Forex Candle Charting Patterns

Just what are Candlestick Patterns?

Candle Charting Patterns are technical tools that have been in use for centuries to predict price direction. Candlestick charts organize multiple time frames data into single price bars, making them ideal than the traditional open-high, low-close bars. This technical tool dates way back to the 18^th-century Japanese rice traders, hence the Japanese Candlestick. Steve Nison was the man behind candlestick patterns finding their way to the Western world. And that’s how the candlestick pattern became popular in the Western world in the 90s.

Basically, candlestick patterns come in different forms: three-line strike, two black gapping, three black crows, evening star, and an abandoned baby. Though having gained much popularity, some of the candlestick patterns may not be very effective.

Candlestick Performance

Thomas Bulkowski generated a performance ranking for the candlestick patterns in his book dubbed “Encyclopedia of Candlestick Charts.” In his work, he presents two probable pattern outcomes: -

1.      Reversal – The reversal signals a change in price direction; hence candlestick reversal patterns insinuate the change

2.      Continuation – The continuation signals going back to the earlier trend after a pause; hence continuation candlestick patterns insinuate extension of the price trend

The Candlestick patterns are formed in relation to the open, close, high, and low within the selected timeframe.

·         When the close is above the open, a hollow candlestick displayed in white is used to represent the data

·         When the close falls below the open, a filled candlestick displayed in black is used to represent the data

N/B: in a diagram representation, the candlestick section that is hollow or filled is referred to as the ‘body.’ The thin lines popping above and below the body indicate the high or low range and are referred to as shadows. The upper shadow top is the ‘high,’ while the lower bottom shadow is the ‘low.’

The Bottom Line

Candlestick patterns have gained popularity with a considerable number of market players. However, quite some reversal and continuation signals shown by candlestick patterns cannot be fully relied on in the modern age of technology.