Forex trading or buying and selling foreign currencies is a standard spending method that could pay off. Candlestick patterns are one of the most essential tools traders use to determine how prices will move and what to do next. These patterns show how prices have changed over time and can tell you a lot about market trends and possible changes in direction. In this piece, we will discuss different candlestick patterns, how to spot them, and how to use them in forex trading.
How do you read candlestick patterns?
Candlestick patterns are a type of tracking that shows how prices change in the stock market. You can see the closing high and low prices for a particular period on each candlestick, such as one minute, one hour, or one day.
There are three parts to a single candlestick:
The candlestick’s body is the vast part that shows the range of prices from the beginning to the end.
The thin lines above and below the body are called wicks, showing time’s high and low prices.
A green or white body usually means that the price went up (the closing price was higher than the starting price), while a red or black body usually means that the price went down (the closing price was lower than the opening price).
Simple Patterns for Candlesticks
Look at some of the most common candlestick patterns traders look for.
1. Dodi
Since the bodies of Dori candlesticks are tiny, the prices at the start and end of the day are very close to each other or the same. The span of the flames can change. A Dauji shows that the market is unsure of what to do, which can also mean that the current trend might change.
Different kinds of Dori:
Standard Dodi: It has a petite body and wicks of the same size on top and bottom.
Long-legged Dori: Both sides have long flames, which makes the market very volatile.
Dragonfly Dori has a long lower candle and no upper wick, which could mean a bullish turnaround.
Gravestone Dauji: This pattern shows a possible bearish turnaround with a long upper wick and no lower wick.
2. Hammer and Man Hung
These designs have a long wick at the bottom and a small body at the top. They look like a weapon.
If you see a hammer at the bottom of a decline, the trend might be about to turn up. The long lower wick shows that prices went down because of sellers, but buyers took back control by the end of the time.
Hanging Man: This pattern appears at the top of a rise and could indicate a change in direction to the fall. The long lower wick showed a lot of selling pressure, but buyers could push the price back up.
3. Hammer on its side and shooting star
Their bodies are small, and their top wicks are long.
Inverted Hammer: This pattern appears at the bottom of a decline and suggests that the trend might be about to turn up. The long top wick shows buyers trying to drive up the price but failing.
Shooting Star: This pattern appears at the top of a rise, suggesting that the trend might change or go down. The long upper wick shows that prices went up when buyers were in charge, but sellers were in charge by the end of the time.
More complex candlestick patterns
After you learn to use simple patterns, you can move on to more complex ones that use more than one candlestick.
4. Patterns of Engulfment
Swallowing patterns are made up of two lights and show that the potential is changing.
Bullish Engulfing occurs when prices are going down. The first candlestick is small, and then a giant green candlestick covers the first one fully. This could mean that the direction is changing to an uptrend.
Bearish Engulfing: This occurs when the direction is up. The first candlestick is small, and then there is a red candlestick that is much bigger and covers the first one fully. This points to a possible change to a decline.
5. The morning star and the evening star
These three candlestick designs show that the trend is changing.
The morning star appears during a downtrend and points to a possible bullish turnaround. It consists of a big red candlestick, a small candlestick with a red or green body, and a big green candlestick. The trend shows that the pressure to sell changes to the pressure to buy.
Evening Star: It shows up during a rise and points to a possible bearish reversal. It has a big green candlestick, a small candlestick with a body, and a big red candlestick. This trend shows that the pressure to buy has changed to the pressure to sell.
6. Three men in white and three men in black
Three candlesticks in a row make up these patterns, which show strong trends.
Three White Soldiers: This symbol appears during a decline and indicates a strong turn-up. It comprises three green lanterns that appear one after the other, each with a higher close than before.
Three Black Crows: Shows up during a rise and means a decisive turndown. It comprises three red lanterns that come one after the other, each with a lower close than the one before it.
How to Trade Forex with Candlestick Patterns
It’s only the beginning to find candlestick patterns. Here are some tips on how to use them successfully in forex trading:
Check with Other Indicators
For more accurate results, it is better to use moving averages of the Relative Strength Index (RSI), Bollinger, Bands, and candlestick patterns. These tools can help you be sure of the signs that candlestick patterns send.
Think about the trend.
When looking at candlestick patterns
What Not to Do: Common Mistakes
When trading forex with candlestick patterns, avoid making these common mistakes:
Not Seeing the Big Picture
A big mistake that traders often make is missing the overall trend. When looking at candlestick patterns, you should always keep the bigger picture of the market in mind. You can trust patterns more when they align with the overall trend.
Forcing trades
When you see trends everywhere, you might trade too much, costing you much money. Be picky and only trade patterns that meet your requirements, such as other signs confirming the pattern.
Forgetting to Wait for Proof
Another common mistake is making deals without first checking them out. Before making a trade, you should always wait for the next candlestick or other indicators to confirm the trend.
Stop Loss Orders Are Not Being Used
If stop-loss orders are not used, significant losses can happen. To control your risk well, you should always use stop-loss orders to protect your trades.
In conclusion
Candlestick patterns are beneficial for forex dealers. By picking up on these patterns, traders can learn about market trends and possible changes. Use other technical indicators and candlestick patterns to look at the general trend, be patient, and manage your risk. By using candlestick patterns in your forex trading technique and making better trading decisions, you can get better with time and practice.
Learning to use candlestick patterns can improve your ability to read the market and make intelligent trade decisions. Whatever your level of experience as a trader, these patterns can help you learn more about and navigate the fixed market. Have fun trading!
