Previously, we already knew what a candlestick is, which is a type of price chart (chart) to technically map and read price movements in the financial market.
After knowing the general meaning of candlesticks, the next thing to know is the types of candlestick patterns. This graphic has some interesting patterns to watch.
According to its shape, there are 42 types of forex candlestick patterns. That’s a lot, isn’t it?
But don’t worry, how to read it is divided into 3 types of candlestick patterns that are easier to remember and learn. Let’s remember together, the 3 types of candlestick patterns are:
- Single Candlestick Patterns
- Double Candlestick Patterns
- Triple Candlestick Patterns
The discussion of these types of candlestick patterns takes quite a long time, but it will be very useful to use when we are going to take action in forex trading.
In addition, because the candlestick method was adopted from Japanese technical analysis, many terms from the Sakura country are also used.
Single Candlestick Patterns
As the name implies, single alias no partner. This single candlestick pattern consists of one segment and is the easiest to see.
Included in the types of single candlestick patterns include:
1. Spinning Top
The characteristic of Spinning Top is that it has two elongated shadows at the top and bottom with a small body. Uncertainty between buyers and sellers is the main focus in this candle.
This graph is usually considered neutral, because during this period there is a deadlock. However, it should be noted when this Spinning Top appears.
If it appears during an uptrend, it means that there are more sellers in the market. On the other hand, the larger number of buyers is represented by the Spinning Top that appears during a downtrend.
Signal: Bullish or Bearish depending on the Open and Close price positions on the candle.
Literally, Marubozu means ‘bald head’. In this type of candlestick pattern, we will meet a body candle that has no shadow, either up or down. So it just looks like a hairless head.
Marubozu shows a signal of a strong movement from one side (buyer or seller) which is likely to last for several periods in the future.
In Marubozu Bullish, the Close price is always higher than the Open, and the candle has no wick at all. While on Marubozu Bearish, Close price is always lower than Open, without wick.
Signal: Bullish or Bearish depending on the Open and Close price positions on the candle.
Also read: What is Forex Market Sentiment?
Similar to the Spinning Top candlestick pattern, but the Doji pattern has more complex characteristics.
The Doji candlestick has a very thin body, it even looks like a line, because the Open and Close prices are the same. This is because there is no one between the seller and the buyer who is able to take control.
Doji are divided into four types, namely: Long Legged Doji, Dragonfly Doji, Gravestone Doji and Four Price Doji.
However, in general, the Doji is a consolidation signal, and to find out the certainty of the direction of the next price movement, confirmation is needed from the next candlestick bar after the doji.
From this fourth point to the seventh point, we will get acquainted with candlestick patterns that have the same appearance at a glance. It takes precision to read it. Look at the image below:
As the name implies, the Hammer candlestick pattern has a hammer-like shape. With a long lower shadow and a small body, this pattern indicates a bullish reversal (price reversal from declining to rising) during a downtrend.
Keep in mind, there are many other indications that need to be considered before we rashly take buy orders when we see the Hammer candlestick. Among others:
- Pay attention to the length of the lower shadow, is it 2-3x the size of the original candle body?
- Pay attention to how long the upper shadow is. To qualify for the Hammer pattern, the upper shadow must be very small or non-existent.
5. Hanging Man
At first glance it looks similar, but its position is not the same as the Hammer candlestick; That’s the Hanging Man candlestick pattern.
Shaped like a hanging person and located at the top of a chart, the Hanging Man candlestick shows a bullish to bearish price reversal, but with low accuracy.
Do not rush to take a stance after seeing this candlestick pattern; Wait a minute how Close on the next candle. If the Close price on the next candle is even lower, it can confirm a bearish reversal tendency.
6. Inverted Hammer
There is a Hammer, there is also an Inverted Hammer, aka an inverted hammer.
This candlestick pattern usually shows a bullish signal, because even though the price has fallen, buyers still managed to close the session close to the open price. However, the accuracy is low because it is somewhat contradictory.
The Inverted Hammer has an upper shadow that is longer than the body which intuitively should inform seller pressure, but here it signals the price to go up.
7. Shooting Star
As the name implies, the appearance of this one candlestick pattern is similar to a shooting star.
Shooting Star has a long upper shadow, with its full body facing downwards. The Shooting Star type of candlestick pattern indicates a price reversal to a downside.
Double Candlestick Patterns
After studying the single candlestick pattern, we move on to a more complex discussion, namely the double candlestick pattern.
Here what we do is pay attention to not only 1 segment of the body candle, but also the appearance of the candle next to it.
There are lots of double candlestick patterns. Two of the most famous of them have similarities and are ‘engulfing’ (swallowing). Look at the image above.
1. Bullish Engulfing
The idea for the name of this candlestick pattern arises from the nature of the bulls who ‘swallow’ the bears. Keep in mind again that the term in forex, bull means buyer, bear is seller.
Bullish Engulfing Candles give a signal that an uptrend will occur, when there is a bearish candle followed by a larger bullish candle. This is because the bulls (buyers) are stronger than the bears (seller).
2. Bearish Engulfing
From the name, of course, we can get an initial view that Bearish Engulfing has the opposite nature to the candlesticks we discussed earlier.
Bearish Engulfing indicates a downtrend. Another thing to note is: a larger bearish candle will follow a smaller bullish candle. The reason is that the sellers are able to restrain the pace of the buyers.
