📈 15 Forex Candlestick Patterns Cheat Sheet
Alright, listen up, future forex legends. Ever stared at a chart feeling like you’re trying to read ancient hieroglyphs? Yeah, we’ve all been there, wondering if the market’s just messing with us. But guess what? Those little candles aren’t just pretty colors; they’re practically whispering secrets about where prices are headed. Knowing how to decode them is like getting a backstage pass to the market’s biggest show.
Forget the boring textbooks; we’re diving into the coolest, most crucial candlestick patterns that’ll make you look smart and maybe even make some cash. Consider this your super-secret decoder ring. Let’s get savvy, shall we?
1. Doji
Ah, the Doji. This little indecisive gem looks like a cross or a plus sign, telling you that buyers and sellers are in a fierce tug-of-war, ending in a stalemate. The opening and closing prices are practically the same, bless its heart.
Key Point: It signals market indecision. If it pops up after a strong trend, consider it a flashing yellow light. Pro Tip: Don’t trade on a Doji alone; always wait for the next candle to confirm the market’s actual mood. It’s like asking for a second opinion before making a big decision.
Why it works: It highlights a shift in momentum, hinting that the previous trend might be running out of steam.
2. Hammer
The Hammer is your friendly neighborhood reversal pattern, usually showing up after a downtrend. It’s got a small body at the top of the range and a long lower wick, looking like, well, a hammer. Get it?
Key Point: Buyers stepped in aggressively to push prices up after sellers tried to dominate. Pro Tip: Look for a strong candle closing above the Hammer after it forms. That’s your green light, not just a maybe. Confirmation is everything in this game.
Why it works: It signifies a rejection of lower prices, showing that bulls are ready to take control.
3. Hanging Man
Don’t let the name scare you, but this pattern is the Hammer’s evil twin, appearing after an uptrend. It looks identical to a Hammer but implies a bearish reversal. Same small body, long lower wick, but in a totally different context.
Key Point: Sellers are starting to show up and push prices down, even if bulls managed a small recovery by the close. Pro Tip: Never, ever trade this without confirmation. A bearish candle following it is your cue to consider going short. Otherwise, it’s just a guy hanging out.
Why it works: It indicates that buying pressure is weakening, and bears are testing the waters for a potential dip.
4. Bullish Engulfing
This is a big deal, literally. A small bearish candle is completely “eaten” or engulfed by a larger bullish candle. It’s like the bullish candle just flexed its muscles and swallowed the competition whole.
Key Point: A strong reversal signal after a downtrend, showing a sudden surge in buying power. Pro Tip: Higher volume on the engulfing candle makes this pattern even more potent. It means more people are buying into the reversal, not just a few stragglers.
Why it works: It clearly demonstrates a shift in market sentiment from bearish to bullish dominance.
5. Bearish Engulfing
You guessed it, this is the flip side of the previous one. A small bullish candle gets totally swallowed by a larger bearish candle, typically after an uptrend. The bears are clearly not messing around.
Key Point: A powerful bearish reversal signal. Sellers have taken control, and they mean business. Pro Tip: Just like its bullish cousin, higher volume amplifies its significance. Don’t ignore the crowd; they usually know something.
Why it works: It shows a decisive shift from bullish to bearish sentiment, as sellers overwhelm buyers.
6. Morning Star
This is a three-candle pattern that screams “good morning, bulls!” after a downtrend. It starts with a long bearish candle, followed by a small-bodied candle (could be bullish or bearish, or even a Doji), and finishes with a strong bullish candle that closes well into the first bearish candle.
Key Point: A strong bullish reversal pattern. The market found its bottom and is ready to climb. Pro Tip: The smaller the middle candle, the greater the indecision, and potentially, the stronger the reversal. Think of it as the market taking a deep breath before a big climb.
Why it works: It illustrates a clear transition from seller control to buyer dominance over three distinct phases.
7. Evening Star
The Morning Star’s gloomy counterpart, this is a bearish three-candle reversal pattern appearing after an uptrend. It’s a long bullish candle, a small-bodied candle, and then a long bearish candle that closes deep into the first bullish candle.
Key Point: A robust bearish reversal signal. The party’s over for the bulls; bears are taking over. Pro Tip: If the middle candle gaps above the first, and the third candle gaps below the second, that’s extra bearish oomph. Market gaps are like little alarms.
Why it works: It shows a clear shift in power from buyers to sellers, signaling the end of an uptrend.
8. Piercing Pattern
Here’s another bullish reversal pattern, usually found after a downtrend. It consists of a long bearish candle followed by a bullish candle that opens lower than the first but closes more than halfway up the body of the bearish candle.
