There are eight common Forex bullish candlestick patterns. All these patterns either suggest the beginning of a new uptrend or a continuation of a major uptrend. Bearish candlestick patterns in Forex are the direct opposites of their bullish counterparts. They suggest a continuation of a major downtrend or the beginning of a new downtrend. The only common neutral candlestick pattern is the Doji.

The Doji forms when the market is undecided whether to go up or down. In the end, what forms is a candlestick with a small body and short wicks above and below the body. Because of the way a candlestick is formed, the opening price of a new time period is often close to the closing price of the previous time period.

This makes Forex charts look like a continuous flow of candlesticks in trends moving up and down. Trade opportunities abound in these charts. A common anomaly in the charts is when there is a gap in Forex prices.

But even in this case, there are trading opportunities for those who know how to interpret them. All these candlestick patterns have been there long before the MT4 trading platform made its way into our lives. And till this day, they continue to do a great job of predicting potential price movements.

However, just as it is with many other Forex trading tools or concepts, Forex candlestick patterns are not meant to be used in isolation. You may have to combine them with some other Forex trading tools to get the most out of them. By the way, if you easily get tired of staring at Forex charts, what you need is this chart overlay indicator that gives your MT4 a fresh, modern look. The indicator also makes your chart look more compact and easier to analyze.

December 24, Candlestick Patterns in Forex and What do They Mean Forex Basics 2. This candlestick could either be bullish or bearish. What marks it out as a bullish candlestick pattern is its small body sitting on a long wick. Bullish Engulfing Made up of two candlesticks — a bearish followed by a bullish one. It is called bullish engulfing because the size of the bullish candle completely engulfs the bearish one preceding it.

Bullish Railroad Made up of two candlesticks of almost equal sizes — a bearish followed by a bullish. When they follow each other, it is often a sign that the market is taking a sharp turn towards the uptrend. Bullish Marubozu A long bullish candlestick with no wicks or negligible wicks that suggests an uptrend continuation. Morning Star Made up of three candlesticks. The first candlestick is bearish. The second one is a small candle with a negligible body and very little wicks. The third one is a bullish candlestick that suggests a turnaround in the market bias.

Three White Soldiers Made up of three bullish candlesticks with little or no wicks. This often suggests a bullish continuation. Three Inside Up Harami Made up of three candlesticks — a bearish followed by two bullish ones.

The first bullish candlestick after the bearish one is small compared to the previous bearish candlestick. But the next bullish candlestick engulfs the bearish one suggesting the market is making a strong move towards the uptrend. Bullish Tweezers Tweezers are almost similar to exhaustion candlesticks, except that bullish tweezers come in twos and often have shorter wicks. What marks it out as a bearish candlestick pattern is a small body underneath a long wick. Bearish Engulfing Made up of two candlesticks — a bullish followed by a bearish one.

It is called bearish engulfing because the size of the bearish candle completely engulfs the bullish one preceding it. Price also makes consecutive lower lows, and prices start to move lower, visually creating a rounded top showing the price reversal. The pattern completes once the price breaks the neckline. The rounded Bottom pattern is a bullish reversal pattern and is opposite of the rounded top pattern.

It is traded once the neckline is broken and the stop are placed at the lowest low of the curve, while take profits can be placed at a reasonable risk and reward ratio. The ascending triangle is a bullish continuation pattern formed by connecting two trend lines. The first is a flat trend line or a horizontal trend line, while the second one is an ascending trend line or a rising trend line. The intersection of both these trend lines forms a rising triangle.

The pattern is completed once the price breaks above the triangle. The stop loss can be placed at the previous swing low within the triangle and take profit levels can be set with 1: 2 risk and reward ratio. Descending Triangle pattern is a bearish continuation pattern.

Traders expect the prices to continue the trend after a brief pause in the movement. These patterns provide the best prices to book partial profits and to add more positions in an existing trade. A falling wedge pattern is a bullish reversal pattern. The pattern consists of 2 falling trend lines, with prices moving within the trend lines.

The trend lines converge each other but do not join to form a triangle at the current market price scenario. A break above the upper falling trend line A completes the pattern, and the trend is validated by a close of the candle above the falling trend line A.

Stops can be placed below the previous low with profit targets with a risk and reward ratio. A rising wedge pattern is a bearish reversal pattern. The pattern is formed by two rising trendlines, converging in the end but not forming a triangle. Entry is confirmed once the prices break below the rising trend line B, with stops above the previous high, the profits can be booked with a good risk and reward ratio. Pennants are continuation patterns; depending on the formation within a trend, they can be classified as bullish or bearish.

The above picture M shows a rising pennant pattern. The consolidation phase is marked by the price staying within the trend lines, forming a triangle. The pattern is validated once prices break above the pattern with a candle close above the trend line.

