candlestick-pattern-signals

Candlestick signals are very important to any trader because they show how the buyers and sellers are interacting in the financial market.

Candlesticks are more than what traders see on the surface level.

Traders can use candlestick patterns to predict the future direction of the price movement.

This can help traders determine the direction in which they should trade.

Candlestick patterns become even more powerful when combined with other trading concepts.

In this article, I will give you 15 best candlestick signals that you should watch as a trader.

Let’s start…

What is a Candlestick?

A candlestick is a way of showing information about the price movement of an asset.

Candlestick charts are popular technical analysis components, and they provide traders with an easy way to interpret price information by just observing a few price bars.

Each candlestick is characterized by a body, an upper and lower shadows.

Consider the graphic given below…

candlestick-signals

The above figure shows two candlesticks.

The three parts of each candlestick, that is, the body, the upper and the lower shadows have been shown.

The body of the candlestick shows the open-to-close range.

The shadows show the high and the low of the price.

The color of each candlestick is also important because it reveals the direction of the price movement.

In most cases, a white or green candlestick is used to show a price increase, while a red or black candlestick is used to show a price decrease.

Most trading platforms allow you to choose the colors to use for these two different types of candlesticks.

Over time, the individual candlesticks form patterns that can be used by traders to spot major support and resistance levels.

There are also candlestick patterns that reveal opportunities in the market.

Some give insights into the selling and buying pressures, while others show market indecision or continuation patterns.

Let’s now get into discussing the candlestick signals that you need to know as a trader…

15 Best Candlestick Signals

So, these are the best 15 best candlestick signals for you to know…

#1: Bullish engulfing candle at swing low

Consider the chart given below…

bullish-engulfing-candlestick

The above chart shows three scenarios where strong bullish engulfing candles are formed at previous swing lows.

The bullish engulfing candles are the green candles shown above the three small, black, horizontal lines.

In the three scenarios, the price action was in a strong bearish move shown by the sequence of bearish/red candles.

This is an indication that the sellers are controlling the market.

Suddenly, the formation of the strong bullish engulfing candles occurred.

The formation of the engulfing candles was followed by a reversal in the direction of the price action from a bearish into a bullish direction.

This is an indication that the sellers are no longer controlling the market, but the buyers have taken over.

So, a strong bullish engulfing candle should send the signal of a trend reversal.

Since they are preceded by a bearish trend, it changes into a bullish trend.

So, anytime you see a bullish engulfing candle, it’s a nice opportunity for you to exit your short position and enter a long position.

Doing such will see you benefit from the increase in the price of the forex pair.

#2: Pinbar fakeout at previous lower high

Consider the chart given below….

 

pin-bar-candlestick-pattern

The above chart shows a pinbar rejection after a trend change.

The formation of the pinbar was preceded by an uptrend.

However, this uptrend had turned at the time of the formation of the pinbar.

Although the price action made higher highs and lower lows, the pinbar marks the second lower high.

This acts as a signal that there is a strong impending bearish move.

When the lower high is formed with a pinbar rejection, it reinforces the bearish signal.

From the chart, the pinbar rejection was followed by a very strong bearish move.

The price consolidations that happened during the bearish move did not manage to reach the level of the pinbar rejection.

So, anytime you see a pinbar rejection on your chart, it’s time to exit your long position and enter a short position.

Continuing to stay in your long position is risky because you will make a loss from the price decrease.

#3: Pinbar fakeout at swing high

Fakeouts are popular candlestick signals in price action analysis.

Consider the following chart…

pin-bar-fakeout-signal

The above chart shows the occurrence of a fakeout at a resistance level.

The resistance level is the black line running horizontally on the chart.

Prior to the formation of the pinbar, the price action was in a bullish move.

This means that the bulls were in control of the market.

The fact that it managed to breakout through the resistance level is an indication that the bullish move will continue for some time.

Most traders will take advantage of this to buy the forex pair.

The breakout then turned out to be a fakeout, and the price action began to make a bearish move.

The price action managed to breakout through the resistance level in a bearish direction.

All the traders who had bought the forex pair are now trapped in the wrong side of the market.

