January 28, 2014
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Some Forex Candlestick Patterns Explained

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Forex (fx) traders use candlestick patterns to identify movement and trading opportunities within the market. These charts effectively quantify reactions to financial news and subsequently, how forex participants are feeling about currencies. A few of the most extensively used candlestick patterns are outlined below.

Shooting Star

A Shooting Star pattern occurs typically off the back of uptrends and where close, open and low are all a similar price to each other. There is usually an upper shadow, that is upwards of twice the length of the real body. The Shooting Star candlestick is considered bearish as it is an indication of the market rejection of any bull movement. Traders often see the Shooting Star formation as a signal to sell, but it is a good idea to employ other indicators alongside it.

Forex Morning Star

A strong indication of bullish reversal, the Morning Star candlestick occurs over three days. It usually starts on day one as a long bearish pattern, day two dropping somewhat and finally a bull candle on day three, with closure reaching above the midline of the body formed on day one.

Dark Cloud Cover

The Dark Cloud Cover is a bearish reversal candlestick. It occurs when a bear candle overshadows a previous bullish trend, followed by a new high on the final day and closure below the midline of the first day’s body.

Hanging Man

Formed at the time of an advance, the Hanging Man looks very much like a lollipop. This shape occurs when there is a drop after the open but closes much higher than the intraday low.

Hammer

Signifying a bullish reversal, the Hammer candlestick emerges when there is a significant drop following the open, but subsequently rises again to close substantially higher than the previous low. The resulting formation is distinctly hammer-like in appearance.

Inverted Hammer

This is often referred to as the bullish Shooting Star. It is a one-day pattern and typically features at the tail of a large downtrend. Open and close are very close in price, forming the shape of an inverted lollipop. Upper shadow is double the length of the body, but there is no lower shadow.

Doji

When a security opens and closes equally a Doji is formed. Both upper and lower shadows form, resulting in the shape of a plus sign, a cross or an inverted cross. A Doji is a sign of indecision within the forex markets.

 

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