Candlestick Patterns: Top Candlestick Charts Every Trader Should Know

Candlestick patterns are one of the most effective forex charts used for conducting technical analysis and interpreting market trends. They can predict possible price movements based on past trends as they show the four essential price points for currency pairs in forex trading – the open price, close price, high price, and low price. Let’s take a look at all the top candlestick chart patterns that can help you ace forex trading.

What are candlestick patterns?

A candlestick pattern is a technical analysis tool that can depict the price movement and momentum of currency pairs in a graphical manner. It enables traders to predict future market behaviour by analysing past trends. A candlestick has three critical components –

• The body: The body of the candlestick is the middle portion that represents the currency pair's open-to-close price range.
• The wick: The wick (also known as shadow) is the topmost portion of the candlestick and indicates the intra-day high and low currency pair prices.
• The colour: The colour of the candlestick body represents the direction of the forex market movement. A colourless or green body reveals an upward trend or price increase, while a black or red body reveals a downtrend or price decrease.

How to read candlestick charts?

As understood earlier, a candlestick chart represents the relationship between the currency pair’s closing, opening, high and low price. When the upper shadow of the candlestick is short, it signals that the day's open price is near the highest price level of the current day. However, if the upper wick is long, it signals that the currency pair did not open anywhere near its high trading price. When the lower shadow of a candlestick is short, it shows that the closing price of the currency pair was near its lowest price level. However, a long lower wick indicates that the currency pair closed far from its lowest trading price. Individual candlesticks can also be read according to how their bodies are filled. A candlestick filled with black colour depicts that the closing price on the current trading day is greater than the previous day’s closing price but lower than the opening price. However, when a candlestick is black and hollow, it indicates that the closing price on the current day is more than the closing price of the previous day and the present day’s opening price. The overall market sentiment can be understood by looking at the candlestick pattern’s appearance.

• If more than two red candlesticks appear simultaneously, it indicates a bearish market trend.
• If more than two green candlesticks appear simultaneously, it shows a bullish market trend.

Candlestick pattern reliability

The candlestick patterns are reliable in predicting the future price direction of the currency pairs. Especially when you combine candlestick patterns with other technical indicators, you can receive confirmed market signals that are very less likely to provide false signals. The following three factors impact a candlestick pattern’s reliability –

1. Trade environment

If a candlestick pattern occurs in a trade environment that has a support level (where falling prices stop falling and start increasing) and resistance level (where rising prices stop rising and start falling) nearby, the candlestick pattern’s reliability increases.

2. Timeframe

Candlestick patterns provide reliable market signals during longer timeframes as markets in such timeframes are comparatively less volatile. Longer timeframes allow patterns to work in different market conditions in order to ascertain a particular result rather than jumping to conclusions that lead to false signals.

3. Pattern size

Larger candlestick patterns provide more reliable results because such patterns consider significant price fluctuation in the market and provide traders with strong market signals. The more candlesticks in a particular pattern, the higher the reliability and vice versa.

Top candlestick charts every trader should know

Bearish Candlestick Patterns

Bearish candlestick patterns indicate the upcoming downtrend reversal in a market. Such patterns start with a green (or bullish) candlestick followed by a significantly big red (or bearish) candlestick that signals traders to short or sell their trades in the expected downtrend. The currency pair’s opening prices are higher than their closing prices in a bearish pattern. Let's take a look at some of the best bearish candlestick patterns.

1. Shooting star candlestick pattern The Shooting Star pattern is almost the same shape as that of an inverted hammer bullish candlestick pattern. However, it is formed in an uptrend and consists of a smaller lower body with a longer upper wick. The opening and closing prices in the shooting star pattern are near to one another and give a bearish reversal signal. The pattern gets its name because as soon as the currency pair price opens, its market price shoots up further to its high price point before closing at a price near the opening price, depicting a fall towards the ground.

2. Three Black Crows candlestick pattern The Three Black Crows pattern is the inverse of the three white soldiers' pattern and consists of three consecutive red candles with either non-existent or extremely short wicks. The currency pair price opens at a similar price as the previous day, but the selling pressures throughout the day push down the price even lower as each day closes. This is known as the commencement of a bearish downtrend, as selling pressures are more substantial than the buying pressures.

3. Evening Star candlestick pattern The Evening Star candlestick pattern is again a three-candlestick pattern which is formed of a short candle between a long red candlestick and a long green candlestick. The first candle is a bullish candle, the second/middle candle is a candlestick with a very near open and close price, and the third one is a bearish candle. It signals an uptrend reversal with decreasing prices that follow with each following day. This sends an exit signal to the trader due to the falling currency pair prices and potential market downturn.

4. Hanging Man candlestick pattern The Hanging Man candlestick pattern is formed at the end of a market uptrend. It reveals that after a significant daily sell-off, the buyers have been able to push the currency pair prices back up. The body of this candle is short and has a long lower wick, mostly twice the body's length. It indicates that the market is now going to become bearish in the future. Hence, it recommends the traders to exit the market as soon as possible to minimise losses.