The occurrence of the pinbar fakeout shows that the price tried to maintain the bullish move but the bulls were no longer controlling the market.

Instead, bears joined the market and pushed the price of the forex pair lower.

In most cases, fakeouts occur as stop hunting mechanisms at key price areas.

To get an ideal place to set your stop loss, just put yourself in the shoes of an average trader.

A fakeout with a failed breakout normally causes a complete trend reversal when the traders are trapped in a bull trap.

So, anytime you spot a pinbar fakeout in the market, go short because the bullish move is about to reverse.

#4: Rounding off after strong breakout candle

Consider the following chart…

candlestick-signals

The above chart shows how multiple candles can come together and help traders form sophisticated price analyses.

The price begun by trading into an already established support level, which is the black line running horizontally on the chart.

The price tried to breakout through the support line in a bearish direction.

This breakout is strong, and most traders will expect the bearish trend to continue for some time.

As a result, most traders will short the currency pair.

Those who are already in short positions will choose to stay in their trades.

However, the bearish trend did not go far before reversing.

The price action begun to make a bullish move, breaking through the former support level in a bullish direction.

All traders who had entered a short position during the previous bearish move are now trapped on the wrong side of the market.

The bullish candles accelerated away from the failed breakout.

So, the bearish trend decelerated, while the bullish move accelerated.

This is a common occurrence on turning points.

The acceleration of the bullish candles led to the formation of a bullish trend.

So, anytime you see this type of pattern, you should exit your short position and enter a long position.

You will benefit from the increase in the price of the currency pair.

#5: Evening star at previous swing

Consider the chart given below…

evening-star-pattern

The above chart is another example of deceleration and acceleration at a key support level.

The price action accelerated into the support zone, which is the black line running horizontally on the chart.

The large bearish candle managed to arrive at the previous low.

This candle was followed by the formation of a neutral Doji candle.

The neutral Doji candle was followed by the formation of a strong bullish candle, which sends a signal that the price has rejected the support level.

This 3-candle sequence is among the best candlestick signals that exist.

It is one of the best price action patterns, but ensure that you trade it with confluence.

If you trade such trends at key support/resistance, supply/demand zones, and after trending markets, you may increase your odds significantly.

So, always ensure that you follow the story that the price action is trying to tell you.

A trader who entered a long position after spotting this pattern on their chart will benefit from the subsequent increase in the price of the forex pair.

#6: Engulfing rejection at swing high after strong breakout candle

A failed breakout that occurs with a candlestick pattern can be a great trading opportunity.

Consider the chart given below…

engulfing-bar-candlestick-signal

The above chart shows a rejection at swing high after a strong breakout candle.

The chart shows that the price attempted to break above the previous highs but it was immediately rejected within the next candle.

The rejection candle is the red candle that cuts through the resistance zone half way.

The resistance is the black dotted line running horizontally on the chart.

The rejection candle is so large such that it completely engulfed the bullish breakout candle.

After spotting the strong bullish candle, most traders will think that the bullish trend will continue for some time.

As a result, they will enter long positions.

However, from the above chart, this did not happen, but the price action reversed into a bearish direction.

All traders who had entered long positions are now trapped on the wrong side of the market.

So, strong bullish candles just lure in traders.

Whenever you spot such candles on your chart, exit your long position and enter a short position.

#7: Engulfing candle as trend continuation signal

An engulfing candle may act as a trend continuation signal.

Consider the chart given below…

engulfing-bar-candlestick-pattern

The first engulfing candle in the above chart marked the beginning of a new trend, a bearish one.

This trend did not go far before the formation of another engulfing candle.

This has been pointed to by a black arrow.

At the time of the formation of this engulfing candle, the price action was in a consolidation period.

However, the engulfing candle marked the end of this consolidation period and the continuation of the bearish trend.

So, the engulfing candle marked the end of the price consolidation and the continuation of the bearish trend.

Hence, an engulfing candle can act as a signal that the current trend will continue.

#8: Engulfing push

Consider the chart given below…

engulfing-bar-signal

The above chart shows that the price action was initially on a downtrend.

The first dotted line on the chart shows a lower low and a trend continuation.