Prices tend to continue in the direction of the previous trend after completion of the pattern. A falling pennant is a bearish continuation pattern formed during a downtrend. The prices should be in a downtrend, and the pattern has to be formed within the downtrend. The consolidation phase, once broken, will lead to the continuation of the current trend.

Pennants are mostly formed during a trend and could be traded by new and experienced traders. The pattern tends to form frequently and provide good additional entry points. Many traders add multiple positions to ride the trend more profitably. Double tops, double bottoms, head and shoulders, rounded top, Rounded Bottom, triangles, and Pennants are a few profitable patterns to name.

However, most patterns can be traded profitably and would provide a higher risk and reward ratio. A comprehensive pdf of forex patterns can be downloaded here. Additional confirmation is necessary after the completion of the chart patterns. Candlestick patterns and chart patterns can go hand in hand and can be used for additional confirmation of price action.

Candlestick patterns like Hammer, Hanging man, Harami, Pin tops, and Engulfing candles can be used to confirm chart patterns. Mere completion of the pattern does not warrant immediate price movement, so traders need to look for additional confirmation of price action before deciding to place the trades.

Though patterns occur repeatedly, they may not be successful every time; they need to be validated in the context of price action as price movements are very dynamic. Best technical traders always look for clues in the charts and use the charts to make their trading decisions. Chart patterns provide the traders with invaluable insight and assist the traders in spotting the best entry points.

For quick reference, you can download the 28 Forex Patterns pdf file here. He is a recognized expert in the forex industry where he is frequently invited to speak at major forex events and trading panels. His insights into the live market are highly sought after by retail traders.

Ezekiel is considered as one of the top forex traders around who actually care about giving back to the community.

One of the most important skills for successful trading is Forex chart patterns analysis. Learning to recognize price formations on the charts is an essential part of the Forex strategy of every trader.

Then, it is vital that you learn about these figures, their meaning and how you can use them to your advantage. There are 3 main types of Forex chart patterns:. Maybe you are wondering how to identify each of these patterns.

Moreover, how can you make trading decisions after you draw on? In this guide, we will explain everything you need to know about Forex chart patterns and which are our favorite ones to make profits from the market. Chart patterns are a crucial part of the Forex technical analysis. Patterns are born out of price fluctuations, and they each represent chart figures with their own meanings.

Each chart pattern indicator has a specific trading potential. As a result, Forex traders spot chart patterns to profit from the expected price moves. In fact, chart patterns represent price hesitation. When you have a trend on the chart, it is very likely to be paused for a while before the price action undertakes a new move. In most cases, this pause is conducted by a chart pattern, where the price action is either moving sideways, or not very strong with its move.

This is a brief sketch of how a chart pattern indicator could look like on the chart. In the example above we have a trend that turns into a consolidation, and then the trend is resumed again. There are three types of chart pattern figures in Forex based on the price movement. Continuation chart patterns are the ones that are expected to continue the current price trend, causing a fresh new impulse in the same direction. For instance, if you have a bullish trend, and the price action creates a continuation chart pattern, there is a big chance that the bullish trend will continue.

The most popular continuation chart patterns are:. The image below depicts them. Each of these six formations has the potential to activate a new impulse in the direction of the previous trend.

This pattern is characterized by bullish or bearish strong price movement preceding a channel formation. The price continues its direction after breaking the channel. The main difference versus flags is that the price pauses and fluctuates in a horizontal range that decreases before breaking instead of moving within two parallel lines. It is kind of a combination of flags and pennants, with an upward or downward movement in range before the price breaks and continues its original direction.

On the other hand, reversal patterns are opposite to continuation patterns. They usually reverse the current price trend, causing a fresh move in the opposite direction. For example, suppose you have a bullish trend and the price action creates a trend reversal chart pattern, there is a big chance that the previous bullish trend will be reversed.

This is likely to cause a fresh bearish move on the chart. The most popular reversal chart patterns are:. Please note that the Rising and the Falling Wedge could act as reversal and continuation patterns in different situations. This depends on the previous trend. Just remember that the Rising Wedge has bearish potential and the Falling Wedge has bullish potential, no matter what the previous trend is. Here is a video that shows a real trading example with the Double Bottom Chart Pattern.

The video shows a bullish trade taken as a result of a breakout through the trigger line of the pattern:. Last but not least we have neutral chart patters. These formations signal a price move, but the direction is unknown. Suddenly, a neutral chart pattern appears on the chart. What would you do in this case? You should wait to see in which direction the pattern will break. This will give you a hint about the potential of the pattern.

The most popular neutral chart patterns are Triangle patterns :. These are the most common neutral chart patterns that have the potential to push the price in either the bullish or the bearish direction.

Now you have around 20 different chart pattern examples. But which are the best chart patterns to trade? Now that we have shared the chart patterns basics, we would like to let you know which are the best chart patterns for intraday trading. Then we will give you a detailed explanation of the structure and the respective rules for each one. The Flag and the Pennant are two separate chart patterns that have price continuation functions.

