How To Read Candlestick Charts In Forex Trading


The gravestone doji is usually found at the top of bullish trends. It is a strong signal of a potential bearish reversal to come. The evaluation of a doji depends on the preceding candles or the trend of the market. When there is a doji after a rally, it tells you that positive momentum is beginning to weaken.


On a chart, candlesticks provide an instant picture of a security’s price behavior over different time periods. Forex traders can read a candlestick chart to help determine the best trading strategy. Unlocking the information is the first step to incorporating Japanese candlesticks into your Forex trading. The next chart shows a common double top pattern, followed by a pullback signalled by a hanging man pattern. Once the pullback is completed, a bullish engulfing pattern confirms the opening of a trade in the direction of the breakout. Bear in mind that these are only two examples of how to use candlestick patterns.

The larger the difference, the stronger the power of the candlesticks chart. Therefore, choose a candlesticks chart with a large physical part in the transaction, such as the big Yin Yang. The probability of successful trading will be higher when the big Yang line is used, which helps traders learn more about risk management in trading. They should conduct a macro analysis and create a trading strategy plan. In comparison to the line chart, bar charts are quite complicated though it surpasses line in providing sufficient details. Bar charts also provide a view of opening, closing, high and low prices of pairs of currencies.

How the price chart functions

Thanks to all authors for creating a page that has been read 303,128 times. For example, if the overall chart appears to indicate an upward trend, you might want to go back further to see when that trend began. The various pairs available depend on the Forex service you’re using. You also often have the option of looking at minor pairs as well, such as AUD/CAD .

  • Red candles represent that the closing price at the end of the time period is lower than the opening price.
  • A depth chart is the graph of all the pending orders for a particular asset.
  • When that variation occurs, it’s called a “bullish mat hold.”
  • If the closing price is lower than the opening price, the candlestick is red, indicating that the price falls that day.
  • Candlestick patterns are useful for spotting areas of support and resistance.

For example, groups of candlesticks can form patterns throughout forex charts and diagrams that could indicate reversals or continuation of trends. Candlesticks can also form individual formations, which could indicate buy or sell entries in the market. Every trader needs specific charts and tools to make trading more accessible and to avoid unnecessary human errors. Candlestick charts are charts that are used to read the price action by the traders. These charts allow traders to find the exact price opening for a while and when the prices closed.

Candlesticks with short upper shadows and long lower shadows show that sellers drove prices down during trading but buyers caused the prices to rise close to the end of trading. This lets you know how the price action was influenced during trading. Candlestick patterns are useful for spotting areas of support and resistance. They are also valuable for confirming your predictions about market movements. However, it is worth mentioning that there is a lot that candlesticks cannot tell you.

Candlestick Patterns Explained

Let’s look at a few more patterns in black and white, which are also common colors for candlestick charts. A bearish harami cross occurs in an uptrend, where an up candle is followed by a doji—the session where the candlestick has a virtually equal open and close. It is identified by the last candle in the pattern opening below the previous day’s small real body. The last candle closes deep into the real body of the candle two days prior.

It uses historical data and provides multiple data points plotted along the chat. The application provides traders with multiple tests and combines three indicators into one chart. The best timeframe depends on the type of trader who uses it.

Some forex traders might focus on taking advantage of candle formations, while others attempt to spot price patterns. Can be a little tricky, but you can do it quickly once your basics are right. First, you must pay attention to all the single candle components because charts are formed by individual candles coming together. Every candle has three significant points – wicks, close and open.


While the colour of the body is not much important, the pattern is slightly more bullish if the closing price is above the opening price. The opening and closing prices are represented by the solid body of a candlestick, while the high and low prices are shown by the upper and lower wicks of a candlestick. Forex candlestick patterns are a popular tool to analyse price charts and confirm existing trade setups.

But most call them candlesticks, or just candles, for short. In the GBP/JPY daily chart below, we can see that the GBPJPY price was bouncing around a strong support level, but failed to break below it. It penetrated the support level on the third try, but the market swiftly reversed and formed an Engulfing Bullish Candlestick pattern that signaled further bullishness in the market. The period of each candle typically depends on the time frame chosen by the trader.