Between the first and the second dotted lines, the price action was almost not able to break lower.

That is a very important trend continuation signal that shows lack of trend support.

Between the two dotted lines, the price action was only moving sideways.

During this time, it is hard to tell whether the downtrend will continue or whether the price action will reverse direction.

The engulfing candle answered this puzzle and marked a rejection of the downtrend.

The engulfing candle was so strong such that it managed to break through the upper dotted line in a bullish direction.

This was followed by a strong bullish move.

So, the engulfing push was an indication of a potential bullish trend.

It is prudent for any trader to enter a long position after spotting an engulfing push pattern on their charts.

#9: Rounding off + pinbar at swing high

Consider the following chart…

pin-bar-candlestick-pattern

The above chart shows the occurrence of a fakeout at a previous high.

The fakeout was formed as a pinbar.

When you observe the area around the pinbar, you can see the concept of deceleration and acceleration depicted.

The price action gradually changes from a bullish trend into a bearish trend.

So, a wise trader would have seen the formation of the pinbar as a signal that the price action is about to change its direction.

That is exactly what happened.

Any trader who had entered a short position after the formation of the pinbar is now on the right side of the market.

The reason is that this was followed by a strong bearish move which continued for some time.

Consequently, any trader who was in a long position is now on the wrong side of the market.

#10: Multi-wick rejection after trend

Multi-wick rejections are very powerful candlestick signals.

They give traders a lot of time to notice the chart.

Consider the chart given below…

candlestick-pattern-signals

First, the chart shows a strong downtrend.

However, two Dojis were formed after a strong bearish candle.

Once the second Doji was formed, the price action created a strong engulfing candle.

This has been shown using a black arrow on the chart.

This engulfing candle is an indication that a bullish trend is beginning to form.

This is true because after the engulfing candle, a strong bullish started and it continued for some time.

So, the two Doji candles were an indication that the bearish trend is losing momentum and that a bullish trend is beginning to form.

A wise trader should have exited their short position after spotting the two Doji candles.

Since a bullish move started immediately, any trader who entered a long position will benefit from the increase in the price of the currency pair.

However, any trader who remained in their short position will incur a loss.

#11: Hanging man

The hanging man candlestick pattern is formed at the top of uptrends and mostly predicts the potential for a bearish trend.

Whenever you spot this trend at the top of an uptrend, just know that the price action may reverse its bullish move and begin to make a bearish move.

So, if you are in a long position, it’s time for you to go short.

Consider the chart given below…

candlestick-patterns-signals

The above chart shows the formation of the hanging man pattern at the top of an uptrend.

This has been shown by the black arrow shown on the chart.

Prior to the formation of the hanging man, there was a strong bullish move in the market.

This is shown by a sequence of bullish candles on the chart.

However, the hang man candle marked the end of the bullish trend.

It’s even the last candle in the sequence.

What followed was a price reversal and a strong bearish move begun.

The hanging man is normally formed when the open, the high, and the close are the same.

The lower shadow is also a bit longer, and it should be at least twice the length of the body.

When the high and the open are the same, a bearish hanging man candlestick is formed.

This is considered to be a stronger bearish sign than when the high and the close are similar, which forms a bullish hanging man.

The bullish hanging man candlestick also sends a bearish signal.

After a long uptrend, a bearish hanging man is formed because the price hesitated by dropping significantly during the day.

The buyers came back into the market and pushed the price back near the open.

However, the fact that the price fell significantly is an indication that the bears are testing the resolve of the bulls.

The events of the next day after the formation of the hanging man pattern helps traders determine whether the prices will go higher or lower.

So, whenever you spot a hanging man candlestick on an uptrend, it is an opportunity for you to short the forex pair.

The reason is that it sends a signal of an impending bearish move.

#12: Kicker Pattern

Probably, this is the most powerful reversal signal in the candlestick signals world.

Whenever it occurs, it signals a massive shift in the sentiment of traders, in most cases reversing the trend.

The kicker pattern is characterized by a very sharp reversal in the market direction within a span of only two candlesticks.

It is used by traders to determine the group of market participants who are currently controlling the direction of the price movement.

