Assuming a black and white forex candlestick chart, we shall have a look at the different types of candlesticks and what they represent.
Types Of Forex Candlesticks.
- White Full Bodied Candlestick – Shows that the price has moved strongly in a bullish direction, expect the market to continue in the same direction.
- Black Full Bodied Candlestick – Shows that the price has moved strongly in a bearish direction, expect the market to continue in the same direction.
- Doji – There has been indecision and consolidation in the market, there is no clear direction and the price has closed in the middle of the candle.
- Long Legged Doji – Just as a basic doji, this shows indecision but not consolidation.
- Long Lower Shadow – This indicates a reversal from a bearish trend to a bullish one, not a strong signal but prepare for a reversal.
- Long Upper Shadow – Indicates a reversal from bullish to bearish, prepare for a reversal.
- Dragonfly Doji – A strong signal of a reversal, the price has moved and closed exactly where it started cancelling out the move.
- Gravestone Doji – As per dragonfly, but indicating a reversal to go short.
- Hammer – A very strong signal of reversal, the price has moved down but reacted more strongly upwards.
- Inverted Hammer – Like the hammer but showing a reversal to go short.
- Marubozu Whiite – This shows that the market is moving very strongly in a bullish direction and you can expect the market to continue.
- Marubozu Black – Again a strong move but in a bearish direction and it is likely for the market to continue.
- Spinning Top White – Indicates indecision, the market will probably continue it’s previous trend though.
- Spinning Top Black – As with the white it indicates indecision giving no clear market direction.
Using Forex Candlesticks.
Candlesticks though should not be used in isolation for forex trading, they need to be in the right place in the market, there is a big difference between a hammer at support and one in the middle of a trend. While a hammer in a trend might only indicate a short term reversal, a hammer at a support line is more likely to give rise to a longer term reversal. While strong candles like the Marubozu should not be taken as an entry to go into the forex pair you are trading, often after one of these it will be followed by a reversal candle, but these are likely to be short term ones and you should be looking for the market to pull back for you to enter and continue with the trend. It is not essential to learn the terminology of forex candlesticks, you can actually read what they represent by looking at them, it’s the interpretation of this that is important.