3. Tweezer Bottoms dan Tweezer Tops
In addition to the Engulfing candlestick pattern, there is also the Tweezer Bottoms and Tweezer Tops candlestick patterns. Let’s focus on the words bottom (bottom) and top (top) because the key to reading this clip -shaped pattern is there.
Tweezer Bottom is a situation when one bearish candlestick more or less aligns with one bullish candlestick; Both have long lower shadows, but with little or no upper shadow.
Tweezer Bottom can also be followed by a doji. Keep in mind that the length of the body on the two candles does not have to be the same, but the Low value must be the same low. Tweezer Bottom can also be followed by Doji.
Conversely, a candlestick chart can be called a Tweezer Tops if a bullish candle meets a bearish one with the upper shadow extending at the top, but the lower shadow being very short or nonexistent.
The length of the body on the two candles does not have to be the same, but the High value must be the same as the low.
A candle pattern called Tweezer Top shows a bearish reversal when an uptrend occurs, while a Tweezer Bottom candlestick is a bullish reversal pattern when a downtrend occurs.
Signal: Reversal, can be Bullish (Tweezer Bottoms) or Bearish (Tweezer Tops).
4. Harami Candlestick Patterns
In Japanese, Harami means ‘pregnancy’. It is called so because the Harami candlestick pattern is formed from two candles where the body of the second bar is always smaller and is in the content (within) of the body of the first candle.
Smaller bars indicate that the price movement has reached its lowest point and most likely is no longer able to continue the current trend. The smaller the second bar, the stronger the prediction that a reversal will occur.
Signal: Reversal, can be Bullish or Bearish.
Triple Candlestick Patterns
Finally, we come to the type of candlestick pattern that is widely used by traders because of its higher accuracy, namely the triple candlestick pattern.
After previously we have observed a single candlestick alone, a double candlestick that is always alone, then a triple candlestick presents three candlesticks that have a certain character.
Fire don’t worry, the appearance of a third party in this candlestick does not bring cloudiness. Instead he will help us to better read market conditions.
The complexity of the triple candlestick makes it appear infrequently, but it is precisely because of this that the accuracy is higher. The most popular triple candlestick patterns include:
1. Morning Star and Evening Star
The appearance of a Doji (candlestick with a very thin body like a line) between two candlesticks with a long body is the main characteristic of the Evening Star or Morning Star pattern.
In the Morning Star candlestick pattern, the arrangement that appears is a bearish candle-doji-bullish candle and occurs in a downtrend chart position. This Morning Star candlestick pattern indicates it’s time to buy (bullish reversal).
In contrast, the Evening Star candlestick pattern occurs in an uptrend chart position, and signals the time to sell (bearish reversal). The formation is a bullish candle-doji-bearish candle.
On the Evening Star and Morning Star, we check whether a price reversal will occur by seeing if the third candle closes above the midpoint of the first candle.
Note: it is important to make sure that all three candles are perfectly formed before making a decision.
Signal: Reversal, can be Bullish (Morning Star) or Bearish (Evening Star).
2. Three White Soldier dan Three Black Crows
Unlike the previous candlestick patterns which showed a reversal signal, Three White Soldiers and Three Black Crows were used to confirm the strength of the current trend direction.
The Three White Soldiers pattern is formed from three long bullish candles following a downtrend.
These three white warriors are used to confirm a bullish state, especially if it emerges after a prolonged downtrend and brief period of price consolidation.
Keep in mind, the second candlestick (the position in the middle) should have a small tail or none at all.
The Three Black Crows candlestick pattern is the opposite of the Three White Soldiers. The Three Black Crows pattern is formed when three bearish candles follow a strong uptrend, and indicate that a reversal is imminent.
Signal: Confirm Bullish (Three White Soldiers) or Bearish (Three Black Crows).
3. Three Inside Up dan Three Inside Down
The last candlestick pattern from our discussion is Three Inside Up and Three Inside Down. Both also indicate a trend reversal. The pattern is bearish-bullish-bullish (for Three Inside Up), or bullish-bearish-bearish (for Three Inside Down).
Three Inside Ups occur after the latest downtrend and are a signal for an uptrend reversal (price reversal from declining to rising). The first candle in the pattern is a bearish candle with a long body.
This is followed by a bullish candle that has crossed at least the halfway point of the first bearish candle. The third and final candle crosses at least the high of the first bearish candle.
The Three Inside Down candlestick pattern is the opposite of the Three Inside Up. In this case, the Three Inside Down pattern is an indicator for a downtrend reversal (price reversal from up to down) and occurs following the latest uptrend.
The first candlestick in the pattern is a bullish candle with a long body, the second is a bearish candle that has crossed at least half of the point of the first bullish candle. While the last candle must pass at least the low of the first bullish candle.
Signal: Reversal, can be Bullish (Three Inside Up) or Bearish (Three Inside Down).
Thus an explanation of the various types of candlestick patterns that often appear. It may seem confusing at first, but as time goes on, traders will find it easier to understand as they appear on the chart.
For novice traders, if you need a ‘shortcut’ to see what candles are forming and what they mean, you can bookmark this page or download the Candlestick Cheats booklet.
If you do not understand the specific terms in forex trading on this page such as bearish, bullish, and reversal, you can visit Forex Dictionary. Take advantage of Forex Dictionary when you encounter new vocabulary for optimal understanding.