The pattern shows that the investor has changed the attitude of the investor towards the forex pair.

This normally occurs after the release of important information about the security in question.

Consider the figure given below…

bearish-kicker-signal

The above figure shows the formation of a bearish kicker and a bullish kicker.

For the bearish kicker, the price is in an uptrend, and the first bar of the two bar pattern is an up bar which is shown by a white candle.

The close for this candle is higher than the open.

The pattern then formed a second bar (black), which is a strong down bar with its close being below the open.

It opens at or below the open of the first candle.

The second bar should show a strong shift in sentiment if the sellers don’t hesitate.

On the bullish pattern, the price is in a downtrend, and the first bar of the pattern is a down bar.

The second bar of the pattern is a very strong up bar.

This bar opens at or above the open of the first candle.

The second bar signals a strong shift in sentiment, where the buyers don’t hesitate.

#13: Morning Star

This visual pattern is made up of three candlesticks and most traders interpret it as a bullish sign.

It is formed after a bearish move and it signals the beginning of an uptrend.

It signals a reversal in the previous trend.

Most traders watch the market for the formation of a morning star and then use additional indicators to confirm whether a reversal is indeed occurring.

Consider the chart given below…

morning-star-candlestick-pattern

The above chart shows the formation of a morning star pattern.

From the chart, you can tell that the signal is made up of three candlesticks.

These are a large bearish candle, a small bullish or bearish candle, and a large bullish candle.

First, there was a strong bearish move before the formation of the morning star.

A bullish move followed the formation of the morning star.

So, the formation of the morning star was a signal that the bearish move is coming to an end and a new bullish move is about to start.

So, a morning star should act as a trigger for traders to enter a long trade.

#14: Bullish Harami

This is one of the candlestick signals that every trader must pay attention to.

It acts as an indication that a bearish trend in the market is about to reverse.

Most traders see the Bullish Harami as a good opportunity for them to enter a long position in the market.

Consider the chart given below…

bullish-harami-pattern

The above chart shows the formation of the Bullish Harami chart pattern.

It has been shown by the two candles marked using a black horizontal line.

It is made up of a bearish candle with a large body, followed by a bullish candle with a small body and enclosed within the body of the previous candle.

To send a signal that the price action is changing momentum, the small bullish candle creates a gap to open near the mid-range of the previous candle.

Note that before the formation of the Bullish Harami, there was a strong bearish momentum in the market.

This reversed immediately after the formation of the pattern.

Anytime you spot this pattern in the market, it is time for you to exit your short position and enter a long position.

#15: Shooting Star

This is a candlestick with a long upper shadow, a small real body, and little or no lower shadow.

It is formed after an uptrend.

It is formed when a forex pair opens, advances significantly, and closes the day near the open again.

It is considered a bearish reversal candlestick pattern.

Consider the following chart…

shooting-star-signal

The above chart shows the formation of a shooting star pattern.

As you can see from the chart, the pattern is made up of only one candlestick, which has been pointed to by a black arrow.

Prior to the formation of the pattern, the price action was in an uptrend.

The formation of the shooting star pattern marked the end of the bullish move.

The pattern is followed by a very strong bearish move marked by a very strong bearish candle.

So, the formation of the shooting star pattern was sending a signal that the bullish move is coming to an end and a bearish move is about to start.

When you see the shooting star on your chart, it’s time for you to exit your long position and go short.

Staying in the trade will make you incur a loss from the price decrease.

Conclusion:

This is what you’ve learned in this article…

  • Candlestick patterns are very popular among traders.
  • They help traders to predict the future direction of price movement.
  • With candlestick charts, traders can interpret price information quickly from just a few bars.
  • Over time, the individual candlesticks form patterns that can be used by traders to identify major support and resistance levels.
  • Different candlestick patterns send different signals to traders.
  • As a trader, you should know how to identify the different candlestick patterns and their meanings.
  • This will help you take the right action in relation to your trades anytime you spot such patterns in the market.
  • Some candlestick patterns are an indication of an end of a particular trend and the beginning of a new trend.
  • Other candlestick patterns are an indication of continuation of a particular trend.

 

 

 

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