5. Bearish Harami candlestick pattern The Bearish Harami pattern has two candlesticks: the first is a tall bullish candle, and the other is a small bearish candle which is in the same range as the first one. It is formed after a market uptrend and indicates a soon-to-come bearish reversal. The pattern sends traders a signal to short the market after the pattern is complete.

6. Dark Cloud Cover candlestick pattern The Dark Cloud Cover pattern is a bearish candlestick pattern and it consists of a red candlestick opening above the previous green candlestick and closing below the previous candle's midpoint. It is followed by another green candlestick that starts just above the previous closing price and has a short body, signalling that the market is witnessing a bearish reversal.

7. Bearish Engulfing candlestick pattern The Bearish Engulfing pattern is the reverse of a Bullish Engulfing pattern. The multiple candlestick charts are formed right after a market uptrend takes place, followed by a bearish reversal. It consists of two candles, where the second candlestick (the long bearish one) engulfs the first candlestick (the long bullish one). The continuation of this pattern confirms an uptrend and enables the traders to short a position and place stop-loss orders at the high price point of the second candle.

8. Black Marubozu candlestick pattern The Black Marubozu pattern is the opposite of a White Marubozu candlestick pattern. It consists of a single candlestick that is formed after a market uptrend takes place, followed by a bearish trend reversal. It also consists of a long bearish candle body without an upper or lower wick. The absence of the wick indicates that the selling pressure in the market is strong enough to turn the forex market bearish. It sends a cautious signal to the buyers when the pattern takes place and indicates to them to close their existing buying position to avoid losses.

9. Falling Three Methods candlestick pattern The Falling Three Methods pattern is a bearish candlestick pattern with five candles as a part of the chart. It is a continuous pattern that signals only an interruption in the market and not a reversal of the existing downtrend. It is made of two long bearish candlesticks at the beginning and end, with three bullish short candlesticks in the middle, opening at a higher price than the previous day. It indicates that even after three consecutive days of a bullish trend, the bulls are not strong enough to reverse the trend from a downtrend to an uptrend. Hence any buying decisions should be put on hold.

Bullish Candlestick Patterns

Bullish candlestick patterns indicate the upcoming uptrend reversal in a market. This pattern starts with a red candlestick followed by a significantly big green candlestick that signals traders to long their trades in the expected uptrend. The currency pair’s closing prices are higher than their opening prices in a bullish pattern.

1. Morning Star candlestick pattern The Morning Star pattern is a bullish candlestick pattern with an extremely small body candle between a long green candle and a long red candle. It reveals a positive market situation as the day ends because it signals that the negative selling pressures (and the market downturn) throughout the day have been subsiding, and a bullish market is soon to arrive. This gives a buying signal to the traders as the market is now following an uptrend.

2. Hammer candlestick pattern The Hammer candlestick is a bullish pattern formed with a short body and long lower wick at the bottom of a market downtrend. It depicts that even though there have been selling pressures for the particular currency pair during the day, an intense buying pressure, in the end, increased the prices. The Hammer candlestick pattern sends a buy signal to the traders as the currency pair prices are on an ever-increase.

3. Inverse Hammer candlestick pattern The Inverse Hammer is also one of the most accurate bullish candlestick reversal patterns, with a longer upper wick and a shorter lower wick. This indicates that there has been buying pressure throughout the day with a selling pressure towards the end, which was not strong enough to drive down the currency pair price. This chart pattern suggests you buy more of the currency pair for profitable trades.

4. Three White Soldiers candlestick pattern The Three White Soldiers is one of the best bullish candlestick patterns seen over a period of three consecutive days. It consists of 3 long green candles that have small wicks which are opening and closing at higher prices than the previous day. It sends a strong bullish signal that is known to occur right after a downtrend and signals the traders about a steady and robust buying pressure.

5. Three Inside Up candlestick pattern The Three Inside Up pattern is a multiple candlestick pattern formed right after a market downturn and consists of three candlesticks, as the name suggests. The first is a long bearish candlestick, the second is a small bearish one, and the third is a long bullish candlestick that confirms the bullish trend reversal. The second candle should always be in the same range as the first candlestick. As soon as the candlestick pattern completes, the traders can take long positions to make successful forex trades.

6. Bullish Piercing candlestick pattern The Bullish Piercing candlestick pattern is formed right after a market downtrend, followed by a bullish reversal. It has two candles; the first one is a bearish candle indicating the downtrend. The second one is the bullish candle that opens below the previous open price but closes way beyond 50% of the previous candle's body. This shows that the market is entering into a bullish phase, and traders can enter long positions.

