Oct 12 2020 0
Candlestick chart is the most used chart in the forex market. There are formations and patterns that a professional can spot immediately and know what they are signaling. Today, we will look at the top 15 reversal candlestick patterns that you can totally use to predict the coming trend of a currency pair.
Reversal candlestick pattern definition
The candlestick chart can demonstrate the attitudes and thinking patterns of forex traders in the market. When there are a huge number of traders who act the same, the market will react to it. That’s when the patterns appear and you can trade on that.
A candlestick pattern can be either one candle or a group of candles. They have a specific shape and people name them differently.
Reversal candlestick patterns notify you the end of a current trend (up or down) and the price is about to go a completely opposite direction. If you can spot a pattern in time, you can make your move and get some money thanks to the trend’s reversal.
REVERSAL PATTERNS FROM DOWNTREND TO UPTREND
These are the patterns that tell you the current downtrend is about to end and an uptrend is coming.
A hammer candlestick pattern is a single candle that signals a reversal in trend. This candle has a very small body, a short upper wick, and a very long lower wick, which makes it look like a hammer. This is only considered a reversal pattern when it appears in a downtrend.
The inverted hammer is opposite to the hammer pattern, in both shape and color. It has a small body, a very long upper wick and a short lower wick. It also signals a reversal to a current downtrend.
A bullish Harami candlestick pattern shows you the end of a downtrend. This pattern includes 2 candles. The first candle is a bearish one (red or black) and has a big body. The second candle is a bullish one (green or white) and has a much smaller body. Remember: the body of the second candle must be completely inside that of the first one. The wicks of the second candle are short and must not exceed the body of the first candle.
The bullish engulfing candlestick pattern is a mirror image of the bullish Harami pattern. The first candle of this pattern is much smaller than the second candle. However, the colors stay the same. The first candle is bearish (red or black) and the second is bullish (green or white).
This is also a two-candle pattern. This pattern is called Piercing Line because the second candle closes at the middle of the body of the first candle, so it is piercing the first candle.
A morning star candlestick pattern has three candles. The first candle is a bearish one, which means it is either red or black. The second candle is a small one that shows the hesitation of the traders. The third candle is a bullish one, which means it is either green or white. The middle candle is usually a doji candle or a spinning top candle. This pattern shows that the downtrend is coming to an end.
The three soldiers candlestick pattern is a very noticeable pattern because it is made of three big candles that have the same color. The three soldiers are three green (or white) candles. The closing price of the latter candle must be higher than the preceding candle. The lower wicks of all three are usually short.
REVERSAL PATTERNS FROM UPTREND TO DOWNTREND
These are the patterns that tell you the current uptrend is about to end and a downtrend is coming.
The Hanging Man pattern is a single candle pattern. It has a very small body with short or almost no upper wick. The lower wick must be at least twice the length of the body. This pattern looks exactly like the inverted hammer pattern but it has the opposite color and function. This pattern tells you that the uptrend is ending and you should be ready for a reversal.
Like Hanging Man, the Shooting Star candlestick pattern looks just like the Hammer pattern but is different in function and color. It appears in an uptrend and prepares for a coming downtrend.
Dark Cloud Cover
The Dark Cloud Cover pattern has two candles. The first candle is a green one with a big body. The second candle must open higher than the first but close at the middle of the body of the first.
This candlestick pattern is a mirror image to the bullish Harami pattern, in both structure and colors. The first candle of this pattern is green and big. The second candle is red and small. The whole second candle must be inside the body of the first one. If the wicks of the second are inside the body of the first candle, the coming downtrend is usually very strong.
The bearish engulfing pattern is completely opposite to the bullish engulfing. This pattern appears at the end of a downtrend and it starts with a bullish candle that has a very small body and is completely engulfed by the following bearish candle.
The Evening Star pattern is used by traders to find a reversal in an uptrend. It has 3 candles. A green or white first candle that has a big body. A small candle in the middle and a red or black candle. The middle candle is usually a doji or spinning top candle. It is completely opposite to the Morning Star pattern.
The Three Crows pattern is also an eye-catching pattern just like the Three Soldiers pattern. It consists of three red candles. The opening price of each one must be higher than the following candle. The upper wicks of all three should be short.
A Doji is a very important reversal candlestick pattern in candlestick techniques that usually occurs at the bottom of a downtrend, or the top of an uptrend. It signals the end of both downtrend and uptrend.
A Doji is a candlestick pattern with approximately the same opening and closing prices, because a Doji has the same closing and opening prices or at least an extremely short body, so a doji seems to have The body of the candle is quite thin, almost a straight line, forming a plus sign.
So you can see that when you can spot these candlestick patterns, you can predict the direction of the market in the near future. Make sure you can remember all 15 reversal candlestick patterns so that you can trade more successfully in the future.