Key Point: Buyers are pushing back hard, showing strength even after a bearish opening. Pro Tip: The deeper the bullish candle penetrates the bearish one, the stronger the signal. Anything less than 50% penetration is just… less convincing.
Why it works: It indicates that buyers have managed to recover significant ground, rejecting lower prices and showing renewed strength.
9. Dark Cloud Cover
This is the Piercing Pattern’s bearish twin, appearing after an uptrend. It starts with a long bullish candle, followed by a bearish candle that opens above the previous high but closes more than halfway down the body of the bullish candle.
Key Point: Sellers have managed to push prices significantly lower, even after a strong bullish start. Pro Tip: If the bearish candle closes below the midpoint of the previous bullish body, it’s a stronger signal. Less than that and it’s just a bit cloudy, not a full storm.
Why it works: It suggests that selling pressure is overcoming buying enthusiasm, signaling a potential reversal.
10. Three White Soldiers
Get ready for a march upwards! This is a bullish reversal pattern with three consecutive long-bodied bullish candles, each opening within the real body of the previous candle and closing higher than the previous one.
Key Point: A strong, sustained buying pressure is taking over, often after a downtrend or consolidation. Pro Tip: Look for each candle to have progressively smaller or non-existent upper wicks. It means buyers are maintaining control right to the close.
Why it works: It clearly shows a consistent and powerful shift in market sentiment towards bullish dominance.
11. Three Black Crows
And now, the bears’ answer to the soldiers. Three consecutive long-bodied bearish candles, each opening within the real body of the previous candle and closing lower than the previous one. Not exactly a fun sight.
Key Point: A strong, sustained selling pressure is taking over, often after an uptrend or consolidation. Pro Tip: Similar to the soldiers, small or non-existent lower wicks indicate strong bearish control. They’re not messing around.
Why it works: It demonstrates a consistent and powerful shift in market sentiment towards bearish dominance.
12. Bullish Harami
The Harami means “pregnant” in Japanese, and that’s exactly what it looks like. A large bearish candle is followed by a small bullish candle completely contained within the body of the first. The small candle is the “baby” or “harami.”
Key Point: It’s a potential bullish reversal signal, indicating that the selling pressure is weakening. Pro Tip: Always wait for confirmation with a strong bullish candle following the Harami. It’s a hint, not a full-blown declaration.
Why it works: It shows that even after a strong bearish move, sellers couldn’t push prices much lower, suggesting exhaustion.
13. Bearish Harami
You guessed it, the opposite. A large bullish candle is followed by a small bearish candle, fully contained within the body of the first. The market just got pregnant with bearish intentions.
Key Point: A potential bearish reversal signal, indicating that buying pressure is weakening. Pro Tip: Confirmation is key here too. A strong bearish candle after the Harami makes the signal much more reliable. Don’t jump the gun.
Why it works: It signals that after a strong bullish move, buyers couldn’t sustain momentum, hinting at seller re-entry.
14. Shooting Star
This single candle pattern looks like a star falling from the sky, typically after an uptrend. It has a small body at the bottom of the range and a long upper wick, showing that buyers tried to push prices up but sellers quickly rejected them.
Key Point: A bearish reversal signal. Buyers lost control, and sellers are ready to take over. Pro Tip: The longer the upper wick, and the smaller the real body, the more potent the signal. It’s like a big rejection slap.
Why it works: It demonstrates that buying pressure was swiftly overcome by selling pressure at higher prices, indicating a top.
15. Inverted Hammer
The Inverted Hammer is the Shooting Star’s bullish cousin, appearing after a downtrend. It also has a small body at the bottom and a long upper wick. The difference is the context; here, it suggests a potential bullish reversal.
Key Point: Buyers tried to push prices higher, and while they didn’t succeed fully, it shows their presence. Pro Tip: A strong bullish candle following the Inverted Hammer provides crucial confirmation. Without it, it’s just an inverted hammer, not a gold mine.
Why it works: It shows that even in a downtrend, buyers are attempting to push prices higher, hinting at a potential shift in momentum.
Conclusion
So there you have it, your ultimate cheat sheet to navigating the wild world of forex candlesticks. No more staring blankly at charts; now you’ve got a secret language under your belt. Remember, these patterns are like whispers, not shouts, so always, always combine them with other tools and strategies. Don’t just dive in headfirst because you saw a Hammer; confirm it, okay?
Practice makes perfect, so get out there, spot these bad boys, and start making some smarter trading moves. You’re basically a chart whisperer now. Go forth and conquer, you magnificent trader, you!
