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How To Read Candlestick Charts In Forex Trading


For day trading, 5-min, 10-min or 15-min candlestick charts are used, if you want to enter and exit a trade within a few minutes by taking advantage of small fluctuations in prices. You can practice reading candlestick charts by opening a demo trading accountor playing around with candlesticks on free web-based charting platforms. Set the chart type to candlestick, and select a one-minute time frame so you’ll have lots of candlesticks to look at. Candlestick charts provide more information than other types of charts because they combine the open, high, low and close prices into one graph. The variety of different chart patterns that can be analysed on candlestick charts is extensive and beneficial to learn. The main rectangle of the candlestick is known as the “body”.

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A is a trading session where a security’s open and close prices are virtually equal. A bullish harami cross occurs in a downtrend, where a down candle is followed by a doji. Cory is an expert on stock, forex and futures price action trading strategies. Dragonfly doji have a long lower wick, signifying a bear run in the session, followed by a rally back to its opening price. Gravestone doji are the opposite, with a tall upper wick indicating a rally that was taken over by bear traders. Today, their full name, Japanese candlesticks, reflects that.


Traders can take this as a good sign to enter into a long position of an instrument. The low price is found at the bottom of the shadow below the body. If the open or close was the lowest point there will be no lower wick. The longer the body of a candlestick is, the bigger the buying or selling pressure. Short bodies imply greatly reduced buying or selling activity.

This can improve the consistency of your market entries and your overall performance as a trader. Candlestick charts are a useful tool to better understand the price action and order flow in the forex market. However, before you can read and explain a candlestick chart, you must understand what it is and become comfortable identifying and using candlesticks patterns. The bullish engulfing pattern is formed with a combination of blue and red candles. This pattern shows the end of the weakness of the currency pairs. You can use this information to enter a long position once the blue candle has closed.

Interpreting Patterns

Charts are used to identify and analyze price support and resistance levels, trends, and historical patterns. There are various types of charts that can be used to interpret the action. It pictures the activity of trades going on for the duration of a particular trading period notwithstanding the duration whether in minutes, hours, days or even weeks. It is highly advised that you do not rely solely on the candlestick chart patterns.


“Just starting to learn more about trading, this is good stuff.” Our trained team of editors and researchers validate articles for accuracy and comprehensiveness. WikiHow’s Content Management Team carefully monitors the work from our editorial staff to ensure that each article is backed by trusted research and meets our high quality standards. Discover the latest trading trends, get actionable strategies and enjoy complimentary tools. To see whether a market rose or fell in the time it covers, you just look at the colour of the candle. He strongly believes that with a Positive Mental Attitude we can achieve any goal.

When it comes to candlestick patterns, you will see that some of them look slightly differently from those you can find in most candle books. A candlestick pattern is a single candlestick or a combination of candlesticks that offers a quick insight into the recent trading psychology. This is especially true for the visually appealing candlestick charts. Like other tools in technical analysis, it is based on historical performance and data.

They appear after an uptrend and signify a bearish market is about to emerge. Again, the first candle is usually the shortest of the three. The wick as this will highlight the highest and lowest points and give you a clearer idea of support and resistance levels. To look for support and resistance levels as you would with any other charts. They are easy to read and display a lot of information about what traders are doing.

More complex variations may use two, three or even more candles. You can read my articles about the best forex brokers on this page. The body of the candle is short and does not have a shadow , showing that neither side has prevailed and the price has hardly changed compared to the beginning. If the open-price line to the left is higher than the closing-price line to the right, you have a bearish market for the pairing in that interval. In contrast, a higher closing-price line indicates a bullish market. The lowest point, at the tip of the shadow, is the lowest exchange rate for the pairing for the selected period.

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A doji with short shadows tells you there is very little volatility and market indecision. The pattern will have a long upper wick, a small or no lower wick and a small real body that is near the low of the day. The high price is found at the top of the shadow , this indicates the highest price during the period. When there is no upper shadow/wick, it means that the close price or the open price was the highest price traded. The top of the upper wick/shadow indicates the highest price traded during the period.

