Candlestick Forex Trading Strategies

Candlestick charts are among the most commonly used chart types by investors and retail traders. There are many different kinds of charts like bar charts, line charts, etc. However, they do not provide a narrative of the past price movement similar to candlestick indicators do. If active trading is solely based on technical analysis, forecasting future price movements is based on how the price behaved during the previous.

Candlestick analysis has proven to be a efficient method of technical analysis. It is extremely effective during times of extreme volatility but performs well even in times of less volatility. In the end candlesticks and trading on candlesticks, performs efficiently in its own right or used in conjunction with a couple of other indicators.

Candlesticks show price changes for a specified amount of time. They can last as little as a minute, or as long as a whole month or week. The candlestick's body is the difference in price between the opening and closing time. There are two lines vertically that are on either side, known as shadows or wicks display the highest and lowest price during that time.

The green candlestick that is in the image below is a bullish candlestick , in which the closing price is higher than that of the opening. It is also a bearish one which means that the price at closing was less than when it opened. Colors of the candlestick are not important and you can adjust them according to your own preferences.

Candlestick trading is a way to trade candles. A candles that are green is considered bullish, whereas the red candle bears.

After we've explained the meaning of a candlestick, let's take a look at the various forms that a candlestick could take.

Candlestick Trading: Trending Chart Patterns

Analysts conduct analyses of technical aspects to develop strategies and ideas to execute future trades. Candlesticks are a useful tool to indicate possibilities for exits and entries. The shapes of these patterns show precisely what's happening with the price. Let's look at several of the more well-known and simple to spot patterns of candlestick trading.

Dojis A doji is a type of currency where prices open and close exactly at the same point after being traded both ways. Both sellers and buyers attempt to push prices higher or lower until the final price reaches the beginning level. That means that forces are similar in both directions. After an uptrend , where buyers were in control A doji signals that sellers are back on the market. This indicates that a reversal, or at a minimum, an upward pullback is likely to happen. This is the opposite of the downtrend.

Left - a common candlestick made of doji.

Right - reversal is indicated by the doji candlestick.

Pins/Reverse Pins: When you use pin candlesticks the price fluctuates lower than the initial level, but is in the exact same spot at the closing time of the period. This implies that the buyers are matched by the conviction of sellers. In a downtrend, this means that bears are getting tired and a reversal could happen. In an upward trend, a pin suggests that sellers tried their hand at making the price fall, but were defeated by buyers. This is a sign of the continuation of the trend and longs have better chances over shorts.

In an downtrend, a pin candlestick typically indicates a reversal.

When the trend is up, candlesticks with pins typically signify an ongoing trend.

Reverse pins function similar to pins, but are able to act in the opposite side. When the candle is opened, bulls attempt to take it but then bears rush in to bring the price back to its starting point. When an uptrend is in place, this indicates that a downward trend is about to start -- in an uptrend, a reversal pin signifies a continuation of the trend.

If you are in an uptrend candlesticks with reverse pins typically signal the beginning of an upward trend.

Hammers/Reverse hammers: In candles, the hammers work similar to pins as well as reverse pins however with more speed. A downtrend hammer price is opened and trades below before closing higher than the initial level. This implies that the buyers were more than the sellers.

Its size may differ. Some believe that it should be at minimum twice the size of the body however one thing is certain, the bigger the shadow or wick, the greater and more robust the reverse. This is the case for pins too. In an upward trend, a hammer could be an indicator of a trend's continuation. Reverse hammers are opposite of reverse pins. They signify a trend change in an uptrend as well as continued trending in an downtrend.

Hammers signify that trend reversal is in the process.

An inverted hammer during an uptrend is a sign of a reverse of trend.

Morning/Evening Star: Morning star and evening stars only be interpreted as only one thing in candlestick trading -the reversal. A morning star pattern consists of three candles, including a bearish candle one that is neutral and the other an ebullish candle. This means that the price will increase so the name is'morning star'. Evening stars comprise in a candle that is bullish an indecisive one, as well as an indecisive candle. They signify that a drop in price is imminent. The three candle candles are believed to be gaps. This occur only on weekly or daily charts, but this isn't always the case.

Evening and morning stars signal a reverse.

The bearish Engulfing is a larger bear candle than the prior bull candle. The new candle is engulfing it's body like the earlier candle. In this pattern the trend doesn't matter because it suggests a fall regardless of the trend. In the reverse direction, the bullish candles that are engulfing.

The bearish engulfing reversal will after each candle that bearish engulfs.

Reversal and continuation of bullish engulfing of the bullish engulfing pattern are followed by increases in price.