How to use Candlestick pattern for Forex Trading?

Posted by Saurabh Chaurasia on

Image of Candlestick pattern

Using Candlestick patterns in forex is a popular tool to analyze price charts and confirm market trends. This pattern has been used for a hundred years by the Japanese traders and is still the most reliable trading pattern. Let's see how Forex candlestick patterns are and how to trade them in forex markets. Forex candles show the open, high, low, and close of a trading period.

Forex Japanese candlestick patterns represent the underlying and reversal trend. These patterns can be formed by a single candlestick or multiple candlesticks. Candlestick formations in the foreign exchange market reflect the sentiments of the market. It represents price action and a tussle between buyers and sellers. Although there are multiple benefits to using candlestick patterns, a trader must have enough knowledge to use it as there can be a number of false signals.

Types of Candlestick Patterns and How to use it?

Bullish pattern and Bearish patterns are the most important candlestick patterns to confirm a trade setup. A bullish pattern is formed when a green candlestick (green candle indicates a strong buying pressure, which indicates the price is bullish) is completely engulfing a red candlestick (red candle indicates security is below both the price at which it opened and previously closed). Whereas, bearish patterns are completely opposite of bullish pattern. Apart from bullish and bearish patterns, there are several other candlestick patterns that are highly profitable for investors. Two black gapping candles foresee a downtrend continuation. This pattern forms a strong resistance zone. Three black crows pattern occurs when bears overtake the bulls in three back-to-back trading sessions. Evening Star is a stock-price chart pattern to detect a trend that is about to reverse. The evening star is related to the top of a price uptrend showing that the end is near and an abandoned baby is a type of candlestick pattern that is used by the traders to signal a downtrend. Candlestick patterns are the most effective tool in forex markets for trade confirmations as it represents the psychology of the market and the psychology of buyers and sellers. 

 

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