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Beginner’s Guide to Candlestick Analysis in Forex Trading

If you want to be a successful forex trader, you need to understand how to perform candlestick analysis to understand the different candlestick patterns and what they mean. Without understanding how to do this, it can be practically impossible to know what the market is planning to do. Here is all you need to know about candlestick analysis:

What are Candlesticks in Forex Trading

The candlestick chart is the style that displays the price of an item in the most detailed and accurate manner. The structure of the candlestick chart enables it to convey a significant amount of information regarding the historical price, in contrast to the line chart, which just displays the last price at which the market was open. For a more accurate analysis of candlesticks, you should consider subscribing to forex signals.

Candlesticks are formed in a sequential order, one after the other. They can assist you in identifying the overarching trend as well as the resistance and support lines. This is the case despite the absence of any technical indications being used. In addition to this, they have the ability to mold particular patterns, which may then serve as buy or sell signals. The candlestick chart is particularly useful in forex trading which is characterized by high levels of volatility and calls for in-depth technical analysis.

Popular Candlestick Analysis Patterns

When learning how to perform candlestick analysis as a beginner, you’re going to come across many different candlestick patterns. However, not all of them can be helpful in any situation. Here are the most popular candlestick analysis patterns:

Hammer Pattern Analysis

The body of the hammer candlestick is rather short, while the bottom shadow is somewhat longer. It is common practice to look for it towards the bottom of an ongoing downward trend. The pattern suggests that buyers prevailed over sellers throughout the specified time period and drove the price higher by resisting the impulse to sell. Although hammer patterns can appear with either green or red candles. The presence of green hammers is indicative of a more robust rising than red hammers.

The inverse hammer is a pattern that is pretty comparable to the design that was discussed earlier. The top shadow on this hammer is considerably longer than the one on a conventional hammer, while the lower wick is much shorter. This is one of the ways in which it differs from the ordinary hammer. The pattern indicates that there was purchasing pressure. Which was then followed by an unsuccessful attempt by bears to push the price down. As a direct consequence of this, buyers exert even more pressure on sellers, which drives up prices.

Engulfing Pattern Analysis

In contrast to the two patterns discussed above, the bullish engulfing pattern consists of two candlesticks. The first candle should have a little green body that is encompassed by a bigger green candle. The green candle should be red. Even if the second candle opens at a lower price than the preceding red one, there is a rise in purchasing pressure, which results in a reversal of the downward trend.

The bearish engulfing is the opposite of the bullish engulfing, which is a bullish continuation pattern. The first candle has a short green body, while the following candle, which is much longer and redder, entirely conceals it. A change in direction is indicated by the appearance of this pattern at the highest point of an uptrend. The longer the second candle remains below its previous high, the more pressure will be added to the bearish move.

Star Pattern Analysis

The morning star design is more difficult since it consists of three candlesticks, which are a long red candle, followed by a candle with a small body, and then a long green candle. In most cases, the shorter candles will not overlap the longer ones at all with the center candle. It appears from the start of trading in the morning that the selling pressure from the previous time is beginning to ease, which indicates the beginning of a bull market.

The bearish evening star is the inverse of the bullish morning star pattern, and it is a three-stick pattern. Again, the morning star is a bullish pattern. It comprises a candle with a shorter body that is situated in the middle of a long green candle and a huge red candle.

The component that makes up the shooting star is a red candle that has a brief body and an extended upper shadow. In most cases, the market will start out with a gap to the upside on the candlestick opening, then it will surge to a local peak, and then it will close slightly below where it started. The body may at times appear to have very little substance.

Doji Pattern Analysis

The body of the Doji candlestick is quite little, and its shadows are very lengthy. Although it is commonly thought of as a pattern that indicates a continuation of the trend, traders should be cautious because it also has the potential to conclude with a reversal. 

You should wait until the situation is obvious before opening a position following a Doji candle. This will help you avoid misunderstanding. We understand this can be difficult to do as a beginner which is why we recommend forex signals for more accurate analysis.

Piercing Line Pattern Analysis

The piercing line is a two-candlestick pattern that can appear near the bottom of a downtrend, at a support level, or during a pullback. A long red candle is followed by a long green candle in this pattern. The pattern itself consists of a long red candle. 

The most important thing to note about this pattern is that there is a large disparity between the price at which the red candle closed and the price at which the green candle opened. The fact that the green candle opens significantly higher indicates there is a lot of purchasing pressure.

Three White Soldiers Pattern Analysis

The three white soldiers are another example of a three-stick candle. It is composed of three long green candles lined up in a row, and the shadows they cast are often very small. The requirement is that each of the three greens that follow the first one must open. And shut higher than the period that came before it. When it occurs at the end of a downward trend, it is interpreted as a powerful bullish indicator.

Hanging Man Pattern Analysis

The figure of the hanging man is created by a candlestick. That is either green or red and has a short body in comparison to its extended bottom shadow. It appears toward the conclusion of a long upward trend. It predicts that there will be a significant sell-off within the specified time period. Nevertheless, bulls may momentarily push prices higher, after which they will lose control of the situation.

Final Verdict

Candlestick analysis should be something that is understood by every forex trader. However, it is understandable if it’s a bit hard for beginners. Forex signals are a great tool that allows you to be a successful forex trader.

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