Identifying Candlestick Patterns – Know Your Candles – Part 1
In real, candles are a source of light so that you may see in the dark . What’s the use of candlesticks here in Forex? Traders use candles to find reversals and trend changes as well as determine entries and exits. Some candlesticks or candlestick patterns are used by traders to predict what the market could do in the near future.
Identifying Candlestick patterns
It takes time, but as you grow as a trader, you will find analyzing and keeping an eye on these candles becomes easier, though when I say time, I mean a few months to a year, it doesn’t happen in a zip. It is a profitable way to trade if you understand and identify these candlestick patterns successfully, keep in mind, candles alone are not good indicators to use, they are used along with trendlines, horizontal support lines, pivot points and fib levels. Fundamentals along with these technicals play a huge part in trading and is something you should concentrate on way before you get in your trading seat.
Identifying candlestick patterns on charts
These candles have no upper or lower shadows, they are very hard to find on higher time frame charts. The open and close indicate the high and low price of the candle. There are two types of Marubozu, they can be whatever color you choose to be but in our charts, the green marubozu is positive as in price going up and red marubozu is negative as in price going down. Green Marubozu indicates bullishness as buyers were leading and had control of the price action the entire period. Red Marubozu indicates bearishness as sellers were controlling the price action from the opening till the end of the session.
HAMMER AND HANGING MAN
Hammer and hanging man give reversal signals. They have little bodies on upper side and a long lower shadow. They have little or no upper shadow. The color of the body is not important. If such signal is formed in a downtrend then that candle is called hammer signaling that now this trend is coming to an end and market may start to rise again. Similarly if you find it an uptrend then that candle is called hanging man which signals that market will now reverse and prices may fall.
INVERTED HAMMER AND SHOOTING STAR
They have little bodies on lower side and upper side and a long wick as their shadow. The only way to identify them is to see in which trend they are forming. Candlestick forming in a downtrend is called inverted hammer signaling that prices have fallen enough and now bulls are ready to enter the market. Candlestick forming in an uptrend is called shooting star signaling that prices have risen enough and now bears are ready to enter the market.
Forms when the opening and closing prices are almost equal or are very close to each other. It is basically a cross sign, an inverted cross or sometimes a plus. A doji forms when the buyers and sellers are having a tug of war and nobody is sure who will win the game. So it’s better to close your position or put it at break-even because you don’t know which side the prices will go. The preceding candle or the candle formed before doji can give you idea where the market is leading.
You’ll find more candlestick patterns in part 2 of this post.
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