations; therefore, traders should never rush
into placing a trade as soon as the hammer candle has been identified.
Advantages
• Reversal signal: The pattern indicates the rejection of lower prices. When found in a
downtrend it could signal the end of selling pressure and begin to trade sideways or reverse
to the upside.
• Exit signal: Traders that have an existing short position, can viw the hammer candle as an
indication that selling pressure is subsiding - presenting the ideal time to close out of the
short position.
Limitations
• No indication of trend: The hammer candle does not take the trend into consideration and
therefore, when considered in isolation, can provide a false signal.
• Supporting evidence: In order to enter into high probability trades, it is important for
traders to look for additional information on the chart that supports the case for a reversal.
Such confluence can be found by assessing whether the hammer appears near a major level
of support, pivot point, significant Fibonacci level; or whether an overbought signal is
produced on the CCI, RSI or stachastic indicator.
USING HAMMER CANDLES IN TECHNICAL ANALYSIS
The following example of how to trade the hammer candlestick highlights the hammer candle on
the weekly EUR/USD chart.
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Traders can make use of hammer technical analysis when deciding on entries into the market.
Looking at a zoomed-out view of the above example, the chart shows how price bounced from
newly created lows before reversing higher. The zone connecting the lows acts as support and
provides greater conviction to the reversal signal produced by the hammer candlestick.
Stops can be placed below the zone of support while targets can coincide with recent levels of
resistance – provided a positive risk to reward ratio is maintained.
THE BULLISH HAMMER CANDLESTICK PATTERN:

MAIN TALKING POINTS
The bullish hammer candlestick pattern is frequently observed in financial markets and, like many
Japanese candlesticks, provides important insight into market momentum. In particular, the bullish
hammer can help to validate a chart’s reversal point.
Traders can exploit the detection of a bullish hammer candle with a proper understanding of its
foundations. This article will outline the following:
• What is a bullish hammer?
• Using a Bullish Hammer Candlestick Pattern in Trading
• Further Reading on Trading with Candlestick Patterns
WHAT IS A BULLISH HAMMER?

A bullish hammer is a single candle found within a price chart indicating a bullish reversal. It differs
from other  candlestick patterns  due to its single candle hinting at a turn during an established
downtrend.
Pictured below the hammer is interpreted by understanding a candles particular open, low high and
close levels. To create a hammer, price must first significantly sell off to create a new low for
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a currency pair. However, after this decline, prices must significantly rally causing prices to have a
small body and close near its opening price.
It’s important to remember that bullish hammers should have long wicks at least twice the length of
the candle body. In addition, the candle itself can either be red or green depending on the strength of
the reversal.
Often the bullish hammer is confused with a bearish hanging man candle. The misrepresentation is
logical because both candles look identical. The difference between these two candles lies in their
placement in a trending market. The hanging man has a small body and long wick but is found
hanging at the end of an uptrend. Bullish hammers have small bodies and long wicks also but are
only seen at the end of a downtrend.
How to spot a Bullish Hammer pattern:

• Candle with a short body and long wick (at least 2x the size of the body)
• Occurs at the bottom of a downward trend
• Confirmation from other indicators as mentioned below
What does it indicate:

• Trend reversal to the upside (bullish reversal)
• Price rejection at a certain ‘key level’
Value to traders:
• Indicates potential price reversals which could lead to entering a long position at the start of
an upward swing – capitalize on the full upward movement
• Easy to identify
USING A BULLISH HAMMER CANDLESTICK PATTERN IN TRADING

Bullish hammer candlestick in the forex market
Bullish hammer candles can be found on a variety of charts and  time frames. Depicted above is an
example of the hammer on the AUD/USD daily chart. From 20 April through to 31 May
the AUD/USD fell as much as 892 pips. This downtrend was concluded with a bullish hammer
candle, and price has subsequently rallied a total of 792 pips through today’s price action.
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AUD/USD Bullish Hammer candlestick:
As the strength of a hammer depends on its placement on the graph, normally traders use this candle
in conjuncture with other indications of price support. This includes using tools such as Fibonacci
retracements, pivot points and psychological whole numbers. In an ideal scenario, the wick of the
hammer will penetrate a support level, but the body will close above support on renewed
buying sentiment. With a new buying opportunity presented, traders may then choose to
place stops under the created wick below support.
Bullish hammer candlestick in the equity market

The bullish hammer candle is interpreted the same way in all financial markets (indices, forex,
commodities and stocks) however, stock analysis requires further data as confirmation. It is
important to note that brokers generally show internal volume figures for the other financial markets
including forex which is why the volume indicator is not reliable for an overall market volume
estimate.
The chart below shows a bullish hammer candle on a Barclays PLC chart. In conjunction with the
bullish hammer, there is a subsequent relative increase in volume traded as highlighted. This
emphasizes institutional activity for this period due to the large volume – retail traders will not be
able to affect such large volumes.
This ‘denial’ by bulls (traders taking long positions) after the recent swing low displays price
rejection at that level. This level may be a key level whereby ‘buy’ order are triggered. With the
bullish hammer and the volume exhibit this relationship, traders can have some form of validation
to place a long trade. As always, the principals of risk management should apply to all trades.
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Barclays PLC Bullish Hammer:
TRADING WITH SHOOTING STAR CANDLESTICKS: MAIN TALKING POINTS

Japanese candlesticks are a popular charting technique used by many traders, and the shooting star
candle is no exception. This article will cover the shooting star reversal pattern in depth and how to
use it to trade forex.
• What is a shooting star candlestick pattern? 
• Advantages of using the shooting star in technical analysis   
• Trading the shooting star pattern  
• Further reading on how to trade with Candlesticks  
WHAT IS A SHOOTING STAR CANDLESTICK PATTERN?

A shooting star formation is a bearish reversal pattern that consists of just one candle. It is formed
when the price is pushed higher and immediately rejected lower so that it leaves behind a
long wick to the upside. The long wick should take up at least half of the total length of the shooting
star candle – see image below.
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Additionally, the closing price should be near the low of the candle. As you can see, this creates an
overall bearish structure because prices were unable to sustain their higher trade.
A similar structure is observed with the Inverted Hammer pattern however, the Inverted Hammer
relates to a bullish reversal signal as opposed to a bearish reversal signal. This candlestick pattern is
often revealed at the bottom of a downtrend, support level or pullback.
It is often questioned about the difference between a shooting star formation on a forex pair, stock
or commodity. There is no variance between the different financial market types. A shooting star
candlestick pattern will offer the same signal/s regardless of the instrument.
ADVANTAGES OF USING THE SHOOTING STAR IN TECHNICAL ANALYSIS

The shooting star pattern is a great tool for novice technical traders due to its simplicity. Spotting a
potential shooting star candle is straight forward if traders adhere to the pattern description as
explained above.
The candle pattern by itself will sometimes be flawed. However, if the pattern appears near a
resistance level or trend line, then the shooting star can add confirmation to the new bearish bias.
This is because a single candle is not extremely crucial in the overall trend or market movement.
Risk management is important to incorporate when using this candlestick pattern. This provides the
trader with a ‘safety net’ should the market move negatively.
Benefits of the Shooting Star candlestick pattern:
• Reasonably reliable if all criteria are met
• Suitable for but not limited to novice traders
Limitations of the Shooting Star candlestick pattern:

• Shooting Star candle does not dependably define a short trade
• Confirmation is needed – further technical/fundamental justification
TRADING THE SHOOTING STAR  PATTERN

EUR/USD Shooting Star Candlestick Pattern:
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Trading this reversal pattern is fairly simple. First, the implication is for lower prices therefore we
want to look for entries to short. Since the prices were previously rejected at the high of the
shooting star, we will look to establish the stop loss at the recent swing high (red horizontal line on
the chart).
A trader could simply enter on the open of the next candle or, if the trader was more conservative
and wanted to capture a better risk-to-reward ratio, trade the retest of the wick (black dashed line).
Retests of the wick tend to occur when the wick is longer than normal.
Often prices will come back and retrace upward a portion of the long wick.  A trader recognizing
this might wait to enter around the middle of the wick rather than enter immediately after the
shooting star candle forms. This means the trader is entering a short trade at a higher price and with
a tighter stop loss reducing risk. Regardless of the entry mechanism, the stop loss will remain the
same.
Regarding profit targets (blue line), DailyFX communicates taking profit at least twice the distance
of the stop loss. So, if the stop loss is 90 pips away from the opening level, then look for at least 180
pips of profit potential. This commonly refers to a 1:2 risk-to-reward ratio which falls in line with
the Traits of Successful Traders research.
THE INVERTED CANDLESTICK PATTERN: MAIN TALKING POINTS

The inverted hammer candlestick pattern is commonly observed in the forex market and provides
important insight into market momentum. In particular, the inverted hammer can help to validate
potential reversals.
The article will outline the following:
• What is the Inverted Hammer?
• Advantages and limitations
• Using the Inverted Hammer Candlestick pattern in trading
• Further reading on trading with candlestick patterns
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WHAT IS AN INVERTED HAMMER CANDLESTICK?
The inverted hammer candle has a small real body, an extended upper wick and little or no lower
wick. It appears at the bottom of a downtrend and signals a potential bullish reversal. The extended
upper wick suggests that the bulls are looking to drive price upwards. Validation of this move will
be confirmed or rejected through subsequent price action.
The inverted hammer should not be confused with the shooting star. Both candles have similar
appearances but have very different meanings. The shooting star is a bearish signal and appears at
the top of an uptrend, while the inverted hammer is a bullish signal at the bottom of a downtrend.
How to spot an Inverted Hammer candlestick pattern:

• Candle with a small real body, a long upper wick and little to no lower wick
• Appears at the bottom of a downtrend
• Stronger signals are produced when the candle appears near key levels of support
What does it indicate:

• Rejection of lower prices (sometimes at a key level)
ADVANTAGES AND LIMITATIONS OF THE INVERTED HAMMER CANDLESTICK