How to Read Bar Stock Charts

Yin and yang represent the trend direction, which is either long or short. The yang line indicates that the current market is in an upward trend and may continue to rise, and the yin line indicates that the market is in a downward trend and may continue to fall. But where they are positioned in the market changes their meaning. This candlestick pattern consists of two candles, the first is bearish and the second is bullish, and it looks similar to an engulfing pattern.

For example, the EUR/ thirty-minute chart shows three long white or green candles in an uptrend. You could buy the currency pair as long as the candles reflect the uptrend. The Ichimoku chart is well-known among technical analysts for its use in equities, futures, and forex trading.

Candlestick charts highlight the open and the close of different time periods more distinctly than other charts, like the bar chart or line chart. Engulfing candle pattern forms when candlestick’s real body completely engulfs the preceding candlestick’s body. The pattern consists of two candlesticks that signal a trend reversal. Doji candlesticks have the same open and close prices or their bodies are extremely short.


In the 18th century, Candlestick charts were invented and created, as you may already know. This can also be a sign of exhaustion after a recent uptrend in price. The upper and lower boundaries of these general price channels indicate historical areas of supply and demand. This means you should start on a relatively higher time frame and work your way down to a relatively lower one. Each interval starts on the hour, every hour for as long as the market is open. A price chart is like a window that allows you to view the action in the market.

Candlestick chart is the most popular form of price charts used by traders. In a candlestick chart, the price graph is represented in the form of a series of candles, hence it is called a candlestick chart. There are various types of charts in Forex but the most used and renowned are the line charts, bar charts, and candlestick charts. 85% of retail investor accounts lose money when trading CFDs with this provider. For example, in the image below we have the bullish engulfing price pattern.

For example, if a price move breaches the upper band, it might be expected that the price would then revert back to its mean, or in this case the middle moving average. The amount of time shown on the chart depends on the particular timeframe you select. Typically, forex pairs are quoted to four decimal places (0.0001). The ‘1’, four spaces after the 0, is what is referred to as a pip. Forex is the business of conversion, and since you are always comparing the value of one currency to another, forex isalwaysquoted in pairs. It’s a dynamic, liquid marketplace with daily turnover predicted to be inexcess of 5.3 trillion dollars.

On the chart, you will see how various currencies move and you can ascertain the tendency of going up or down at a particular time. It has to do with the two axes and the y-axis is on the vertical side, and it stands for the price scale while the time is depicted on the horizontal side which is thex-axis. Three bearish candles are followed by a large bullish candle.

Candlestick Patterns Of Two Or More Candles

A line chart uncomplicated and shows price moves within a line, whilst candlestick charts present more information within each individual candlestick. Once you master the basics of reading candlestick charts, you potentially can start integrating them into your preferred trading strategy for better accuracy. To use the insights gained from understanding candlestick patterns and investing in an asset, you require a brokerage account. In the 1600s, the Japanese developed a method of technical analysis to analyze rice prices. Steve Nison is credited with disseminating this analytical method.

When the second day begins there is a gap down, where the opening will be near the low and close near the high. The price range is the difference between the highest and lowest price of a candle during its time period. The candlestick chart has a rich history dating back to 18th century Japan, which is why they are also known as Japanese candlesticks charts. Traders can take advantage of hammer formations by executing a long trade once the hammer candle has closed.

Trading Candlestick Patterns

Candlestick graphs give twice as much information as a standard line chart. They also allow you to interpret price data in a more advanced way and to look for distinct patterns that provide clear trading signals. Learning to read candlestick charts is a great starting point for any technical trader who wants to gain a deeper understanding of how to read forex charts in general. As you may already know, Candlestick charts were invented and developed in the 18th century. People can set the color of the candlestick according to their personal preferences with the help of trading software. Logically, if the candlestick is bullish, then the opening price is most often at the bottom, and the closing price is nearly always at the top.

For example, a Gravestone Doji appearing at the top of an uptrend can indicate a trend reversal. However, if the same pattern appeared during a longstanding downtrend, it may not necessarily mean bearish trend continuation. If you are chart reading and find a bullish candlestick, you may consider placing a buy order. On the other hand, if you find a bearish candlestick, you may choose to place a sell order. However, while reading Candlesticks if you find a tentative pattern like the Doji, it might be a good idea to take a step back or look for opportunities elsewhere.

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