Japanese candlestick chart is the most popular type of chart among Forex traders. The reason for this is that Japanese candlesticks provide full clear and visualisation information on price dynamics. Thanks to multifunction candlesticks and these candlesticks were widely used in financial analysis. Basic types of candlesticks and candlestick pattern as follows.
#1 BULLISH AND BEARISH ENGULFING PATTERN :
This type of pattern appears in strong uptrend or in a strong downtrend when a candle of different colour engulfs the previous one. The Reversal candle is white in a downtrend and black when the reversal candle is in uptrend. Together, the real body of the reversal candle engulfs the shadow of the previous candle. If small candle appear In the direction of the trend after the reversal candle is formed, it signals that the reversal pattern is very strong.
#2 JAPANESE HAMMER (BULLISH REVERSAL) :
Hammer patterns are one of the most important Japanese candlestick patterns. We can see these hammer patterns in forex charts very often. It is a Bullish reversal pattern
Hammers contain very small real body and long lower shadow/tail. The color of the real body is not important, the position of the hammer is important. In a strong down trend when a hammer appears it indicates the strength of the trend is weaken and it going to change its trend.
Hammers contain very small real body and long lower shadow/tail. The color of the real body is not important, the position of the hammer is important. In a strong down trend when a hammer appears it indicates the strength of the trend is weaken and it going to change its trend.
#3 HANGING MAN :
The same Hammer pattern with small real body and longer lower shadow/tail appears in a strong up trend then it is called as hanging man. It is a Bearish reversal pattern. These patterns are also very often.
#4 EVENING STAR AND SHOOTING STAR /INVERSE HAMMER:
In a strong uptrend when a reversal candle opens with a gap from the previous candle and closes bearishly (it should be a bear candle or doji) and the following candle should open with a gap from it then the reversal candle is called evening star
Simply evening star is three candle setup the second candle should have gap with both first and third candles only then the pattern is valid
SHOTING STAR: In the evening star pattern if the reversal bearish candle forms with a long upper shadow then the candle is called as SHOTING STAR. Length of the shadow decides the strength of the signal.
èShooting star can also be called as inverse hammer, small real body and long upper shadow which look exactly like an inverse hammer. Shooting star is a strong reversal candle.
#5 MORNING STAR (BULLISH REVERSAL) :
It is a bullish reversal pattern which appears in a strong downtrend. The reversal candle formed should open with a price gap and the following candle should also open with a gap, next the reversal candle should be a bullish or doji candle.
The most important pattern in bullish reversals, most of the traders give importance to the MORNING/EVENING/SHOOTINH STAR patterns because they are high probable patterns.
#6 HARAMI (BULLISH AND BEARISH REVERSAL) :
Harami is a pattern of two candles engulfed by the body of the other candle. The engulfing candle matters more here if it engulfs in upside direction in a downtrend then it is bullish harami and if it engulfs in downside direction in an uptrend then it is bearish harami.The color of the candle is not important the following candle of the engulfing candle should also be in the same direction for conformation.
#7 DARK CLOUD COVER (REVERSAL PATTERN) :
This Dark Cloud pattern appears in a strong uptrend. The reversal candle should open with a gap up and closes below the middle of the previous bullish candle and following two candles should be bearish with long real body.èEntire setup looks like dark cloud cover.
èThis is a rare patterns and strong when it appear.
#8 PIERCING PATTERN (REVERSAL PATTERN):
This is exact vice-versa of dark cloud cover pattern. It appears in a strong downtrend, the reversal candle opens with a gap low and closes above the middle of previous bullish candle, following two candles should be bullish with long real body.The reversal candle pierces the middle of the previous candle it is called piercing pattern.
#9 PINCERS (REVERSAL PATTERN) :
Pincers is a pattern when two or more candles with equal shadow appear. When the candles with equal shadows appear in bearish trend it changes the trend to bullish. Candles with equal shadow appear in bullish trend obviously it changes the trend to bearish.The color and size of the real body of both the candles doesn’t matter only shadow is important. In Pincers pattern both the candles may also form with two or more between them.
#10 TRISTARS (REVERSAL PATTERN) :
Simple, if three doji candles appear one after the other in a strong trend then they indicate a strong reversal. Those doji candles need not to be stay on same level, may open with gaps.#11 BREAKAWAY CANDLESTICKS (REVERSAL PATTERN) :
In a strong trend when three or more candles were engulfed against to the trend by a big candle then that candle is breakaway candle. This phenomenon indicates market had reached it top/bottom and trend may change. Shadows were never considered in this pattern.These breakaway candles are easy identify and high probable.
#12 MEETING LINES (REVERSAL PATTERN) :
The reversal candle opens with a gap up and closes at the previous candle close line in a uptrend and the following candle should open at the close of the reversal candle and need to be a bearish candle. In a downtrend the reversal candle opens with gap low and close at the previous candle close and the following candle should open at the close of reversal candle and a bullish candle.The meeting lines with three candles first candle close line, second/reversal candle close line and third candles open line, they indicates strong reversals.
#13 THREE WHITE CROWS & THREE BLACK CROWS :
Three candles with long real bodies of one color following one another is strong continuation signal. If the trend line is up the three candles are called three white warriors.If the trend is down, the three candles are called three black crows.
#14 FAILING THREE METHOODS :
When two or more candles appear against the trend and are engulf by the following candle with long real body formed in the direction of the trend it signals continuation of the trend#15 TASUKI :
In a trend when a price gap is formed and that gap is not filled by the following candle then it is strong signal for continuation of the trend
èUPSIDE TASUKI if the trend is bullish then it is upside tasuki
èIf the trend is bearish then it is downside tasuki
#16 THREE LINE STRIKE :
When two or more candles appear against the trend it is necessary to see what kind of candle follows them. If the color of the real body of the following candle confirms the direction of the trend, it is meant to be a strong continuation signal, if it does not, it is a strong reversal signal.#17 SIDE BY SIDE :
If two candles with same size real body appear against the trend and the following candle is in the trend then it is a strong continuation signal. This candlestick pattern is very easy to identify.