Like all candlestick patterns, there are pros and cons to using the inverted hammer in a trading
strategy:
Advantages
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• Favorable entry points: If the inverted hammer candle immediately triggers the new
uptrend, traders are able to enter the market at the beginning of the trend and capitalize on
the full upward movement.
• Easy to Identify: The Inverted Hammer Candlestick is easy to identify on a chart.
Limitations
• Over-reliance on a single candlestick: The Inverted Hammer is a single candle,
representing price action. Relying entirely on a single candle to overturn market momentum,
without considering additional supporting evidence/indicators, can result in sub-optimal
outcomes.
• Short-lived retracement: The Inverted Hammer Candle may signal a momentary surge in
bullish price action that fails to develop into a longer-term trend reversal. This can happen if
buyers aren’t able to sustain buying pressure amidst a dominant downward trend.
USING THE INVERTED HAMMER CANDLESTICK PATTERN IN TRADING
Trading the inverted hammer candle involves a lot more than simply identifying the candle. Price
action and the location of the hammer candle, when viewed within the existing trend, are both
crucial validating factors for this candlestick.
Trading the Inverted Hammer Candlestick near a Line of Support
Below, is a GBP/USD chart exhibiting a downtrend that consolidates at support. The appearance of
the inverted hammer candle near support provides the basis for the bullish reversal. Traders can
place stops below the support line to limit downside risk in the event the market moves in the
opposite direction.
Targets can be placed at previous levels of resistance that result in a positive risk to reward ratio.
Since the inverted hammer candle often signals a reversal in trend, and trends can persist for a long
time, traders often identify multiple target levels or simply utilize a trailing stop.
Inverted Hammer Technical Analysis: Fibonacci Retracement

The inverted hammer can also be used to identify retracements in the market. The EUR/USD chart
below highlights the inverted hammer (in blue) which signals renewed bullish momentum.
The Fibonacci retracement level of 38.2% presents a possible level of support before price regains
its upward momentum.
Top traders will look for complementary signals on the chart in order to increase the probability of a
successful trade. These will either support or invalidate the trade idea before it is placed. In this
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example, the appearance of the inverted hammer at the 38.2% level provides a stronger case for the
bullish bias as price seems to resist a move lower at this level.
How to Trade Reversals with the Hanging Man Pattern

Nov 9, 2018 3:45 PM +01:00Richard Snow, Analyst
Most traders will agree that there are few things more enjoyable than riding a steady uptrend all the
way to the top. Unfortunately, as the old adage goes, “all good things must come to an end”. This is
particularly true in trading which is why it is essential to understand when a move to the downside
is likely to emerge and how to manage your risk accordingly. In this article, we will share with you
what the hanging man candlestick reversal pattern is and how to trade it.
WHAT IS THE HANGING MAN?

A hanging man candle (aptly named) is a candlestick formation that reveals a sharp increase in
selling pressure at the height of an existing uptrend. This is generally brought about by many
market participants believing the market has reached its highest level resulting in the ‘bears’
outweighing the ‘bulls’. This can be observed in the GBPUSD chart below where it is clear to see
the red candle appearing at the top of the upward trend as a result of mass selling pressure.
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GBP/USD HANGING MAN CANDLESTICK
CHARACTERISTICS OF THE HANGING MAN CANDLE

The hanging man candle is characterized by having a small real body, little or no upper shadow
(wick) and a lower shadow at least twice the length of the body.
1. Upward trend: The hanging man can only be identified as such once it has formed at the top
of an uptrend.
2. Opening level: The hanging man candle can either be a green candle (bullish), or a red
candle (bearish) although, the bearish candle provides a better indication of a weakening
market.
3. Upper shadow: A small upper shadow indicates that there was an attempt to maintain the
current uptrend before the significant drop in the price of the Pound Sterling.
4. Long lower shadow: This is probably one of the most insightful observations on the candle,
depicting a significant sell off before the bulls tried to regains some ground forcing the
closing price to end up somewhat closer to opening levels but still down for the period.
5. Closing level: In this case the closing level was below the opening level and therefore,
confirms that this is a bearish hanging man candle.
IDENTIFYING HANGING MAN CANDLESTICK TRADING SIGNALS
The hanging man candlestick can be used to identify a short trade (bearish view of the market) as
the long shadow indicates massive selling. The true test of the legitimacy of the hanging man
candlestick is often revealed in subsequent activity on the chart. If the following candle moves
further down and breaks below the short term upward trend line, this can be seen as a continuation
of the downward long term trend. Another possible entry level could be to enter the trade once the
market has moved past the low of the hanging man candle.
TRADING THE HANGING MAN?

It is important to view the hanging man candle formation in relation to the long term trend. The best
way to do this is to make use of multiple time frame analysis. Start off by viewing the market using
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a longer time frame chart like the daily or weekly time frame to observe the direction the market is
tending to in the long term. Then, zoom-in using a smaller time frame chart (4 hour or 2 hour) to
analyze the ideal entry point for your trade.
Step 1: Identify the long term trend

View the chart on a longer time frame (perhaps a daily chart) to get an idea of the direction the
market is heading. You do not want to place a trade in the opposite direction of the long term trend.
Step 2: Spotting your ideal entry point

Making use of a shorter time frame chart (4 hour chart), identify the ideal entry point. The hanging
man candle formation provides us with a signal for a short trade.
Step 3: Make use of supporting indicators

Does the RSI confirm that the market has turned and now in a downward trend? Has the 20 SMA
line crossed over the 50 SMA line? Does the hanging man candlestick appear near the top of the
short term uptrend? Is a relevant Fibonacci retracement level nearby?
Step 4: Place your trade

Look for an entry point at the low of the hanging man candlestick. If your bearish view of the
market is correct, you will see subsequent price action moving down – providing you with an
indication to place your short trade.
Step 5: Risk management

Be sure to place your trade in accordance with your position sizing strategy. Consider how much of
your total account value you are prepared to risk at any point in time and do not deviate from this.
At DailyFX, we talk about risking less than 5% on all open trades. In addition, ensure that you place
your stop at the high of the hanging man candle formation.
Step 6: When to close out of the trade?

Whenever entering a trade it is always best to have at least a 1:2 Risk-to-Reward ratio. You are
risking half of what you intend to gain. This means that the distance from your entry level to your
take profit level should be twice the distance from your entry level to your stop loss level. Applying
this simple technique will mean that even if you only get half of your trades correct, you will still
have a positive trading account. We talk about these trading insights in our Traits of Successful
Traders research.
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GBP/USD DAILY PRICE CHART (DOWNTREND)
Zooming in a little further making use of the shorter, 4 hour chart (below), you will be better
equipped to spot the ideal opportunity to enter the trade.
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GBP/USD (4 HOUR)HANGING MAN CANDLE
On the 4 hour chart you will see that the previous level of support 1.40000, now acting as a level of
resistance. The hanging man candle appears near the peak of the short term uptrend, below the new
level of resistance. At this point, we are on the lookout for a reversing market to the downside.
Eventually, price breaks below the low of the hanging man delivering an entry signal to short. Stops
can be placed at the level of resistance (1.40000) for risk management purposes should the market
move against you.
Confirmation of the sell signal:

1. Long term downward trending market
2. Hanging man candle appearing near the peak of the short term uptrend
3. Hanging man appearing near a significant level of support/resistance
4. Subsequent candles moving lower (lower highs & lower lows)
FREQUENTLY ASKED QUESTIONS (FAQS)

What markets am I likely to find the hanging man formation?
The hanging man can appear in all markets however, due to the depth and volume in forex you will
find the hanging man appearing frequently in forex. Forex is one of the most liquid markets in the
world with an average daily trading volume in excess of $5 trillion making it attractive to a lot of
traders. If you are unsure of what forex is or how to read a quote read our New to Forex Guide.
How do I identify effective levels of support and resistance?

Levels of support and resistance provide an indication of the range in which prices tend to trade.
These are significant price levels that have been approached in the past but have not been broken; or
have been broken momentarily before reversing direction. It is important to know where these
levels are and how to accurately identify them.
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What are other tricks to strengthen the signal from a hanging man candlestick pattern?
Look for other indicators to turn lower and produce sell signals once the hanging man pattern
forms. If you are unsure of which indicator to use, we suggest “4 Effective Indicators Every Trader
Should Know”
How to Trade the Doji Candlestick Pattern

Jun 6, 2019 6:24 PM +02:00Richard Snow, Analyst
DOJI CANDLESTICK TRADING: MAIN TALKING POINTS

The Doji candlestick, or Doji star, is a unique candle that reveals indecision in the forex market.
Neither the bulls, nor bears, are in control. However, the Doji candlestick has five variations and not
all of them indicate indecision. That is why it is crucial to understand how these candles come about
and what this could mean for future price movements in the forex market.
This article explains what the Doji candlestick is and introduces the five different types of Doji used
in forex trading. It will also cover top strategies to trade using the Doji candlestick.
WHAT IS A DOJI CANDLESTICK AND HOW DOES IT WORK?

The Doji candlestick, or Doji star, is characterised by its ‘cross’ shape. This happens when a forex
pair opens and closes at the same level leaving a small or non-existent body, while exhibiting upper
and lower wicks of equal length. Generally, the Doji represents indecision in the market but can
also be an indication of slowing momentum of an existing trend.
ADVANTAGES OF USING THE DOJI CANDLESTICK IN TECHNICAL ANALYSIS

The Doji star can prove invaluable as it provides forex traders with a “pause and reflect” moment. If
the market is trending upwards when the Doji pattern appears this could be viewed as an indication
that buying momentum is slowing down or selling momentum is starting to pick up. Traders may
view this as a sign to exit an existing long trade.
However, it is important to consider this candle formation in conjunction with a technical
indicator or your particular exit strategy. Traders should only exit such trades if they are confident
that the indicator or exit strategy confirms what the Doji is suggesting.
Remember, it is possible that the market was undecided for a brief period and then continued to
advance in the direction of the trend. Therefore, it is crucial to conduct thorough analysis before
exiting a position.
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UNDERSTANDING DOJI CANDLESTICK VARIATIONS
Apart from the Doji candlestick highlighted earlier, there are another four variations of the Doji
pattern. While the traditional Doji star represents indecisiveness, the other variations can tell a
different story, and therefore will impact the strategy and decisions traders make.
Furthermore, it is very unlikely to see the perfect Doji in the forex market. In reality, traders look
for candles that resemble the below patterns as closely as possible and more often than not, the
candles will have a tiny body. Below is a summary of the Doji candlestick variations. For an in-
depth explanation read our guide to the different Types of Doji Candlesticks.
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HOW TO TRADE THE DOJI CANDLESTICK
There are many ways to trade the various Doji candlestick patterns. However, traders should always
look for signals that complement what the Doji candlestick is suggesting in order to execute higher
probability trades. Additionally, it is essential to implement sound risk management when trading
the Doji in order to minimise losses if the trade does not work out.
Below we explore various Doji Candlestick strategies that can be applied to trading.
1) Trading with the Doji star pattern

