candlestick diagram in forex trading

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Candlestick patterns are a visual representation of price movements in forex trading. They help traders identify market trends, potential reversals, and continuation patterns.

1. What is a Candlestick?

A candlestick consists of four key components:

Open Price – The price at the start of the timeframe.
Close Price – The price at the end of the timeframe.
High Price – The highest price reached during the timeframe.
Low Price – The lowest price reached during the timeframe.

Candlestick Structure

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High

Open |______| Close (Bullish – Price increased)

Low

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High

Close |______| Open (Bearish – Price decreased)

Low

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2. Types of Candlestick Patterns

A. Reversal Patterns (Indicate a Trend Change)

1. Doji (Indecision in the Market)

A Doji forms when the open and close prices are almost the same, indicating market uncertainty.
Traders look for confirmation from the next candlestick.

🔹 Example:

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—- (Open = Close)

High

Low

✅ Use Case: If a Doji appears at a strong resistance level, it may signal a reversal.

2. Hammer & Inverted Hammer (Bullish Reversal)

A Hammer appears at the end of a downtrend and signals a potential reversal.
It has a small body with a long lower wick, showing buyers pushing the price up.

🔹 Example: Hammer (Bullish Reversal)

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Open/Close

|____

Low

✅ Use Case: If a Hammer appears at a support level, it suggests a possible price increase.

3. Shooting Star (Bearish Reversal)

Appears at the end of an uptrend, signaling a reversal.
Small body with a long upper wick, showing rejection of higher prices.

🔹 Example:

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High

Open/Close

✅ Use Case: A Shooting Star at a resistance level indicates selling pressure.

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B. Continuation Patterns (Trend Expected to Continue)

4. Bullish & Bearish Engulfing

A Bullish Engulfing occurs when a large green candle completely engulfs the previous red candle, signaling a bullish trend.
A Bearish Engulfing does the opposite, indicating bearish momentum.

🔹 Example: Bullish Engulfing

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Small Red Candle

Large Green Candle (Engulfs the previous one)

✅ Use Case: A Bullish Engulfing after a downtrend confirms buying strength.

5. Three White Soldiers & Three Black Crows

Three White Soldiers – Three consecutive green candles, indicating strong bullish momentum.
Three Black Crows – Three consecutive red candles, signaling a bearish trend.

🔹 Example: Three White Soldiers

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|____|

✅ Use Case: Used to confirm trend continuation in forex trading.

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3. Conclusion

Candlestick patterns help traders predict price movements and identify trade opportunities. However, they work best when combined with support/resistance levels, trend analysis, and other indicators for confirmation. 🚀

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Other useful resources:

The ONLY Candlestick Pattern Guide You’ll EVER NEED

How To Read Candlestick Charts FAST (Beginner’s Guide)

How to Read Candlestick Charts (with ZERO experience)

Enjoy!