We’ve come a long way, with the help of Charles Dow, since the days of rice trading and Japanese candlestick patterns are used by fakey pin bar trading in forex swing traders, day traders, as well as in markets from Forex to the Stock market. This is pure price action trading and it has really become a lost art.
Japanese candlesticks contain a lot of information in just one candlestick. For example, by scanning your candlestick chart, you can easily see where the high and lows of the day were as well as the open and close price of the trading day. On a bearish trading day, the real body of the candlestick would close red indicating a bearish candle. You can see at a glance who had control going into the close just by looking at the color of the candlestick.
You can also see, through the highs and lows, how much of a battle the other side put up during the trading day. This will give you insight into the strength of the overall winner on the trading day. There are many candlestick patterns that you can use for Forex and Stock swing trading but you don’t really need to know all of them unless you really want to confuse yourself. What you need is to study and know only the most reliable candlestick patterns and become a master at trading with them. If the Forex market is trading inside of a range, look for bullish reversal candlestick patterns at the support side of the range. If the market you are trading is in the corrective swing of an overall down trend, look for a bullish reversal at an area of support.
If the market is in a down trend and puts in price exhaustion, look for a potential reversal of trend using bullish candlestick patterns. If the market is in a trading range and is consolidating under resistance, look for bullish price patterns to aid in positioning before the breakout. Continue to read below for the description of each of the bullish candlesticks above and also find out how each candlestick pattern is formed and how this information can help you trade successfully with candlesticks. The bullish engulfing candlestick pattern consists of 2 candles. The first candle is a narrow range candle closes red. What this means is that there are lot more sellers than the buyers but because it is such a narrow range candle, it also tells you that the sellers are not that aggressive.
The second candle is a bullish wide range candle that engulfs the real body of the first candlestick and closes near the top of the range. What this means for this second candle is that that the market forces have changed:they buyers have overcome the sellers and have taken control of this currency pair. If you see a bullish engulfing candlestick pattern in a level of support, fibs or pivots, then these can provide a powerful reversal! The bullish hammer is a single candlestick pattern. Note that, this candle can be either red or green. This is how the candle forms: when the currency pair opened, at some point, the sellers took control of the currency pair and pushed it lower.
However, the buyers started buying and pushing back price up and it closes higher than it opened or a bit lower than its opening. The long lower shadow is vital. The first candle is is a red candle, which would have a wide range. The second candle would be a green narrow range candle. What this this tell you about the forces in the market?
Because on the first candle, the sellers were seriously in control. Then on the 2nd candle, a bullish candle, the buyers managed to defeat the sellers and at least got the candle in green. The piercing pattern is a two candle reversal pattern. The firs candlestick is a red one followed by a green candlestick.