The GBP/USD chart below shows the Doji star appearing at the bottom of an existing downtrend.
The Doji pattern suggests that neither buyers or sellers are in control and that the trend could
possibly reverse. At this point it is crucial to note that traders should look for supporting signals that
the trend may reverse before executing a trade. The chart below makes use of the stochastic
indicator, which shows that the market is currently in overbought territory – adding to the bullish
bias.
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2) Using the Dragonfly Doji in Trend Trading
A popular Doji candlestick trading strategy involves looking for Dojis to appear near levels
of support or resistance. The below chart highlights the Dragonfly Doji appearing near trendline
support. In this scenario, the Doji doesn’t appear at the top of the uptrend as alluded to previously
but traders can still trade based on what the candlestick reveals about the market.
The Dragonfly Doji shows the rejection of lower prices and thereafter, the market moved upwards
and closed near the opening price. This potential bullish bias is further supported by the fact that the
candle appears near trendline support and prices had previously bounced off this significant
trendline.
3) Double Doji Strategy

A single Doji is usually a good indication of indecision however, two Dojis (one after the other),
presents an even greater indication that often results in a strong breakout. The Double Doji strategy
looks to take advantage of the strong directional move that unfolds after the period of indecision.
Traders can wait until the market moves higher or lower, immediately after the Double Doji. In
the GBP/ZAR chart below, the entry point can be below the low of the two Dojis with a stop placed
above the highs of the two Dojis.
Targets can be placed at a recent level of support however, breakouts with increased momentum
have the potential to run for an extended period of time hence, a trailing stop should be considered.
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TYPES OF DOJI: THE PATTERNS ALL TRADERS SHOULD KNOW
A Doji candlestick signals market indecision and the potential for a change in direction. Doji
candlesticks are popular and widely used in trading as they are one of the easier candles to identify
and their wicks provide excellent guidelines regarding where a trader can place their stop.
In this article we explain how Doji patterns are formed and how to identify five of the most
powerful and commonly traded types of Doji:
1. Standard Doji
2. Long legged Doji
3. Dragonfly Doji
4. Gravestone Doji
5. 4-Price Doji
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HOW ARE DOJI CANDLESTICK PATTERNS FORMED?
Dojis are formed when the price of a currency pair opens and closes at virtually the same level
within the timeframe of the chart on which the Doji occurs. Even though prices may have moved
between the open and the close of the candle; the fact that the open and the close takes place at
almost the same price is what indicates that the market has not been able to decide which way to
take the pair (to the upside or the downside).
Keep in mind that the higher probability trades will be those that are taken in the direction of the
longer-term trends. When a Doji occurs at the bottom of a retracement in an uptrend, or the top of a
retracement in a downtrend, the higher probability way to trade the Doji is in the direction of the
trend. In case of an uptrend, the stop would go below the lower wick of the Doji and in a downtrend
the stop would go above the upper wick.
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TOP 5 TYPES OF DOJI CANDLESTICK PATTERNS
1. Standard Doji pattern

A Standard Doji is a single candlestick that does not signify much on its own. To understand what
this candlestick means, traders observe the prior price action building up to the Doji.
Trades based on Doji candlestick patterns need to be taken into context. For example, a Standard
Doji within an uptrend may prove to form part of a continuation of the existing uptrend. However,
the chart below depicts a reversal of an uptrend which shows the importance of confirmation post
the occurrence of the Doji.
2. Long-legged Doji
The Long-Legged Doji simply has a greater extension of the vertical lines above and below the
horizontal line. This indicates that, during the timeframe of the candle price action dramatically
moved up and down but closed at virtually the same level that it opened. This shows the indecision
between the buyers and the sellers.
At the point where the Long-Legged Doji occurs (see chart below), it is evident that the price has
retraced a bit after a fairly strong move to the downside. If the Doji represents the top of the
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retracement (which we do not know at the time of its forming) a trader could then interpret the
indecision and potential change of direction. Subsequently looking to short the pair at the open of
the next candle after the Doji. The stop loss would be placed at the top of the upper wick on the
Long-Legged Doji.
3. Dragonfly Doji
The Dragonfly Doji can appear at either the top of an uptrend or the bottom of a downtrend and
signals the potential for a change in direction. There is no line above the horizontal bar which
creates a ‘T’ shape and signifies that prices did not move above the opening price. A very extended
lower wick on this Doji at the bottom of a bearish move is a very bullish signal.
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4. Gravestone Doji
The Gravestone Doji is the opposite of the Dragonfly Doji. It appears when price action opens and
closes at the lower end of the trading range. After the candle open, buyers were able to push the
price up but by the close they were not able to sustain the bullish momentum. At the top of a move
to the upside, this is a bearish signal.
5. 4 Price Doji:
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The 4 Price Doji is simply a horizontal line with no vertical line above or below the horizontal. This
Doji pattern signifies the ultimate in indecision since the high, low, open and close (all four prices
represented) by the candle are the same. The 4 Price Doji is a unique pattern signifying once again
indecision or an extremely quiet market.
Trading with the Spinning Top Candlestick

Jun 13, 2019 4:41 PM +02:00Warren Venketas, Analyst
The Spinning Top candlestick pattern forms part of the vast Japanese candlestick repertoire with its
own distinct features. Often associated with indecision in the market, Spinning Top candles can
provide valuable supporting information to a trading strategy. The main talking points of this article
are:
• What is the Spinning Top candlestick pattern?
• How is the Spinning candlestick formed?
• How to trade the Spinning Top candle
• Learn more about trading with candlesticks
WHAT IS THE SPINNING TOP CANDLESTICK PATTERN?

A Spinning Top pattern involves a single candle indicating uncertainty in the market. The
candlestick itself is defined by a short body surrounded by long wicks (approximately the same
length) on either side. The Spinning Top can be either bullish or bearish at the candle close. This
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candlestick pattern is often located within an uptrend, downtrend and/or consolidation (sideways
movement) signifying possible reversals.
HOW IS THE SPINNING CANDLESTICK FORMED?

The price movement within the Spinning Top candle represents buyers and sellers rescinding each
other resulting in a similar open and close price level. The advantage of incorporating the Spinning
Top candlestick pattern within a trading strategy is that it is easy to identify with minimal implied
time investment.
The logic behind the indecision shown in the market during the formation of a Spinning Top is
simple - while the candle was forming, traders moved prices both higher and lower throughout the
chart period. This resulted in the closing price reverting back/very close to the opening price.
The Spinning Top pattern follows the same basic structure and logic as the Doji however, the
Spinning Top displays a wider candle body which shows a more substantial movement in price
during the candle period.
HOW TO TRADE THE SPINNING TOP CANDLE

Trading with the Spinning Top candle involves understanding how it is formed and where it sits in
relation to the overall market trend. The example below goes through identification, confirmation
and execution of a practical forex trade using the Spinning Top.
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In the EUR/NZD chart above, the Spinning Top candle (bearish) appears at the top of an uptrend –
highlighted by the gold trend line. The indecision from buyers and sellers is apparent and leads to a
reversal in trend direction.
Live traders should not look to enter a trade immediately after the Spinning Top has formed, but
rather delay the trade to wait for confirmation. Confirmation can come from technical
indicators, fundamental factors or oscillators as seen using a stochastic oscillator. The stochastic re-
confirms a short entry as indicated by the blue circle.
The most common method used by technical traders to confirm a trend reversal is waiting for the
formation of the succeeding candle. Using the example above, the succeeding candle should close
lower than the wick of the Spinning Top. Without this confirmation, the signal of trend reversal may
not be established, and uncertainty remains in the market.
Key takeaways for trading the Spinning Top candlestick pattern:
1. Locate candle with a short body and long wicks on both sides
2. Identify market trend by using trend lines or technical indicators
3. Wait for confirmation prior to entering trade
4. If confirmed, place trade in desired direction
In conclusion, the Spinning Top candle depicts market indecision between buyers and sellers which
could indicate price reversals. It is important to recognise the positioning of the Spinning Top
within the market – within a trend or at key price levels of support and resistance. The Spinning Top
candlestick pattern is most effective at these particular points.
Engulfing Candle Patterns & How to Trade Them

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TRADING WITH ENGULFING CANDLESTICKS: MAIN TALKING POINTS
Engulfing patterns in the forex market provide a useful way for traders to enter the market in
anticipation of a possible reversal in the trend. This article explains what the engulfing candle
pattern is, the trading environment that gives rise to the pattern, and how to trade engulfing
candlesticks in forex.
Keep reading for information on:
• What is an engulfing candlestick and how do they signal a reversal of current trends in the
market?
• There are two engulfing patterns to look out for: bullish engulfing and bearish engulfing
patterns.
• Engulfing candle trading strategies
WHAT IS AN ENGULFING CANDLESTICK?

Engulfing candles tend to signal a reversal of the current trend in the market. This specific pattern
involves two candles with the latter candle ‘engulfing’ the entire body of the candle before it. The
engulfing candle can be bullish or bearish depending on where it forms in relation to the existing
trend. The image below presents the bullish engulfing candle.
TYPES OF FOREX ENGULFING PATTERNS

There are two engulfing candle patterns: bullish engulfing pattern and the bearish engulfing candle.
1) Bullish engulfing pattern

The bullish engulfing candle provides the strongest signal when appearing at the bottom of a
downtrend and indicates a surge in buying pressure. The bullish engulfing pattern often triggers a
reversal of an existing trend as more buyers enter the market and drive prices up further. The pattern
involves two candles with the second candle completely engulfing the ‘body’ of the previous red
candle.
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Interpretation: Price action must show a clear downtrend when the bullish pattern appears. The
large bullish candle shows that buyers are piling into the market aggressively and this provides the
initial bias for further upward momentum. Traders will then look for confirmation that the trend is
indeed turning around by making use of indicators, key levels of support and resistance and
subsequent price action after the engulfing pattern.
2) Bearish engulfing pattern

