Candelstick Reversal Patterns.

Candlestick patterns can consist of just one candlestick or couple of them, usually not more than six, some reversal patterns are described below:

Hammer And Hanging Man Patterns

This is a one candlestick pattern with small body and long lower shadow (and no upper shadow). The hammer occurs in a downtrend and hanging man in the uptrend. The smaller the body is and the longer the long lower shadow is, the better is the actual signal. Also, hanging man with a black body is more bearish and hammer with white body more bullish.













Engulfing Pattern

It consists of two bodies ( two candlesticks ) of which one is filled and one is empty. The second day’s body should be engulfing the first day’s body like you can see on the picture. Shadows are not important. This pattern predicts end to the previous trend. The first day’s color should reflect the trend (filled for downtrend and empty for uptrend).Note that in order to make any conclusions from this pattern, there must be a previous trend. The bigger the second day’s engulfing is, the more likely signal it is.

Bullish: when a white, real body totally covers, "engulfs" the prior day's real body. The market should be in a definable trend, not chopping around sideways. The shadows of the prior candlestick do not need to be engulfed.













Bearish: when a black, real body totally covers, "engulfs" the prior day's real body. The market should be in a definable trend, not chopping around sideways. The shadows of the prior candlestick do not need to be engulfed.













Stars make up part of four separate reversal patterns:

Morning Star: This is a bullish reversal pattern that consists of long filled body which is followed by small body (and a gap between them), followed by a long empty body. It’s good if there’s a gap both after and before the middle body. Like with most reversal candlestick patterns, the first body should be according to the previous trend. Note that in case of the second body it is not important whether it is filled or empty.













Evening Star: A bearish top reversal pattern and counterpart to the Morning Star. Three candlesticks compose the evening star, the first being long and white. The second forms a star, followed by the third, which has a black real body that moves sharply into the first white candlestick.













Doji Stars

When a doji gaps above a real body in an uptrend, or gaps under a real body in a falling market, that particular doji is called a doji star. Two popular doji stars are the evening star and the morning star.

Evening Doji Star: A doji star in an uptrend followed by a long, black real body that closed well into the prior white real body. If the candlestick after the doji star is white and gapped higher, the bearishness of the doji is invalidated.













Morning Doji Star: A doji star in a downtrend followed by a long, white real body that closes well into the prior black real body. If the candlestick after the doji star is black and gapped lower, the bullishness of the doji is invalidated.

Candelstick Patterns.

Marubozu





















Marubozu may sound like voodoo magic. Luckily, Marubozu is not voodoo and no one will cast a wicked spell on you. This term means that the real bodies do not have shadows at all. When a Marubozu forms, the high and low are similar to the opening and closing prices. The diagram below will show you the two different kinds of Marubozu.

The white Marubozu will show a long body without shadows. This means the open price is equivalent to the closing price. It also means that the highs and lows are also equal.

When you see this candle, this means there is bullishness in the market as buyer take command of the entire season. This is also the first step of a continuing bullish trend or a pattern of bullish reversal.

The black Marubozu will show a long bodied filled candle without shadows. This indicates that the opening price is equivalent to the high while the closing price is equivalent to the low.

There is a bearish mood at the market if a black Marubozu appears showing that sellers are taking command. This is also an indication of continuing bearishness or a bearish reversal.

The Spinning Tops Pattern












Spinning tops are characterized by candlesticks with small real bodies, long upper shadow, and long lower shadow. Real body color is not really important. This pattern means that buyers and sellers are reluctant to decide.

Hollow or filled, the small real bodies indicate little activity from open to close. The upper and lower shadows show the struggle between buyers and seller. However, no one can really gain the top position.

The prices can move higher and lower for a time even if the opening and closing prices shows insignificant changes. There is essentially a standoff between buyers and sellers because no one is gaining.

When you spot a spinning top during an upswing, it could mean that there is a dearth of buyers. A reversal in that direction is likely to happen.

When a spinning top emerges on a downswing, sellers are lacking and you should watch out for a reversal in the other direction which could occur soon.

The Doji Candlestick Pattern









Doji sticks have the same open and close price. Obviously in fluctuating currency markets, identical open and close prices may be rare, but if they are close enough then the candlestick can be said to be a Doji.
A Long-Legged Doji has long shadows protruding from it, indicating that there is considerable fluctuation on both sides of the open price, during the course of the trading period. Ultimately the period ends with the close price retracting back to the open price. It is a good signal of market indecision.
A Dragonfly Doji has only one long shadow, on the lower end of the open and close price. This indicates that all price activity during the trading period is on the lower side of the open price, but by the end of the trading period the price has moved back up to the open price. It is a good signal of a bearish trend reversal, i.e. price should now move upwards.
A Gravestone Doji is the opposite of a Dragonfly and again has one long shadow, to the high side of the open and close price. It indicates that during the price period all price activity is at the upper end, but that the price retracts back to open price by the end of the trading period. It is a good signal of a bullish trend reversal, i.e. price should now move downwards.
A 4-Price Doji is a rare event, in that for the prescribed trading period, the open, close, high and low price points are the same. Such an event is rare in currency trading and normally only happens when trading is suspended.

Introduction: Candlestick Charts.

Candlestick charts were derived over 200 years ago by the Japanese, who used them for the purpose of doing analysis of the rice markets. The technique evolved over time into what is now the candlestick technique used in Japan and indeed by millions of technical traders around the world. They are visually more attractive than standard bar and line charts and they make for a clearer market reading, once understood. Now the question arises that why to use these candlestick charts in forex trading so here is the answer:

Why Use Japanese Candlestick Charting

Candlestick charting utilizes the same information that appear on the bar chart and used primarily as visual aid. This method is adopted internationally by traders, investors and premier financial institutions because of the following advantages:

a. Can be easily interpreted/understood. Beginners as well as seasoned traders, can easily figure out the trading movement in candlestick analysis because it employs the same data (high, low, open, close) required in plotting a bar chart

b. Powerful tool in pinpointing market turning points. Reversal signals (uptrend to downtrend and vice versa) are visible in candlestick chart after a few sessions unlike in the traditional bar chart. Most likely, market turns with the candle charts are advance thus the trader can send out and exit the market with better timing.

c. Provide unique market insights. Unlike the bar chart, Candle charts showed not only show the trend of the move but the force underpinning the move as well.

The information in the candlestick chart and the bar chart are the same, however, candlestick chart is pleasant to look at because of its graphical format.
Candlestick bars show the high-to-low ranges with a vertical line. The top of the block is the opening price and the bottom is the closing. The middle block is the range indicator showing the opening and closing prices.

If the closing price is higher than the opening price, the middle block will be hallow or white, and if the concluded price of the currency is lower than its opening price, then middle block is filled or colored.