Candlestick Patterns PDF Guide For Beginners

Candlestick patterns are a very important aspect of forex trading as it makes market interpretation easier, and also assist the forex trader in making trade calls and making some key trade decisions. Candlestick patterns also serve as a form of confirmation for many forex trading strategies.

Therefore, in this article, we would be looking at key candlestick patterns that are very useful to every forex trader that deals with technical analysis and their impacts or possible impacts each time they are spotted in a trading chart. Before we proceed, let’s get to understand the meaning of candlesticks and candlestick patterns.

The Meaning of Candlesticks Charts in Trading

Candlestick charts are essential tools in financial trading. They visually represent the price movements of a financial instrument over time, offering traders a clear picture of market dynamics. By presenting price movements in a visual format, candlesticks provide a precise overview of market trends. These candlestick charts are a crucial part of technical analysis, enabling traders to make well-informed decisions based on price patterns.

Understanding Candlestick Patterns

Candlestick patterns are created by these charts, depicting an asset’s price action over a specific time frame. They serve as a crystal ball of sorts, helping traders predict future price movements. Additionally, candlestick patterns can corroborate or challenge signals from other technical indicators and trading strategies.

In summary, candlesticks and their patterns play a vital role in financial trading. They empower traders with a profound understanding of the market, aiding in well-informed decision-making. By harnessing the insights derived from candlestick analysis, traders can boost their chances of success in the competitive world of financial trading.

By now you should be able to understand the significance of candlestick patterns in financial trading, Therefore, in this candlestick patterns pdf guide I will introduce and explain seven fundamental candlestick patterns. These patterns are invaluable for identifying critical entry and exit points on a trading chart during technical analysis.

Basic Candlestick Patterns in Chart Trading:

The following are the basic candlestick patterns:

1. The Rising Three Method Candlestick Pattern.
2. The Falling Three Method Candlestick Pattern.
3. Bullish and Bearish Engulfing Candlestick Pattern
4. The Hanging Man and Hammer Candlestick Pattern.
5. The Piercing Line Candlestick Pattern.
6. The Morning Star Candlestick Pattern.
7. The Doji Candlestick Pattern.

Now, we have been able to list and identify the basic chart patterns I will be writing about in our candlestick patterns pdf guide, I will go ahead and start explaining the above mentioned candlestick patterns one by one, illustrating how you as a trader can easily spot and identify these patterns on the chart.

The first candlestick pattern on the list I will be explaining, is the rising and falling three methods.

1. The Rising Three Method Candlestick Pattern

In Candlestick charting analysis, most patterns are reversal patterns, bullish or bearish. There are only a few continuation patterns and the rising three method is one of them and is considered quite reliable by traders.

The pattern begins with a long white or green body candlestick, followed by three smaller body candlesticks (usually black or red, but the middle one can be white or green). The three smaller body candlesticks are confined within the range of the first white or green candlestick, which indicates that the market is taking a pause after a strong rise to consolidate due to uncertainty.

The fifth candlestick brings a resumption of the uptrend, with a closing price well above the high of the first white or green candlestick. This pattern is often seen as a strong signal of bullishness, and traders may take it as a sign to go long or hold onto a long position.

It is common to see consolidating patterns play out after a major move in the financial market, as the market takes a pause. At this point, bulls may be building up for new long positions while bears may be making a last attempt to fight back and take control of the market.

In this process, If the price fails to drop below the low of the first bar, as shown in the diagram above, it can be a sign that bulls are taking over once again while bears are giving up. This can lead to a resumption of the uptrend and the creation of new bullish momentum in the market.

2. The Falling Three Method Candlestick Pattern.

The falling three method candlestick pattern is the opposite of the rising three method and is also used to confirm market or trend continuation rather than reversal as most candlestick patterns do.

The beginning of the pattern is marked by a lengthy black or red body candlestick, followed by three smaller body candlesticks, commonly white or green, with the middle one occasionally black. These small body candlesticks are within the limits of the first black or red candlestick, implying that the market is pausing after a sharp drop to consolidate due to uncertainty.

A resumption of the downtrend arrives with the fifth candlestick, with a closing price far below the low of the first black or red candlestick. This particular pattern is frequently perceived as a powerful signal of bearishness, causing traders to potentially consider going short or retaining a short position.

Just like in the rising three methods, The bears, who believe the market will fall, are starting to create new short positions. On the other hand, the bulls, who expect the market to rise, are abandoning their efforts to gain an advantage, once the market fails to surpass the high point of the initial bar as shown in the diagram above, it would mean that the bears are likely to regain control while the bulls are giving up.

Confirmation:

1. High of the first black/red candlestick must remain intact
2. The break of the closing price of the first black/red candlestick should be treated as the first confirmation. The fifth bar closed well below the bottom of the first bar, becoming the final confirmation.

Bullish Engulfing Candlestick Pattern:

The Engulfing pattern is a chart pattern used in technical analysis to indicate a potential change in the current market trend. It can manifest as either bullish or bearish, depending on where it appears on the chart. When it emerges at the end of a downtrend, it’s called a bullish engulfing pattern, suggesting that a trend reversal might be on the horizon.

This pattern typically begins with a small-bodied candlestick, followed by a larger one that completely engulfs the prior candle’s body. This phenomenon occurs because buyers outnumber sellers, resulting in a robust upward market momentum. Consequently, the chart displays a long white or green real-body candlestick.

However, it’s important to note that this pattern requires confirmation. A series of subsequent white or green candlesticks should follow the long white candle to validate a potential bullish reversal or upward movement.

Now I am going to explain the next candlestick pattern on our list but to read further, you will need to download the candlestick patterns pdf guide using the download button below. Also if you will not want to download the pdf file of this article but would want to continue reading the article, you can click here.

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Candlestick Patterns PDF Free Download

In the midst of the chaotic financial markets, traders often grapple with information overload, struggling to discern meaningful insights from the noise. The constant barrage of data, including charts and price fluctuations, can easily lead them astray, resulting in a loss of focus and capital.

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• The Best Trading Chart Patterns PDF Guide

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