The bearish engulfing pattern is simply the opposite of the bullish pattern. It provides the strongest
signal when appearing at the top of an uptrend and indicates a surge in selling pressure. The bearish
engulfing candle often triggers a reversal of an existing trend as more sellers enter the market and
drive prices down further. The pattern involves two candles with the second candle completely
engulfing the ‘body’ of the previous green candle.
Interpretation: Price action must show a clear uptrend when the bearish pattern appears. The large
bearish candle shows that sellers are piling into the market aggressively and this provides the initial
bias for further downward momentum. Traders will then look for confirmation that the trend is
indeed turning around by making use of indicators, levels of support and resistance, and subsequent
price action that occurs after the engulfing pattern.
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WHY ARE ENGULFING CANDLES IMPORTANT FOR TRADERS?
Engulfing candles assist traders to spot reversals, indicate a strengthening trend, and assist traders
with an exit signal:
1. Reversals: Spotting reversals are self-explanatory – it allows the trader to enter a trade at
the best possible level and ride the trend to completion.
2. Trend continuation: Traders can look to the engulfing pattern to support the continuation of
the existing trend, for example, spotting a bullish engulfing pattern during an uptrend
provides more conviction that the trend will continue.
3. Exit strategy: The pattern can also be used as a signal to exit an existing trade if the trader
holds a position in the existing trend which is coming to an end.
A limitation of the engulfing candle can arise when the pattern turns out to be more of a retracement
than a definite change in direction, but traders can look for subsequent price action to reduce the
likelihood of this undesirable outcome.
ENGULFING CANDLE TRADING STRATEGIES

Using the Engulfing Candle Reversal Strategy
Traders can look to trade the bearish engulfing pattern by waiting for confirmation of the move by
observing subsequent price action or to wait for a pullback before initiating a trade.
See below for guidance on how to trade the engulfing candlestick pattern observed on
the GBP/USD four-hour chart.
1. Entry: Look for a successful close below the low of the bearish engulfing candle.
Alternatively, traders can look for a momentary retracement (towards the dotted line) before
entering a short trade.
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2. Stop: Stops can be placed above the swing high where the bearish engulfing pattern occurs.
3. Target / take profit level: The target can set at a previous level of support while ensuring a
positive risk to reward ratio. The risk to reward ratio is depicted by the green and red
rectangles.
Using the Engulfing Candle When Trend Trading

Engulfing candles don’t always have to appear at the end of a trend. When viewed within a strong
trend, traders can glean information from the candle pattern pointing towards continued momentum
in the direction of the existing trend.
For example, the below chart shows a strong uptrend in the S&P 500 with the appearance of
multiple engulfing patterns (in the direction of the trend) adding more conviction to long trades.
Traders can enter a long trade after observing a close above the bullish candle.
Furthermore, this example includes the presence of a bearish engulfing pattern (red rectangle) that
appeared at the top of the trend, signaling a potential reversal. However, subsequent price action did
not validate this move as successive candles failed to close below the low of the bearish engulfing
candle and the market continued higher – thus underscoring the importance of validating the
pattern.
Trading the Bullish Engulfing Candle

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BULLISH ENGULFING CANDLESTICK PATTERN: MAIN TALKING POINTS
The bullish engulfing candle is one of the forex market’s most clear-cut price action signals. Many
traders will use this candlestick pattern to identify price reversals and continuations to support their
trading strategies.
• What is the bullish engulfing pattern?
• How to identify and interpret the bullish engulfing candle in forex trading
• Best approaches for trading forex and NYSE stocks with the bullish engulfing candle
WHAT IS A BULLISH ENGULFING CANDLE?

The bullish engulfing candle appears at the bottom of a downtrend and indicates a surge in buying
pressure. The bullish engulfing pattern often triggers a reversal in trend as more buyers enter the
market to drive prices up further. The pattern involves two candles with the second candle
completely engulfing the body of the previous red candle.
The image below depicts the bullish engulfing pattern appearing at the bottom of a downtrend.
The following image focuses on the bearish and bullish candles that constitute the bullish engulfing
pattern.
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HOW TO SPOT A BULLISH ENGULFING PATTERN AND WHAT DOES IT MEAN?
Characteristics of a bullish engulfing pattern:

• Strong green candle that ‘engulfs’ the prior red candle body (disregard the wicks)
• Occurs at the bottom of a downward trend
• Stronger signals are provided when the red candle is a doji, or when subsequent candles
close above the high of the bullish candle.
What does it tell traders?

• Selling pressure losing momentum at this key level.
Advantages of trading with the bullish engulfing candle:

• Attractive entry levels can be obtained after receiving confirmation of the bullish reversal.
KNOW THE DIFFERENCE BETWEEN A BULLISH AND A BEARISH ENGULFING

PATTERN
Engulfing patterns can be bullish and bearish. The bearish engulfing pattern is essentially the
opposite of the bullish engulfing pattern discussed above. Instead of appearing in a downtrend, it
appears at the top of an uptrend and presents traders with a signal to go short. It is characterized by
a green candle being engulfed by a larger red candle.
Bearish Engulfing Pattern
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Below is a summary of the main differences between the bullish and bearish engulfing patterns.
Traders should keep these in mind in order to avoid false signals.
ENGULFING
CHARACTERISTICS LOCATION SIGNAL
PATTERN
Green candle engulfs previous Appears at the bottom Bullish signal
Bullish Engulfing
(smaller) red candle of a downtrend (Bullish reversal)
Red candle engulfs previous Appears at the top of Bearish signal
Bearish Engulfing
(smaller) green candle an uptrend (Bearish reversal)
Find out more by reading our comprehensive guide on engulfing candlesticks.
USING A BULLISH ENGULFING CANDLESTICK PATTERN IN TRADING

Bullish engulfing and forex trading
The bullish engulfing candle pattern can be observed in action in the GBP/USD daily chart
presented below. Here, the pattern is shown in a downtrend. Subsequent candles validated the signal
as they closed above the high of the bullish candle. Stops can be set below the low of the bullish
engulfing pattern with a target set at a key level that price has bounced off previously – this is the
recent swing high and provides a positive risk to reward ratio.
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Bullish engulfing and stock trading
Not only is the Bullish engulfing a popular strategy in forex but it can also be applied to the stock
market. A bullish engulfing trading strategy is provided below on Fedex Corp [FDE], listed on the
NYSE
The key to building confidence when trading the bullish engulfing candle is to complement the
candle formation with a supporting signal/indicator.
The chart below shows the presence of a Dragonfly Doji Just before the engulfing pattern -
signaling the rejection of lower prices. This fits the bullish bias along with the oversold signal on
the RSI at the bottom of the chart. These supporting signals provide tock traders with greater
conviction before executing the trade.
The stop loss can be placed below the recent swing low - which is the low of the Dragonfly Doji.
The target (limit) can be placed at a key level that price has bounced off previously, provided it
results in a positive risk to reward ratio.
Trading with the Bearish Engulfing Candle

Jun 21, 2019 9:30 AM +02:00Richard Snow, Analyst
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BEARISH ENGULFING PATTERN: MAIN TALKING POINTS
The bearish engulfing candle is one of the forex market’s most clear-cut price action signals. Many
traders will use this forex candlestick pattern to identify price reversals and continuations to support
their trading strategies.
• What is the bearish engulfing candle?
• How to identify and interpret the bearish engulfing candle in forex trading
• How to trade forex with the bearish engulfing pattern
This article refers to candlesticks in great detail. Ensure you know how to read
a candlestick chart
WHAT IS A BEARISH ENGULFING PATTERN?

A bearish engulfing pattern produces the strongest signal when it appears at the end of an uptrend.
The pattern is created by interpreting the data of two completed candles:
The first candle will depict the end of the established trend strength. It should be noted the size of
this primary/bullish candle can vary but it is crucial that the body of this candle gets completely
‘engulfed’ by the candle that follows. Dojis and other small bullish candles provide the strongest
signal as they can reflect market indecision in the current trend.
The second candle in the pattern is the reversal signal. This candle is comprised of a long red candle
creating fresh downward price momentum. This bearish candle should open above the close of the
previous candle and close well below the low of the previous candle. This strong downward
movement reflects sellers overtaking buying strength and often precedes a continued fall in price.
The further this secondary/ bearish candle declines, the stronger the signal becomes.
KNOW THE DIFFERENCE BETWEEN A BEARISH ENGULFING PATTERN AND A

BULLISH ENGULFING PATTERN
Engulfing patterns can be bullish and bearish. The bullish engulfing pattern is essentially the
opposite of the bearish engulfing pattern discussed above. Instead of appearing in an uptrend, it
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appears at the bottom of a downtrend and presents traders with a signal to go long. It is
characterized by a red candle being engulfed by a larger green candle.
Bullish Engulfing Pattern
Below is a summary of the main differences between the bullish and bearish engulfing patterns.
Traders should keep these in mind in order to avoid false signals.
ENGULFING
CHARACTERISTICS LOCATION SIGNAL
PATTERN
Green candle engulfs previous Appears at the bottom Bullish signal
Bullish Engulfing
(smaller) red candle of a downtrend (Bullish reversal)
Red candle engulfs previous Appears at the top of Bearish signal
Bearish Engulfing
(smaller) green candle an uptrend (Bearish reversal)
Find out more by reading our comprehensive guide on engulfing candlesticks.
USING A BEARISH ENGULFING CANDLE IN TRADING

Traders should always be on the lookout for trade confirmation by utilizing indicators, key levels
of support and resistance, or any other technique that will support or invalidate a trade. Presented
below are two approaches that traders can use to strengthen the bearish bias suggested by the
bearish engulfing pattern.
Trading the Bearish Engulfing Candle Using Indicators
The example below highlights the bearish engulfing pattern appearing at the top of the uptrend on
the EUR/USD daily chart. While it is not advisable to trade against the trend, in reality, reversals do
occur, which is why all traders should be able to spot when this is likely to appear.
The chart shows the Euro appreciating and topping out at where the bearish engulfing pattern
appears. Additionally, the Relative Strength Indicator (circled in black) validates the bearish bias
with an ‘overbought’ signal.
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Taking a closer look at the chart, entry levels, stops, and targets can be identified.
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Entry: Traders can wait for a close lower than the low of the bearish candle or simply place
working orders far below the low.
Stop loss: A stop can be placed above the recent swing high as this would invalidate the move and
provides a sensible risk to reward ratio.
Target/ Take profit: Since bearish engulfing candles can indicate the beginning of a prolonged
downtrend, it is helpful to consider an initial take profit level while remaining open to further
downward movement. Adjust stops accordingly or consider using a trailing stop.
Trading the Bearish Engulfing Candle Using Support & Resistance
The chart below shows a bearish engulfing candle pattern appearing at resistance on the US Dollar
Index (DXY). The level of support is important here because it shows that movements higher have
been rejected previously. When the bearing engulfing pattern appears at resistance, it provides
greater conviction towards a bearish bias.
Entry: Considering the bearish engulfing is backed up by the level of resistance, traders may
consider entering the trade at the open of the following candle.
Stop: The stop can be placed above the bearish engulfing candle and the level of resistance. A move
above this would invalidate the move.
Target/Take profit: Targets can be set at a recent level of support. For the same reason as the above
example, traders may consider a second target level - or implement a trailing stop - as the bearish
engulfing candle may signal the start of a sustained downtrend.
Harami Candlestick Patterns: A Trader’s Guide

Aug 1, 2019 3:07 PM +02:00Warren Venketas, Analyst
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TRADING WITH THE HARAMI CANDLE: MAIN TALKING POINTS
The Harami candlestick pattern is frequently used in forex trading to identify trend reversals or
extensions. Technical traders respect the indications produced by the Harami candle which makes
this pattern invaluable in a trader’s arsenal. This article will cover the following principal topics
outlining the Harami candlestick pattern in forex:
• What is a Harami candlestick?
• Uses of the Harami candle in forex trading
• Harami pattern trading strategies
• Read more on trading with Harami candlesticks
WHAT IS A HARAMI CANDLESTICK?

