If you are trading using the forex candlesticks chart, you definitely need to know how to read forex candlesticks as well as identifying important candlestick patterns. Therefore I am writing this post to do a quick tutorial on forex candlestick so that you know what you are seeing on the chart.
Here are some important reversal candlestick patterns you must know:
First of all, you need to know that reversal candlestick patterns are actually signaling to you that there will be a change in trend. This gives you a chance to anticipate the reversal movement before it actually happens and this will definitely make you money if you are able to enter a trade before the movement.
1) Railway Track/Tweezers Formation: The railway track pattern is one of the best reversal candlestick patterns you can get in a chart. It actually signifies that the traders realise that they got into the wrong position and then quickly get out of their position and then get into the opposite position causing the formation of the railway track. This is usually a strong indication of a reversal.
2) Morning Star/Evening Star: This is a formation that is made of one long up candle follow by a doji and then a long down candle for the evening star and vice verse for the morning star. This is a pattern that is somehow similar to the railway track pattern but with a doji in between.
3) Hammer/Inverted Hammer: This is a pattern where there is a long wick with a short body. This usually shows that there are traders who push the price in a certain direction and then hitting some support and resistance levels causing the price to retreat with a short body. Most of the time, this signifies a good reversal is coming.
4) Head & Shoulder Pattern: This is another forex candlestick patterns that is reversal in nature. How this looks like is that it has one lower left shoulder follow by a higher high indicating a head and then a lower high right shoulder. You can enter a trade when the neckline is breached.
5) Double Tops/Double Bottoms: This is a pattern whereby you will see a top pattern which eventually get resisted and then move down follow by another up movement that gets resisted again at the same price forming a double top. The shape of double top looks like M and double bottom looks like a W and this is also a good indication of a reversal.
6) 1-2-3 Top/Bottom: The 123 top is formed when the price move up and then retrace back to a certain level and then move up again trying to overcome the resistance that is formed by the previous high but this time it did not reach the previous high point and then retrace back down again. This usually signifies a lack of momentum in an uptrend and the price will most likely reverse.
These are the 6 best reversal candlestick patterns you can get in a trade. Do note that these reversal candlestick patterns only work when the price is in a trend and not moving sideways.
Studying the forex candlestick is very important for your trading. Some traders may think that learning forex candlestick patterns is very basic and they usually do not want to spend time on them. However knowing them can help you to identify a reversal before it occurs.