7. Bullish Engulfing candlestick pattern The Bullish Engulfing pattern is formed by two candles, where the second one engulfs the first one. It also indicates a bullish reversal, and the second candlestick is always a long bullish one, entirely engulfing the first candlestick, which is a long bearish one. This candlestick pattern allows the traders to take long positions as soon as the pattern completes, with an option to place the stop loss at the end of the second candle's body.

8. White Marubozu candlestick pattern The White Marubozu pattern consists of a single candlestick formed right after a market downtrend. It indicates a bullish reversal as the candle has a long bullish body marked in green colour. It does not have wicks at either end of the body, which depicts that the buying pressure is intense enough for a bullish reversal. This pattern enables the forex currency pair sellers to be cautious of their positions and close any shorting positions in the forex market.

9. Tweezer Bottom candlestick pattern The Tweezer Bottom pattern reveals a bullish reversal in the forex market. It is formed as a downtrend in the market and consists of two candlesticks. The first candlestick is a bearish candle, and the second one is a bullish candle. Both of these have almost similar low currency pair prices. Since the market downtrend is set to reverse when the pattern is complete, the bulls in the market are ready to enter and push the currency pair prices upwards.

10. Rising Three Methods candlestick pattern The Rising Three Methods is the exact opposite of the Falling Three Methods candlestick pattern. It consists of five bullish candlesticks in the same chart, signalling a market interruption but not a reversal of the existing uptrend. It starts with a long bullish candlestick, followed by three short bearish candlesticks that open at a price lower than the previous day and is followed by the last candlestick, again, being a long bullish candlestick. This indicates that even after a continuous bearish market trend, the forex market is back on its bull stage with increasing currency pair prices, and the downtrends were only temporary. It signals the trader to hold any selling decisions for the time being.

Continuation Candlestick Patterns

Continuation candlestick patterns are an indication that the current short-term trend is going to continue in the same direction in the future and convert into a long-term trend instead. During an uptrend, the pattern starts with short green candlesticks followed by large green candlesticks that confirm a continued uptrend. During a downtrend, the pattern starts with short red candlesticks followed by large red candlesticks that confirm a continued downtrend.

1. Doji candlestick pattern The Doji candlestick pattern consists of a green or red candle that has the opening and closing currency pair prices almost equivalent to one another. This particular candlestick pattern depicts a fight-off between the buyers and the sellers, resulting in no net gain for either one. A Doji candlestick pattern mostly sends a neutral signal in the market and recommends to hold onto any trade decisions.

2. Mat-hold candlestick pattern The Mat-hold candlestick pattern is a continuation pattern that can occur during a downtrend or uptrend. It indicates a continued trend move on the basis of a previous trend. A bearish Mat-hold pattern starts with a significant downtrend candlestick followed by smaller red candlesticks confirming the downtrend continuation. A bearish Mat-hold pattern begins with a significant uptrend candlestick followed by smaller green candlesticks confirming the uptrend continuation.

3. Rising Window candlestick pattern The Rising Window candlestick pattern is a bullish continuation pattern that consists of two green candlesticks in an uptrend. It indicates traders that the market will continue upwards and signals ideal entry levels. The pattern is determined through a significant gap between the first candlestick’s high price and the second candlestick’s low price, which is also considered a ‘window.’ This gap suggests that even the lowest price level on the current day is higher than the highest price level of the previous day, confirming the uptrend.

4. Falling Window candlestick pattern The Falling Window candlestick pattern is a bearish continuation pattern that consists of two red candlesticks in a downtrend. It indicates traders that the market will continue downwards and signals ideal exit levels. The pattern is determined through a significant gap between the first candlestick’s low price and the second candlestick’s high price. This gap suggests that even the highest price level of the current day is lower than the lowest price level of the previous day, confirming the downtrend.

5. Upside Tasuki Gap candlestick pattern The Upside Tasuki Gap is a bullish continuation pattern that can be identified in an ongoing uptrend. It consists of three candlesticks, where the first two candlesticks are large bullish candlesticks, followed by the third candlestick being a bearish candlestick. The current bearish candlestick’s high price level moves beyond the previous day’s bullish candlestick’s low price level to indicate that the bullish market trend is resuming. Each candlestick thereafter opens somewhere equal to the second bullish candlestick’s price, confirming the uptrend.

6. Downside Tasuki Gap candlestick pattern The Downside Tasuki Gap is a bearish continuation pattern that can be identified in an ongoing downtrend. It consists of three candlesticks, where the first two candlesticks are large bearish candlesticks followed by a bullish candlestick. The bullish candlestick’s low price levels fall below the first bearish candlestick’s low level, indicating a bearish market trend resuming. Each candlestick thereafter opens below the previous day’s opening prices, confirming the downtrend.

Trade with candlestick patterns to place successful trades

Candlestick patterns play a significant role in forex trading since they send buy and sell signals to the traders and also let them know about any market reversals that are about to happen. With Blueberry Markets, you get access to a free forex learning program and you can get started with forex learning in just a few clicks. Sign up for a live trading account or try a risk-free demo account.