The Harami candlestick is a Japanese candlestick pattern that comprises of two candles which
indicates a potential reversal or continuation in the market. The word ‘Harami’ is derived from the
Japanese word for ‘pregnant’ which is representative of the Harami candlestick pattern. The Harami
candlestick pattern can signal both bullish and bearish indications as seen below:
Bullish Harami:
1. Established downtrend
2. Leading larger bearish (red) candle
3. Trailing smaller bullish (green) candle - price gaps up after bearish candle and is contained
within the open and close of the leading bearish candle
Bearish Harami:
1. Established uptrend
2. Leading larger bullish (green) candle
3. Trailing smaller bearish (red) candle - price gaps down after bullish candle and is contained
within the open and close of the leading bullish candle
As indicated in the images above, the first candle (pregnant candle) is a large candle continuing the
immediate trend and the trailing candle is a small candle protruding like a pregnant woman. It is
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important to note that technically the second candle will gap inside the first candle. However,
gapping on forex charts is rare due to the 24-hour nature of forex trading. Therefore, the technically
correct version of the Harami is rare in the forex market as gaps are minimal and the second candle
often becomes a small inside bar of the first.
The confirming candle is used as a tool to tell traders if the smaller trailing gives life to a reversal or
follows the trend with the starting candle. The popularity of the Harami pattern and other
candlestick patterns is due to the ability to catch a reversal at the most opportune time with tight
risk. This will allow traders to have very favorable risk-reward ratios.
USES OF THE HARAMI CANDLE IN FOREX TRADING

Advantages of the Harami pattern:
• Opportunity to capitalise on large movements with high risk-reward ratios
• Widely used in forex trading
Limitations of the Harami pattern:

• Requires confirmation before execution
TRADING WITH THE HARAMI CANDLE PATTERN

The Harami candlestick pattern forms both bullish and bearish signals depending on the validating
candle. The forex charts below exhibit both types of Harami patterns and how they feature within
the forex market.
In both instances the candle labelled ‘3’ designates the confirmation candle which approves the
pattern. With most candlestick patterns, traders can utilise other technical indicators to support the
pattern.
Bullish Harami:
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The Bullish Harami above represents a continuation of the current upward trend for
the EUR/USD pair. This is important to remember because not all Harami patterns indicate
reversals.
Bearish Harami:
The Bearish Harami above displays how a reversal pattern is formed using the Harami candlestick
pattern with the reversal occurring at the medium term high. Reversal signals are often stronger at
significant price levels (support, resistance, highs and lows).
When traders interpret the Harami candles, context is vitally important. Analysing the previous
charting pattern (trends) as well as price action will give the trader greater insight and ability to
forecast the implications of the Harami pattern. Without context, the Harami is just three candles
which are practically insignificant.
Trading Reversals with the Harami Candlestick

Jun 11, 2019 11:45 AM +02:00Warren Venketas, Analyst
HARAMI CANDLESTICK AND REVERSAL PATTERNS: MAIN TALKING POINTS

• Reversal patterns are very popular in technical trading which can allow traders to capitalise
on changes in market trends
• The Harami candlestick is highly recognisable and can catch a reversal pattern at the most
opportune time with tight risk.
• In this way, Harami reversals can help traders to identify a clear bias and risk points.
One of the most used reversal candle patterns is known as the Harami. Like most candlestick
formation patterns, the Harami tells a story about real time sentiment in the market. After the pattern
is composed with the closing of the signal candle, then you can look to the following candle to
identify a clear bias and risk points.
In this article we explore the Harami candlestick and reversal patterns in depth, and how to apply
this knowledge to a trading strategy.
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WHY DO TRADERS LOOK OUT FOR REVERSAL PATTERNS?
Candlestick trading signals are usually divided into reversal patterns or continuation patterns.
Continuation patterns can help traders see when the sentiment is likely to keep the prevailing trend
going strong.
Reversal patterns help traders recognize when the sentiment that was behind a trend potentially
ceases as the pair flips its direction. The formation of the candles contains the information from
buyers and sellers that indicate these potential reversals. Understanding and being able to notice
reversal candlestick patterns like the Harami is beneficial for traders in taking advantage of changes
in trend.
USING THE HARAMI CANDLESTICK TO CATCH REVERSALS

The popularity of the Harami candlestick pattern is due to how it allows traders to catch a reversal
at the most opportune time with tight risk. This can lead to very favorable risk-reward ratios. In
order to use the Harami to spot reversal patterns, it’s important for traders to understand the origin
of the candlestick and how it can be used with other technical tools.
Supporting functions of the Harami
When studying candlestick trading to pinpoint market turning points, traders are quickly introduced
to the Doji candlestick. The most common principle and first lesson relates to the appearance of the
Doji candlestick, which can often represent apending reversal and an opportune time to enter into a
trade.
Although Dojis are only composed of one candle that open and closes at near the same level, and an
upper and lower wick out of the body like a “+” sign; the next candle tells the story as to the trade
preference you should have.
Once a Doji forms, it’s important to note that using other oscillating indicators or moving averages
to find if the pair is in an extreme condition or not. This identifies when candlestick formations are
most potent.
The Harami is named because it has the appearance of a ‘pregnant woman’. The first candle is a
large candle continuing the immediate trend and the Doji is a small candle protruding like a
pregnant woman. The second candle will tell us if the Doji gives life to a reversal or follows
the trend with the starting candle.
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Harami candlestick reversal pattern example
The chart above shows a Bearish Harami in action on the EUR/CAD currency pair. The daily graph
has been in a long-standing established uptrend, but prices have a tendency to retrace along the way.
This last retracement was started with the formation of a Harami. With its creation, the market put
in its current high then quickly descended 481 pips.
Traders looking to take advantage of the Bearish Harami pattern can add it into any existing
trend trading plan. Traders can look to take profits on any existing long trades, or even consider
trading a full out reversal once this pattern appears. Regardless of the trading plan, when adding
new components to a strategy traders should be tracking results with a trade journal. This way over
time traders can gauge the effectiveness of price action and candle analysis in trading.
Trading the Bullish Harami Pattern

Jul 3, 2019 5:13 PM +02:00Richard Snow, Analyst
LEARN TO TRADE THE BULLISH HARAMI

The Bullish Harami consists of two candlesticks and hints at a bullish reversal in the market. The
Bullish Harami candlestick should not be traded in isolation but instead, should be considered along
with other factors to achieve Bullish Harami confirmation.
• What is a Bullish Harami Pattern
• How to Identify a Bullish Harami on a trading chart
• How to trade the Bullish Harami candlestick pattern
WHAT IS A BULLISH HARAMI PATTERN?

The Bullish Harami candle pattern is a reversal pattern appearing at the bottom of a downtrend. It
consists of a bearish candle with a large body, followed by a bullish candle with a small body
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enclosed within the body of the prior candle. As a sign of changing momentum, the small bullish
candle ‘gaps’ up to open near the mid-range of the previous candle.
The opposite of the Bullish Harami is the Bearish Harami and is found at the top of an uptrend.
The Bullish Harami Cross
Traders will often look for the second candle in the pattern to be a Doji. The reason for this is that
the Doji shows indecision in the market. The colour of the Doji candle (black, green, red) is not of
too much importance because the Doji itself, appearing near the bottom of a downtrend, provides
the bullish signal. The Bullish Harami Cross also provides an attractive risk to reward potential as
the bullish move (once confirmed) is only just starting.
HOW TO IDENTIFY A BULLISH HARAMI ON TRADING CHARTS

The Bullish Harami will look different on a stock chart compared to the 24- hour forex market, but
the same tactics apply to identify the pattern.
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Bullish Harami Checklist:
1. Spot an existing downtrend
2. Look for signals that momentum is slowing/reversing (stochastic oscillators, bullish moving
average crossover, or subsequent bullish candle formations).
3. Ensure that the body of the small green candle measures no more that 25% of the previous
bearish candle. Stocks will gap up, showing the green candle mid-way up the previous
candle. Forex charts will mostly show the two candles side by side.
4. Observe that the entire bullish candle is enclosed within the length of the previous bearish
candle’s body.
5. Look for confluence with the use of supporting indicators or key levels of support.
Formation of the Bullish Harami Pattern in the Forex market
The forex market operates on a 24/5 basis which means when one candle closes, another opens at
virtually the same level of the previous candle’s closing price. This is often observed under normal
market conditions but can change during periods of high volatility. The Bullish Harami pattern in
forex will often look something like this:
The small green candle opens at the same level that the prior bearish candle closed at. This is
typically observed in the forex market.
Formation of the Bullish Harami Pattern on Stock Charts

Stocks on the other hand, have specified trading hours during the day and are known to gap at the
open for many reasons. Some of those might be:
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• Company news released after the close of trade
• Country/sector economic data
• Rumoured takeover bids or mergers
• General market sentiment
Therefore, the traditional Harami pattern appears, as seen below for Societe General (GLE FP)
which trades on the CAC 40:
Notice how there are numerous areas on the chart where the market has gapped - showing wide
open spaces between candles. This is often observed in the stock market.
HOW TO TRADE THE BULLISH HARAMI CANDLESTICK PATTERN

Traders can adopt the Bullish Harami using the five-step checklist mentioned earlier in the article.
Looking at the below chart on GBP/USD we can observe the following
1. There is a clear downtrend.
2. A Bullish Hammer appears before the Bullish Harami and provides the first clue that the
market may be about to reverse.
3. The bullish candle is no more than 25% the length of the previous candle.
4. The bullish candle opens and closes within the length of the previous candle.
5. The RSI provides an indication that the market is oversold. This could mean that downward
momentum is bottoming but traders should wait for the RSI to cross back over the 30 line
for confirmation.
Stops can be placed below the new low and traders can enter at the open of the candle following the
completion of the Bullish Harami pattern. Since the Bullish Harami appears at the start of a
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potential uptrend, traders can include multiple target levels to ride out a new extended uptrend.
These targets can be placed at recent levels of support and resistance.
HOW RELIABLE IS THE BULLISH HARAMI?