The popularity of Candlestick charts has soared among Western market analysts over the last few decades because of its highly accurate predictive features. Candlestick charts can play a crucial role in better understanding price action and order flow in the financial markets. So, let’s explore these types of candlestick graphs, show you what a candlestick represents, and discuss the history and origins of candlestick patterns. If you see a spinning top candlestick with shadows of equal lengths after a long incline or decline period for a market, it can sometimes represent a reversal in the trend.

How to Read Forex Charts

As you can see from the image below the Hammer candlestick formation sometimes indicates a reversal in trend. The hammer candle formation has a long lower wick with a small body. The intuition behind the hammer formation is simple, price tried to decline but buyers entered the market pushing the price up.

  • Candle reading in the share market and any other trading will help you in becoming a better trader.
  • The evening star candlestick pattern is used by technical analysts on a stock price chart to determine if a trend is about to reverse.
  • As you can see in figure 1, when you read a candle, depending on the opening and closing prices, it will provide you information on whether the session ended bullish or bearish.
  • This means that candlestick charts provide twice the information of standard line charts, but they can also be confusing if you’re new to forex.

To read a candlestick chart correctly, you have to understand what candlestick patterns might suggest the continuation or reversal of the current price trend. 2) Bar Charts – Unlike line charts which represent only the closing prices of a financial instrument, bar charts reflect the opening, high, low and closing prices. The high and low prices are shown by a vertical line, while opening and closing prices are shown by the short left and right dashes. They allow traders to perform technical analysis and predict future price-movements by analysing past price-action of a financial instrument. Price-charts are used in almost all financial markets, such as the stock market, Forex market or commodities market.

If the changes greatly, you must make a timely change in your strategy. The shadow line refers to the highest low of the candlestick or the difference between the lowest price and the closing price. For example, the upper shadow line is the difference between the highest and closing prices. The smaller the gap between the highest point and the closing price, the longer the upper shadow line is, overshadowing the upward force.

Work can help develop your knowledge of the many different candlestick chart patterns. This article will help you to utilize candlestick charts in MT4. You can also find it useful to take a look at the “How To Read A Candlestick Chart” article from the Eightcap’s “Trading 101” series. The beginning reference to a candlestick pattern used in financial markets was invented in Sakata, Japan. It is important to pay attention to the bigger picture and read candlestick patterns with context. Knowing how to read a candlestick chart is straight forward now that you know what each data point represents.

It is a bullish signal to enter the market, tighten stop-losses or close out a short position. Candlestick patterns are a great tool used by many Forex traders to confirm a trade setup. They should not be used to trade on their own, as they can produce a large number of false signals along the way. Three inside up and down patterns are triple candlestick patterns, which means that they’re formed by three candlesticks.

The harami and harami cross can be both bullish and bearish candlestick chart patterns. The bearish version will suggest to traders that prices may reverse to a downward trend. Developed by Japanese rice traders in the 17th century, candlesticks are used today by securities traders.

The real body is at the upper end of the candle’s trading range. The open and close prices of the candle are very close, which means the market price did not really increased or decreased at the end of the trading period. Whether bullish or bearish, the market direction is insignificant since spinning tops simply indicate market indecision. Contrary to long periods, short periods have compressed candlestick bodies, indicating a very little price movement during the trading period.

With the candles being a lot more visual then the bars, the formation and price patterns are much easier to analyse and under what direction the price is heading. The evening star candlestick pattern is used by technical analysts on a stock price chart to determine if a trend is about to reverse. The pattern is bearish and consists of three candles including a large white candle, a small candle and a red candle. Candlestick chart analysis depends on your preferred trading strategy and time-frame. Some strategies attempt to take advantage of candle formations while others attempt to recognize price patterns.

The smaller the time frame you use, the closer you look into the price action of the asset. Let’s say you are looking at an H4 chart like the one shown above. When you switch to the H1 chart, you will have 4 times more candles.

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