However, we like to treat these as one as they have a similar structure and work in exactly the same way. The Flag chart pattern has a continuation potential on the Forex chart. The bull Flag pattern starts with a bullish trend called a Flag Pole, which suddenly turns into a correction inside a bearish or a horizontal channel. Then if the price breaks the upper level of the channel, we confirm the authenticity of the Flag pattern, and we have sufficient reason to believe that the price will start a new bullish impulse.

For this reason, you can buy the Forex pair on the assumption that the price is about to increase. Place your Stop Loss order below the lowest point of the Flag. The Flag pattern has two targets on the chart. The first one stays above the breakout on a distance equal to the size of the Flag. If the price completes the first target, then you can pursue the second target that stays above the breakout on a distance equal to the Flag Pole.

For instance, this Flag chart pattern example to see how it works in a real-life trading situation:. In addition, the two pink arrows show the size of the Flag and the Flag Pole, applied starting from the moment of the Flag breakout.

The Stop Loss order of this trade stays below the lowest point of the Flag as shown on the image. The Pennant chart pattern has almost the same structure as the Flag. A bullish Pennant will start with a bullish price move the Pennant Pole , which will gradually turn into a consolidation with a triangular structure the Pennant.

Notice that the consolidation is likely to have ascending bottoms and descending tops. Moreover, if the price breaks the upper level of the Pennant, you can pursue two targets the same way as with the Flag. The first target equals the size of the Pennant and the second target equals the size of the Pole.

At the same time, your Stop Loss order should go below the lowest point of the Pennant. The image gives an example of a bull Pennant chart pattern. The only difference is that the bottoms of the Pennant pattern are ascending, while the Flag creates descending bottoms that develop in a symmetrical way compared to the tops. This is the reason why we put the Flag and Pennant chart patterns indicator under the same heading. The Double Top is a reversal chart pattern that comes as a consolidation after a bullish trend, creates a couple of tops approximately in the same resistance area and starts a fresh bearish move.

Conversely, the Double Bottom is a reversal chart pattern that comes after a bearish trend, creates a couple of bottoms in the same support area, and starts a fresh bullish move. We will discuss the bullish version of the pattern, the Double Top chart pattern, to approach the figure closely. To enter a Double Top trade, you would need to see the price breaking through the level of the bottom that is located between the two tops of the pattern.

When the price breaks the bottom between the two tops, you can short the Forex pair, pursuing a minimum price move equal to the vertical size of the pattern measured starting from the level of the two tops to the bottom between the two tops. Your Stop Loss order should be located approximately in the middle of the pattern.

The pink lines and the two arrows on the chart measure and apply the size of the pattern starting from the moment of the breakout. To clarify, we use a small top after the creation of the second big top to position the Stop Loss order. Notice that the Double Bottom chart pattern works exactly the same way but in the opposite direction. Similarly, the Head and Shoulders is another famous reversal pattern in Forex trading. It comes as a consolidation after a bullish trend creating three tops.

The first and third tops are approximately at the same level. However, the second top is higher and stays as a Head between two Shoulders. This is where the name of the pattern comes from.

The Head of the pattern has a couple of bottoms from both of its sides. The line connecting these two bottoms is called a Neck Line. When the price creates the second shoulder and breaks the Neck Line in a bearish direction, this confirms the authenticity of the pattern. When the Neck Line breaks, you can pursue the bearish potential of the pattern that is likely to send the price action downward on a distance equal to the size of the pattern — the vertical distance between the Head and the Neck Line applied starting from the moment of the breakout.

Your Stop Loss order in a Head and Shoulders trade should go above the second shoulder of the pattern. The inclined pink line is the Neck Line of the figure. The two arrows measure and apply the size of the Head and Shoulders starting from the moment of the breakout through the Neck Line.

The red circle shows the head and shoulders chart pattern breakout. You need to hold a bearish trade until the price completes the size of the pattern in a bearish direction. At the same time, your Stop Loss order should go above the second shoulder as shown on the chart. As with the other patterns we have discussed, the Head and Shoulders chart pattern has its opposite version — the Inverse Head and Shoulders pattern.

It acts absolutely the same way, but everything is upside down. If you would like to learn more about the Head and Shoulders chart pattern, check this live trading example. One of the best-kept secrets from seasoned traders lies around a chart pattern recognition indicator. The good news is you can also have it.

Now that we have shared the chart patterns basics, we would like to let you know which are the best chart patterns for intraday trading. Each of these six formations has the potential to activate a new impulse in the direction of the previous trend. In other words, the reversal pattern tracks the buying and selling forces that are behind the movement of all prices and signals when the market trend losses momentum and is about to change direction. VantageFX introduces Autochartist forex pattern recognition software. Forex candlesticks originated from Japan a very long time ago, and they have become popular since then. The first candlestick is bullish.

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