The validity of the Bullish Harami, like all other forex candlestick patterns, depends on the price
action around it, indicators, where it appears in the trend, and key levels of support. Below are some
of the advantages and limitations of this pattern.
ADVANTAGES LIMITATIONS
Attractive entry levels as the pattern appears
Should not be traded based on its formation alone
at the start of a potential uptrend
Can offer a more attractive risk to reward
Where the pattern occurs within the trend is crucial.
ratio when compared to the Bullish
Must appear at the bottom of a downtrend
Engulfing pattern
Requires understanding of supporting technical
Easy to identify for novice traders analysis or indicators.
Popular: Stochastics and RSI
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How to Trade with the Bearish Harami
Jul 30, 2019 2:41 PM +02:00Richard Snow, Analyst
TRADING THE BEARISH HARAMI: MAIN TALKING POINTS

The Bearish Harami consists of two candlesticks and hints at a bearish reversal in the market. The
Bearish Harami candlestick should not be traded in isolation but instead, should be considered
along with other factors to achieve Bearish Harami confirmation.
• What is a Bearish Harami pattern
• How to identify a Bearish Harami on a trading chart
• How to trade the Bearish Harami candlestick pattern
WHAT IS A BEARISH HARAMI PATTERN?

The Bearish Harami pattern is a reversal pattern appearing at the top of an uptrend. It consists of a
bullish candle with a large body, followed by a bearish candle with a small body enclosed within the
body of the prior candle. As a sign of changing momentum, the small bearish candle ‘gaps’ down to
open near the mid-range of the previous candle.
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The opposite of the Bearish Harami is the Bullish Harami and is found at the bottom of a
downtrend.
HOW TO IDENTIFY A BEARISH HARAMI ON TRADING CHARTS

Bearish Harami Checklist:
1. Identify existing uptrend.
2. Look for signals that momentum is slowing/reversing (stochastic oscillators, bearish moving
average crossover, or subsequent bearish candle formations).
3. Ensure that the body of the small red candle measures no more that 25% of the previous
bullish candle. Stocks will gap down, showing the red candle mid-way down the previous
candle. The gap is likely not found in forex candlesticks as they will mostly open at the same
level as the prior candle’s close or very close to it.
4. Observe that the entire bearish candle is enclosed within the length of the previous bullish
candle’s body.
5. Look for confluence with the use of supporting indicators, key levels of resistance or other
supporting evidence to support the trade.
It's important to note, the Bearish Harami candlestick pattern will look different when observing it
on a stock chart compared to the 24-hour forex market. Below we explore the formation of the
pattern on both.
Formation of the Bearish Harami Pattern in the Forex market

The forex market operates on a 24/5 basis which means when one candle closes, another opens at
virtually the same level of the previous candle’s closing price. This is often observed under normal
market conditions but can change during periods of high volatility. The Bearish Harami pattern in
forex will often look something like this:
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The small red candle opens close to, or at the level that the prior bullish candle closed at. This is
typically observed in the forex market.
Formation of the Bearish Harami Pattern in Stocks

Stocks on the other hand, have specified trading hours during the day and are known to gap down at
the open for many reasons. Some of those might be:
• Negative company news released after the close of trade
• Country/sector data - viewed via an economic calendar - which is worse than expected.
• Regulatory changes that will negatively affect future earnings
• General (negative) market sentiment
Therefore, the more traditional Harami pattern appears, as seen below for FTSE 100 stock, Lloyds
Banking Group PLC:
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Notice how there are numerous areas on the chart where the market has gapped - showing wide
open spaces between candles. This is often observed in the stock market.
HOW TO TRADE THE BEARISH HARAMI CANDLESTICK PATTERN

Traders can adopt the Bearish Harami 5-step checklist mentioned earlier in the article. Looking at
the USD/SGD chart from earlier, we can observe the following:
1. There is a clear uptrend.
2. The RSI provides an indication that the market is overbought. This could mean that upward
momentum is waning however, traders should always wait for the RSI to cross back over the
70 line for confirmation.
3. The bearish candle is no more than 25% the length of the previous candle.
4. The bearish candle opens and closes within the length of the previous candle.
5. This Bearish Harami appears at a new high so traders should be aware that the market has
turned lower from even lower highs previously. Subsequent price action also helps support
the new downward momentum indicated by the Bearish Harami.
Stops can be placed above the new high and traders can enter at the open of the candle following
the completion of the Bearish Harami pattern. Since the Bearish Harami appears at the start of a
potential downtrend, traders can include multiple target levels to ride out a new extended
downtrend.
HOW RELIABLE IS THE BEARISH HARAMI?

The validity of the Bearish Harami, like all other candlestick patterns, depends on the price action
around it, indicators, where it appears in the trend, and key levels of resistance. Below are some of
the advantages and limitations of this pattern.
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Attractive entry levels as the pattern appears at
the start of a potential downtrend
Can offer a more attractive risk to reward ratio
Where the pattern occurs within the trend is crucial.
when compared to the Bearish Engulfing
Must appear at the top of an uptrend
pattern
Requires understanding of supporting technical
Easy to identify for novice traders analysis or indicators.
How to Trade with the Piercing Line Pattern

Aug 30, 2019 3:43 PM +02:00Warren Venketas, Analyst
The piercing line pattern consists of two candlesticks, which suggests a potential bullish reversal
within the forex market. This piercing pattern should not be used in isolation but rather in
conjunction with other supporting technical tools to confirm the piercing pattern.
• What is a piercing pattern?
• How to identify a piercing pattern on forex charts
• Top tips for trading with the piercing line pattern
• How reliable is the piercing line?
Test your knowledge of forex patterns with our interactive 'Forex Trading Patterns' quiz
WHAT IS A PIERCING PATTERN?

The piercing line pattern is seen as a bullish reversal candlestick pattern located at the bottom of a
downtrend. It frequently prompts a reversal in trend as bulls enter the market and push prices
higher.
The piercing pattern involves two candlesticks with the second bullish candlestick opening lower
than the preceding bearish candle. This is followed by buyers driving prices up to close above 50%
of the body of the bearish candle.
The image below highlights the intricacies of the two candlesticks making up the piercing pattern:
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HOW TO IDENTIFY A PIERCING PATTERN ON FOREX CHARTS?
Characteristics of a piercing pattern:
• Occurs at the bottom of a downtrend
• Includes a bearish and bullish candle
• The bullish candle opens lower than the close of the bearish candle
• Bullish candle then closes above the 50% level of the bearish candle body
What does this tell traders?

• Potential trend reversal to the upside (bullish reversal)
• Bears (sellers) are losing impetus at this key price level
Advantages of trading with the bullish engulfing candle:

• Easy to identify for both novice and experienced traders
• Possibility of favourable risk-reward ratios
• Desirable entry levels can be obtained after confirmation of the piercing pattern
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TRADING WITH THE PIERCING LINE PATTERN: TOP TIPS & STRATEGIES
The weekly EUR/USD chart above shows the presence of a piercing pattern highlighted in blue.
Preceding this pattern is a strong downtrend as indicated by lower lows and lower highs. This
example illustrates the use of price action to determine the downtrend, however, traders often prefer
the use of a technical indicator such as the moving average for confirmation (price needs to be
above the long-term moving average).
As mentioned previously, the piercing pattern does require further confirmation before entering into
a long trade. In this example, the RSI oscillator has been used as additional confirmation of a
reversal. From the chart, the RSI indicates an oversold signal which reinforces the validity of the
piercing pattern.
Stop levels can be placed at the recent low (low of the bullish piercing pattern candle), while the
take profit (limit) can be identified using Fibonacci extensions or price action.
HOW RELIABLE IS THE PIERCING LINE?

Piercing line patterns signal bullish reversals however, the reliance of this pattern alone is not
recommended. Further support signals should be used in concurrence with the piercing pattern.
Trading against a dominant trend can be risky so finding multiple confirmation signals is
encouraged to verify the pattern.
Occurs frequently within financial
Signifies bullish reversal patterns only
markets
Opportunity for favourable risk-reward Trading the piercing pattern requires the use of other
ratios technical indicators and oscillators
Piercing patterns are easy to identify Entails looking at the overall market trend and not just the
for novice traders candlestick pattern in isolation
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How to Trade the Dark Cloud Cover Candlestick
Aug 15, 2019 6:23 PM +02:00Richard Snow, Analyst
The Dark Cloud Cover pattern is used by many traders to spot reversals in the market and achieve
favorable risk to reward ratios. It is fairly easy to spot, however, traders need to view the formation
of the Dark Cloud Cover candlestick in conjunction with other crucial factors and avoid simply
trading as soon as the pattern appears.
The Dark Cloud Cover is a type of forex candlestick, and before continuing, readers should ensure
they have a good grasp on how to read a candlestick chart.
This article will cover the following:
• What is a Dark Cloud Cover pattern?
• How to identify a Dark Cloud on forex charts
• How to trade using the Dark Cloud Cover
• Advantages and limitations
WHAT IS A DARK CLOUD COVER PATTERN?

