MarketWatch  Dec 1  Comment 
Steve Nison, known for introducing candlestick charting to the West, says four “bearish engulfing” patterns over the past several months, at key resistance levels, told him to get out of stocks.
FX Street  May 6  Comment 
This week I am back in my hometown of London to teach one of Online Trading Academy’s foundational... For more information, read our latest forex news and reports.
Daily FX  Apr 17  Comment 
The Euro may be poised for a continued recovery following a couple of Doji candlesticks on the daily.
Daily FX  Apr 9  Comment 
GBP/USD has stalled near its 2014 highs as several Doji candlesticks in intraday trade suggest the bulls are taking a breather.
FX Street  Apr 23  Comment 
A ForexTrading.TV Technical Analysis Video Alert for GBPJPY For more information, read our latest forex news and reports.
Daily FX  Nov 8  Comment 
A Trader who has a better strategy for getting out of losing trades can soon lead the field. Often, it is better to place a stop exit based on price action first than on an arbitrary account loss percentage.
FX Street  Apr 17  Comment 
Apple has a 4% down day, bringing with it the nasdaq, and pulling down other indexes as well. From... For more information, read our latest forex news and reports.
Invest2Success  Jan 31  Comment 
"Candlesticks Unleashed" Webcast Tuesday January 31, 2012 8:30PM Eastern Time Click Here for Free Registration and Online Attendance This training webcast reveals how candlestick charts help you make smarter, more confident decisions – from...
Daily FX  Dec 1  Comment 
Exactly What Do They Mean?
Daily FX  Dec 1  Comment 
Think in Trading  Sep 21  Comment 
Using candlesticks patterns for price action forex trading is a very simple method of currency trading. It requires very little technical analysis and yet traders who follow price action trading methods will often say that it has turned around...


One of the most popular trading strategies in the forex markets and technical analysis involves the use of Japanese candlestick charts. Given a specific pattern in candlestick formations, traders look to buy and sell currencies in anticipation of reversal or continuations in price. Below are the four most popular candlestick formations and how you can use them to trade in the forex markets:

Error creating thumbnail
An example of how the Morning Star and Evening Star look like

A Morning Star formation is a bullish reversal signal for an overall downtrend. The first candle should be strongly negative and full-bodied, reflecting heavy losses. The second candle opens at or below the previous close, trading within a relatively narrow range with the high staying below the midpoint of the first candle. The third candle is strongly positive and closes above the midpoint of the first candle. This tells us that bearish sentiment is unable to push price below previous lows, and risks remain for a reversal in price trends.

A Evening Star formation is effectively the opposite of a Morning Star, as price starts in an uptrend and the first candle is strongly positive. The second candle opens above or at the previous close, trading within a fairly narrow range and with its low above the previous bar’s midpoint. The third candle is strongly negative and closes below the first candle’s midpoint. This gives a warning that bulls are unable to push price to new highs, and a strong, bearish candle hints at further downside potential through subsequent trading.

Error creating thumbnail
An example of how the Hammer formation and Shooting Star Formation look like

A Hammer forms when price is in a downtrend and price trades sharply lower from the open, but a subsequent reversal leaves price marginally unchanged through the close. The candlestick formation is distinct for its long wick to the downside, small candle body, and little or no wick to the topside—signaling that price finished near the top of its intra-candle range. It is a decidedly bullish formation, as it tells us that bulls have overpowered an initial bearish tumble.

A Shooting Star formation is effectively the exact opposite of the Hammer. Price remains in an uptrend when it opens and trades sharply higher within a given candle, but a subsequent reversal leaves it near or below its candle open. The Shooting Star is distinctive for its very long, upward wick, small candle body, and little to no wick to the downside. The formation signals that a bullish run was initially enough to push price to new highs, but exhaustion has allowed bears to push price significantly lower before the candle's close.

How to Trade Forex Using Candlesticks

The key to using candlesticks when trading in the forex markets is to keep technical levels in mind, particularly with the four candlestick patterns we’ve discussed. Indeed, the likelihood of accurately interpreting the candlestick signals increases dramatically when you take into account key support and resistance levels. For example, if a trader is watching the EUR/USD pair and anticipates a potential change in trend, chances are they will be waiting for price to approach a significant trendline orFibonacci level. By watching the candlestick patterns, the trader simply has an additional tool by which to more confidently call for a turn. When employing candlestick patterns, it is important to utilize the rules of money management. A trader can do this by using fairly tight stop-loss orders. If the currency pair that is being traded does not follow the direction that the candlestick pattern signals it should, chances are it won’t at all. As a result of placing a stop- loss order, the trader can avoid being caught on the wrong side of the position if the pair breaks out and thus, can limit their losses.

More on Forex Trading


Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki