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March 23, 2018

15 Japanese Candlestick Patterns to identify reversal points in the market

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There are 15 known Candlestick Patterns that help traders to identify market trend.

Japanese candlestick patterns may include only a single candlestick or a series of several candlesticks, but no more than 5.

Some of the patterns are meant to identify reversal points in the market, others are intended to identify the continuation of an existing trend.

In general, you can define the colours of the candlestick and each trading platform to suit your individual preference.

Bearish candlesticks are usually red, where as bullish candlesticks are green. To prevent confusion from here on in, we will refer to them using these colours.

15 Candlestick Bullish and Bearish Patterns

The following can be considerable both bearish patterns predicting a falling market price and bullish patterns predicting a rising market price.

1. Shooting Star

This is a reversal pattern that takes place over two days and indicates the bearish outlook.

On the first day, the candlestick is long and usually green supporting the major trend.

On the following day, price opens near or slightly higher than the first candlesticks closing price and closes slightly lower, with the slightly longer shadow and the candlestick itself.

2. Breakaway

This is a reversal pattern with five candlesticks and indicates a bullish or bearish outlook.

In the bullish pattern, first 4 candlesticks are red (falling), and 5th candlestick is green, longer than the average and closes above the preceding candlesticks.

3. Harami

This is a two-day reversal pattern that indicates a bearish or bullish outlook.

On the first day, the candlestick is long and green and supports the major trend.

The next day, the price opens a little lower than the closing price of the first candlestick, and closes at little higher than the opening price of the first candlestick.

4. Three White Soldiers

This is a 3 candlestick reversal pattern that indicates only a bullish trend.

All three candles are green, the second one closing above the closing price of the first candlestick and the third one closing above the closing price of the second candlestick.

5. Engulfing Pattern

The engulfing pattern is a 2 day reversal pattern indicates bearish or bullish outlook.

  • Engulfing -(minus) pattern

In an engulfing -(minus) pattern, on the first day, the candlestick is positive and supports a general trend.

The next day, price opens a little higher than the closing price of the first candlestick and it closes a little lower than the opening price of the first candlestick.

  • Engulfing +(plus) pattern

On the first day, the candlestick is red and confirms the general trend.

The next day the price opens a little lower than the closing price of the first candlestick and closes little higher than the opening price of the first candlestick.

6. Upside Gap Three

This is a 3 candlestick reversal pattern, that indicates bearish an outlook.

On the first day, the candlestick is green and confirms the general trend.

On the following day, the price opens at a price gap, that is higher than the closing price of the first candlestick and closes green, meaning moving upwards

On the third day, the candlestick opens at a negative price gap and closes near the closing price of the first candlestick.

7. Downside Gap Three

The first candlestick is red and it confirms a general trend, the next day the price opens at the price gap that is lower than the closing price the first candlestick and closes red, moving downwards.

On the third day, the candlestick opens at a positive price gap, and closes near the closing price of the first candlestick.

8. Three Line Strike

4 candlestick reversal pattern, indicating only a bearish outlook.

During the first 3 days, the candlesticks are green and confirm the general trend.

On the 4th day, long and especially red candlestick appears, which closes below the first day’s closing price.

9. Hammer

A single candlestick reversal pattern, indicating only a bullish outlook.

After consecutive falls of price, a short red candlestick appears which shadow is longer than its body.

10. Evening Doji Star

3 candlestick reversal pattern indicating only a bearish outlook.

The first candlestick is green and supports the major trend. On the second day, a Doji appears at the closing price that is near or higher than the closing price of the first candlestick.

On the third day, a red candlestick appears which closes near or lower than the opening price of the first candlestick.

11. Morning Star

3 candlestick reversal pattern indicating only a bullish outlook.

The first candlestick is red and confirms the general trend.

The second candlestick is green and shorter than the average with a closing price that is near or lower than the closing price of the first candlestick.

The third candlestick is green with a closing price is higher than the middle of the first candlestick.

12. Downside Tasuki Gap

3 candlestick reversal pattern indicating a bullish outlook.

The first candlestick is negative and confirms the general trend.

On the second day, the candlestick opens downwards with price cap and closes negative.

On the third day, the candlestick is positive with a closing price that is higher than the opening price of the second candlestick.

13. Upside Tasuki Gap

3 candlestick reversal pattern indicating a bearish outlook. The first candlestick is green and supports the major trend.

On the second day, the candlestick opens upwards of the price gap and closes positive, green.

On the third day, the candlestick is red with a closing price that is lower than the opening price of the second candlestick.

14. Inverted Hammer

2 candlestick reversal pattern indicating a bullish outlook.

The first candlestick is red and confirms the general trend.

On the second day, the candlestick is green and short with a particularly long shadow which is at least as long as the candlesticks body.

15. Hanging Man

A single candlestick reversal pattern indicating a bearish outlook.

The candlestick is red appears at the end of a trend and as a particularly long shadow which is at least as long as the candlestick’s body.

What are Doji lines or Doji candlesticks?

Doji lines or Doji candlesticks are candlesticks which indicate that the closing price is equal to the opening price.

These include three main types.

  1. Long-legged – these candlesticks of long shadows on both sides and indicate indecision and the part of the market players.
  2. Gravestone – the longer the upper shadow, the more bearish the outlook.
  3. Dragonfly – the longer the shadow the more bullish the outlook.

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