The Dark Cloud Cover pattern is a candlestick pattern that signals a potential reversal to the
downside. It appears at the top of an uptrend and involves a large green (bullish) candle, followed
by a red (bearish) candle that creates a new high before closing lower than the midway point of the
previous green candle.
This candle formation, although very similar, should not be confused with the Bearish Engulfing
candle pattern. Both patterns signal a potential trend reversal but the Dark Cloud Cover offers more
attractive entry levels due to a higher close of the bearish candle than that observed with the bearish
engulfing candle pattern.
HOW TO IDENTIFY A DARK CLOUD ON FOREX CHARTS
Dark Cloud Cover checklist:
74
1. Identify existing uptrend.
2. Look for signals that momentum is slowing/reversing (stochastic oscillators, bearish moving
average crossover, or subsequent bearish candle formations).
3. Stocks will gap up, with the red candle opening above the previous green candle however,
this is very rarely found in forex candlesticks as these candles will mostly open at the same
level as the prior candle’s close, or very close to it.
4. Ensure that the red candle closes lower than the midway point of the previous green candle.
5. Look for confirmation of the new downward trend
HOW TO TRADE USING THE DARK CLOUD PATTERN

Traders can look to trade more traditional trending markets such as the GBP/USD or EUR/USD, but
can also incorporate Dark Cloud Cover technical analysis in ranging markets.
Trending markets
Below is an example of the Dark Cloud Cover pattern in forex, specifically, the GBP/USD forex
pair. Refer to the chart for more information.
This Dark Cloud Cover checklist can be used to analyze a potential trade:
1. The existence of higher highs and higher lows presents us with an uptrend.
2. On the chart, one can observe that the market had started to move more sideways as the
latest upward move initially moved sideways and when it did move up, this was not as sharp
a move as previously observed. Furthermore, the RSI moved into overbought territory
providing a greater level of conviction to the trade.
75
3. The red candle gaps slightly above the previous green candle. In the forex market the candle
will mostly open at the same level as the previous close.
4. The red bearish candle proceeds lower and closes below the midway point of the bullish
candle, showing that the bears are outweighing the bulls at that level.
5. Confirmation of continued selling (downward pressure) is seen in the very next candle and
subsequent candles after that. Lower highs and lower lows then provide the evidence that the
market had reversed successfully, and a downtrend was established.
Entry levels, targets and stops can be easily identified when taking a look at the zoomed in chart
below. The entry can be placed at the open of the next candle, after the Dark Cloud Cover pattern
has formed.
76
Stops can be placed above the recent swing high and the initial target level can be set at key levels
or recent areas of support/resistance. It is worth noting that because the trade is potentially the
starting point of an extended move down, traders can set multiple target levels.
Learn more about trading with support and resistance.
Ranging markets
A similar strategy can be applied in a ranging market where price tends to ‘bounce’ between support
and resistance. The below example shows a period of consolidation in GBP/USD when it was
clearly not trending in any direction. The Dark Cloud Cover pattern appearing near resistance
provides a short signal and should there be enough momentum, could turn into a breakout trade - as
it did in this example.
77
ADVANTAGES AND LIMITATIONS OF THE DARK CLOUD
The validity of the Dark Cloud, like all other candlestick patterns, depends on the price
action around it, indicators, where it appears in the trend, and key levels of resistance. Below are
some of the advantages and limitations of this pattern.
Attractive entry levels as the pattern appears at
the start of a potential downtrend
The Dark Cloud Cover can offer a more
Where the pattern occurs within the trend is
attractive risk to reward ratio when compared
crucial. Must appear at the top of an uptrend
to the Bearish Engulfing pattern
The Dark Cloud Cover candle requires an
understanding of supporting technical analysis or
Easy to identify for novice traders
indicators.
Morning Star Candlestick: A Forex Trader’s Guide

Sep 10, 2019 6:34 PM +02:00Richard Snow, Analyst
The Morning Star candlestick is a three-candle pattern that signals a reversal in the market and can
be used when trading forex or any other market. Correctly spotting reversals is crucial when trading
financial markets because it allows traders to enter at attractive levels at the very start of a
possible trend reversal.
This article explores the following talking points:
• What is a Morning Star candlestick?
• How to Identify a Morning Star on forex charts
• How to trade the Morning Star pattern
• How reliable is the Morning Star in forex trading?
WHAT IS A MORNING STAR CANDLESTICK?

The Morning Star pattern is a three-candle, bullish reversal candlestick pattern that appears at the
bottom of a downtrend. It reveals a slowing down of downward momentum before a large bullish
move lays the foundation for a new uptrend.
78
Morning Star Doji
Traders will often look for signs of indecision in the market where selling pressure subsides and
leaves the market somewhat flat. This is where Doji candles can be observed as the market opens
and closes at the same level or very close to the same level. This indecision paves the way for a
bullish move as bulls see value at this level and prevent further selling. The appearance of the
bullish candle after the Doji provides this bullish confirmation.
WHAT ABOUT THE EVENING STAR?

The bearish version of the Morning Star is the evening star and it signifies a potential turning point
in a rising market ( bearish reversal pattern). The same analysis applied to the Morning Star can be
implemented with the evening star however, it will be the opposite direction.
HOW TO IDENTIFY A MORNING STAR ON FOREX CHARTS

Identifying the Morning Star on forex charts involves more than simply identifying the three main
candles. What is required, is an understanding of previous price action and where the pattern
appears within the existing trend.
79
1. Establish an existing downtrend: The market should be exhibiting lower highs and lower
lows.
2. Large bearish candle: The large bearish candle is the result of large selling pressure and a
continuation of the existing downtrend. At this point traders should only be looking for short
trades as there is no evidence of a reversal yet.
3. Small bearish/bullish candle: The second candle is a small candle - sometimes a Doji
candle - that presents the first sign of a fatigued downtrend. Often this candle gaps lower as
it makes a lower low. It does not matter if the candle is bearish or bullish as the main
takeaway here is that the market is somewhat undecided.
4. Large bullish candle: The first real sign of new buying pressure is revealed in this candle.
In non forex markets, this candle gaps up from the close of the previous candle and signals
the start of a new uptrend.
5. Subsequent price action: After a successful reversal, traders will observe higher highs and
higher lows but should always manage the risk of a failed move through the use of well-
placed stops.
HOW TO TRADE THE MORNING STAR PATTERN

The Morning Star pattern can be observed in the EUR/GBP chart below, where there is an
established downtrend leading up to the formation of the reversal pattern.
Looking at the chart, once the formation has completed, traders can look to enter at the open of the
very next candle. More conservative traders could delay their entry and wait to see if price action
moves higher. However, the drawback of this is that the trader could enter at a much worse level,
especially in fast moving markets.
Targets can be placed at previous levels of resistance or previous area of consolidation. Stops can be
placed below the recent swing low, as a break of this level would invalidate the reversal. Since there
are no guarantees in the forex market, traders should always adopt sound risk management while
maintaining a positive risk to reward ratio.
80
When trading the Morning Star on forex markets, the price will very rarely gap like they do with
stocks and so the three-candle pattern usually opens very close to the previous closing level.
HOW RELIABLE IS THE MORNING STAR IN FOREX TRADING?

The Morning Star, like most candlestick patterns, should be assessed in line with the current trend
and whether there is supporting evidence in favour of the trade, when looking at an indicator. Below
are the advantages and limitations of the Morning Star pattern:
A failed reversal is possible and price could move
Occurs frequently in the forex market
further down
The pattern presents well-defined entry and
stop levels
Morning Stars are easy to identify
How to Trade the Evening Star Candlestick Pattern

Sep 28, 2019 12:00 PM +02:00Richard Snow, Analyst
The Evening Star candlestick is a three-candle pattern that signals a reversal in the market and is
commonly used to trade forex. Correctly spotting reversals is crucial when trading financial markets
because it allows traders to enter at attractive levels at the very start of a possible trend reversal.
This article explores the following talking points:
• What is an Evening Star candlestick?
• How to Identify an Evening Star on forex charts
• How to trade the Evening Star candlestick pattern
• The reliability of the Evening Star in forex trading
81
WHAT IS AN EVENING STAR CANDLESTICK?
The Evening Star pattern is a three-candle, bearish reversal candlestick pattern that appears at the
top of an uptrend. It signals the slowing down of upward momentum before a bearish move lays the
foundation for a new downtrend.
HOW TO IDENTIFY AN EVENING STAR ON FOREX CHARTS

Identifying the Evening Star on forex charts involves more than simply identifying the three main
candles. What is required, is an understanding of previous price action and where the pattern
appears within the existing trend.
1. Establish an existing uptrend: The market should be exhibiting higher highs and higher
lows.
2. Large bullish candle: The large bullish candle is the result of large buying pressure and a
continuation of the existing uptrend. At this point traders should only be looking for long
trades as there is no evidence of a reversal yet.
3. Small bearish/bullish candle: The second candle is a small candle - sometimes a Doji
candle - that presents the first sign of a fatigued uptrend. Often this candle gaps higher as it
makes a higher high. It does not matter if the candle is bearish or bullish as the main
takeaway here is that the market is somewhat undecided.
4. Large bearish candle: The first real sign of new selling pressure is revealed in this candle.
In non-forex markets, this candle gaps down from the close of the previous candle and
signals the start of a new downtrend.
5. Subsequent price action: After a successful reversal, traders will observe lower highs and
lower lows but should always manage the risk of a failed move through the use of well-
placed stops.
82
Traders will often look for signs of indecision in the market where buying pressure subsides and
leaves the market somewhat flat. This is the ideal place for a Doji candle to appear.
Evening Star Doji
Doji candles can be observed as the market opens and closes at the same level or very close to the
same level. This indecision paves the way for a bearish move as bears see value at this level and
prevent further buying. The appearance of the bearish candle after the Doji provides this bearish
confirmation.
WHAT ABOUT THE MORNING STAR

The bullish version of the Evening Star is the Morning Star and it signifies a potential turning point
in a falling market (bullish reversal pattern). The same analysis applied to the Evening Star can be
implemented with the Morning Star however, it will be the opposite direction.
HOW TO TRADE THE EVENING STAR CANDLESTICK PATTERN
The Evening Star pattern can be observed in the EUR/GBP chart below, where there is an
established uptrend leading up to the formation of the reversal pattern.
Looking at the chart, once the formation has completed, traders can look to enter at the open of the
very next candle. More conservative traders could delay their entry and wait to see if price action
83
moves lower. However, the drawback of this is that the trader could enter at a much worse level,
especially in fast moving markets.
Targets can be placed at previous levels of support or previous area of consolidation. Stops can be
placed above the recent swing high, as a break of this level would invalidate the reversal. Since
there are no guarantees in the forex market, traders should always adopt sound risk
management while maintaining a positive risk to reward ratio.
When trading the Evening Star on forex markets, the price will very rarely gap like they do with
stocks and so the three-candle pattern usually opens very close to the previous closing level.
HOW RELIABLE IS THE EVENING STAR IN FOREX TRADING?

The Evening Star, like most candlestick patterns, should be assessed in line with the current trend
and whether there is supporting evidence in favour of the trade, when looking at an indicator. Below
are the advantages and limitations of the Evening Star pattern:
A failed reversal is possible, and price could move
Occurs frequently in the forex market
further up
The pattern presents well-defined entry and
exit levels
Evening Stars are easy to identify
How to Trade with Long Wick Candles

Sep 17, 2019 3:53 PM +02:00Warren Venketas, Analyst
84
LONG WICKS CAN PROVIDE VALUABLE TRADING SIGNALS
Long wick candles are recurrent within the forex market. This makes understanding the meaning
behind these candles invaluable to any trader to comprehend the market dynamics during a specific
period.
Trading candle wicks is often overlooked due to its simplicity but appreciating this concept can be a
great addition to a trader’s repertoire. This article will outline:
• What are long wick candles?
• How to identify a long wick candle on forex charts
• What does a long wick tell us in forex?
WHAT ARE LONG WICK CANDLES?

Long wick candles are type of candlestick that have a long wick attached to the candle body. The
candle body can be positive or negative, making the long wick appropriate for any type of
candlestick.
The length of the candle wick specifies the high and low of price movement within a designated
time period. Understanding and trading candlestick wicks can provide forex traders with key
tradeable opportunities.
HOW TO IDENTIFY A LONG WICK CANDLE ON FOREX CHARTS

1. Locate long wicks above/below a candle that is disproportionately longer than that of the
surrounding wicks.
2. Use price action to identify key price levels that may coincide with the long wick, signalling
levels of support/resistance.
3. Use the long wicks and key levels to detect potential trade opportunities.
85
WHAT DOES A LONG WICK INDICATE IN FOREX?
A long wick candle, like shooting stars, gravestone Doji’s and hammers are part of a “family” of
reversal candlesticks. Let’s explore an example:
NZD/JPY Long Wick Candles

The chart below shows NZD/JPY on a weekly time frame. Highlighted in blue illustrates long
candle wicks prior to a reversal in price movement. In other words, if the longer wick is below the
body of the candle, price tends to move up.
Conversely, if the longer wick is above the body of the candle, price tends to move down. These
extended wicks (those that are longer relative to other wicks on the chart) provide valuable
information for the trader.
A long wick that extends below a candle signifies that sellers were able to push the price down
significantly. However, bulls were able to drive price back up showing buyers strength. Since bulls
overpowered the selling pressure by bears, there exists the potential that their strength will carry
forward leading to an upwards movement in price. The same principal would apply for long wicks
appearing above the candle – in the opposite direction.
HOW CAN A TRADER USE LONG WICKS IN THEIR TRADING

The first step when utilizing long wicks is to identify the trend (as mentioned above). If the trend is
down, seeing a candle (or several candles) with long wicks on the top points to a stronger potential
for price to move down in the direction of the market.
Continuing with the downtrend example, if the pair retraces (moves against the trend) and stalls at a
level of resistance or a Fibonacci level, traders will look for long wicks at the tops of the candles
forming along that resistance line for two reasons:
1. Those long wicks indicate the potential for the pair to trade to the downside back in the
direction of the trend.
2. The top of that extended wick provides a very prudent level for a trader to place their stop.
The rationale for that stop placement being that buyers pushed price to the top of that wick
86
but could not push it beyond that point. Hence, placing the stop just above that wick is a
level that has a lower likelihood of getting hit.
There is often confusion amongst traders as to which time frame of chart this strategy can be
applied to. For day traders, they may look at 5- or 10-min time frame charts. Swing traders on the
other hand may look at other intraday charts like 2-hour or 4-hour charts.
Taking note of long wicks forming at levels of support or resistance, especially when they signal
movement in the direction of the daily trend, can create a beneficial “edge” for the trader.
ADVANTAGES AND LIMITATIONS OF THE LONG WICK CANDLE

Appears frequently in all financial
Cannot be traded using the long wick candle in isolation
markets
Require supporting evidence to trade such as key price levels
Long wicks are easy to identify
or indicators
How to Trade the Inside Bar Pattern

Sep 2, 2019 4:45 PM +02:00Warren Venketas, Analyst
The inside bar pattern occurs regularly within the financial markets. Incorporating the inside bar
strategy within a trading system can enhance a trader’s market analysis technique.
WHAT IS AN INSIDE BAR?

The inside bar is a popular reversal/continuation candle formation that only requires two candles to
present itself. This pattern is a direct play on short-term market sentiment looking to enter before
the ‘big moves’ that may take place in the market. The inside bar shows a reluctance of prices to
progress above/below the preceding candle high and low indicating market indecision.
87
HOW TO IDENTIFY AN INSIDE BAR ON FOREX CHARTS
The following steps are used when identifying the inside bar pattern on forex charts:
1. Identify a preceding trend using price action/technical indicators
2. Locate inside bar pattern whereby the inside bar is engulfed fully by the preceding candle
high and low
TRADING WITH THE INSIDE BAR CANDLESTICK PATTERN: TOP TIPS AND
STRATEGIES
Some traders consider it a continuation pattern though a breakout in the opposite direction is
possible too. After price has trended up (or down) for an extended period, the pause in price
movement (represented by the inside bar) precedes a reversal of the trend. Therefore, the inside bar
is looked at for a short-term trade (or swing trading) in the counter-trend direction with the goal of
holding the trade for less than 10 bars.
However, there is another way to trade inside bars and this is rooted directly from what the candle
pattern does NOT reveal. When traders see an inside bar pattern form, it is interpreted as the
markets unwillingness to push price higher or lower. This can be for any number of reasons:
88
1. An extremely pertinent report is being issued soon, or
2. The market just made a stratospheric leap and traders are tepid about bidding price much
higher or lower.
Whatever the reason, the motive is the same: seeking potential volatility in an effort to increase
profitability. When there is a situation in which traders are unwilling to bid price higher or lower, it
is seen as a potential situation for future increases in volatility. The inside bar candle pattern
is NOT telling traders that the market is bidding price higher or lower but rather that the market is
waiting before making the next big move in the asset. This means potential opportunities for
traders.
1) Inside Bar breakout strategy

As mentioned previously, the inside bar represents a period of short-term consolidation with low
volatility within a trending market. Traders then look to trade breakouts after a new high/low is
formed.
In the EUR/GBP chart below, the preceding trend is seen by lower lows and lower highs. The
breakout occurs below the low of the ‘preceding bar’ thus triggering a short entry into the market.
Had this breakout occurred above the high of the ‘preceding bar’ then this can signal a long (buy)
entry indicating a potential reversal in trend. Trading against the trend carries more risk which leads
to greater caution taken by the trader.
Stop levels can be taken from the previous swing high/low (dependant on trend) as dictated by
key price action levels. Using the stop as a benchmark, traders can use this stop distance to expand
by a factor of two to realise the take profit (limit) level. This creates a 1:2 risk-reward ratio in line
with responsible risk management. Fibonacci extensions may also be utilised as a limit forecast.
HOW RELIABLE IS THE INSIDE BAR CANDLE?

Inside bars signal continuation or reversals, which makes this trading pattern more complex. False
breakouts can occur which lessens the reliability of the inside bar as an isolated pattern which is
why traders prefer using the inside bar as part of an overall forex trading strategy. That is, the
strategy is the foundation with the inside bar seen as more of a prompt.
89
ADVANTAGES DISADVANTAGES
Occurs frequently within financial markets Can signify reversal or continuation patterns
Opportunity for favourable risk-reward ratios
Inside bars are easy to identify for novice traders
90

How To Read A Candlestick Chart: Reading Candlestick Charts - Talking Points

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How To Read A Candlestick Chart: Reading Candlestick Charts - Talking Points

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How to Read a Candlestick Chart

Dec 21, 2018 1:44 PM +01:00David Bradfield, Markets Writer

READING CANDLESTICK CHARTS – TALKING POINTS:

BOOST YOUR CHART PATTERNS EXPERTISE WITH OUR INTERACTIVE QUIZ!

INTERPRETING A CANDLE ON A CANDLESTICK CHART

Bar Chart vs Candlestick Chart

HOW TO READ A CANDLESTICK CHART

Recognizing price patterns in multiple candles

WHAT ARE CANDLESTICK PATTERNS?

CANDLESTICK PATTERNS CAN BE BULLISH OR BEARISH

Bearish Candlestick Patterns:

TOP 10 CANDLESTICK PATTERNS TRADERS SHOULD KNOW

1 - EVENING STAR AND MORNING STAR

6 – DARK CLOUD COVER

WHAT ARE CANDLESTICKS IN FOREX?

Individual candlesticks often combine to form recognizable patterns. Test your

FOREX CANDLESTICKS EXPLAINED

WHY FOREX TRADERS TEND TO USE CANDLESTICK CHARTS RATHER THAN

• It is easier to recognize price patterns and price action on candlestick charts.

HOW TO TRADE FOREX USING CANDLESTICK CHARTS

The Shooting Star

• Advantages and limitations of the hammer chart pattern

• Using a hammer candlestick pattern in trading

• Further reading on trading with candlestick patterns

WHAT IS A HAMMER CANDLESTICK?

Inverted Hammer Candlestick

THE BULLISH HAMMER CANDLESTICK PATTERN:

• Using a Bullish Hammer Candlestick Pattern in Trading

• Further Reading on Trading with Candlestick Patterns

WHAT IS A BULLISH HAMMER?

How to spot a Bullish Hammer pattern:

• Occurs at the bottom of a downward trend

• Confirmation from other indicators as mentioned below

What does it indicate:

• Price rejection at a certain ‘key level’

USING A BULLISH HAMMER CANDLESTICK PATTERN IN TRADING

Bullish hammer candlestick in the equity market

TRADING WITH SHOOTING STAR CANDLESTICKS: MAIN TALKING POINTS

• Advantages of using the shooting star in technical analysis

• Trading the shooting star pattern

• Further reading on how to trade with Candlesticks

WHAT IS A SHOOTING STAR CANDLESTICK PATTERN?

ADVANTAGES OF USING THE SHOOTING STAR IN TECHNICAL ANALYSIS

• Reasonably reliable if all criteria are met

• Suitable for but not limited to novice traders

Limitations of the Shooting Star candlestick pattern:

• Confirmation is needed – further technical/fundamental justification

TRADING THE SHOOTING STAR PATTERN

THE INVERTED CANDLESTICK PATTERN: MAIN TALKING POINTS

• Advantages and limitations

• Using the Inverted Hammer Candlestick pattern in trading

• Further reading on trading with candlestick patterns

How to spot an Inverted Hammer candlestick pattern:

• Appears at the bottom of a downtrend

What does it indicate:

• Rejection of lower prices (sometimes at a key level)

ADVANTAGES AND LIMITATIONS OF THE INVERTED HAMMER CANDLESTICK

Inverted Hammer Technical Analysis: Fibonacci Retracement

How to Trade Reversals with the Hanging Man Pattern

WHAT IS THE HANGING MAN?

CHARACTERISTICS OF THE HANGING MAN CANDLE

TRADING THE HANGING MAN?

• Advantages of using the shooting star in technical analysis   

• Trading the shooting star pattern  

• Further reading on how to trade with Candlesticks  

TRADING THE SHOOTING STAR  PATTERN