Reading Candlestick Patterns in the Forex Market
If this were any other Forex site, you would probably be reading through a long list of generic candlestick chart reversal patterns with names like ‘hanging man’, ‘shooting star’, and ‘hammer’. However, this isn’t any other site. There are a few flaws with how candlestick reversal patterns are taught on other Forex websites:
- Candlestick patterns are taught as they work in the stock market which differs from how they work in the Forex market.
- Traders are taught to view candles as generic, isolated patterns but it is much more efficient to learn to read candles.
All Reversal Candlestick Patterns Are The Same
All reversal patterns are essentially the same. Whenever any of them form in a trend, they all mean the same thing. A transition of power has has occurred. This is not the easiest concept to understand. I will explain it here so bookmark the page and you’ll be able to come back here after you finish the entire education section.
Reading candles is all about thinking how the candles you see are a depiction of the fight between bulls and bears. In the first section on candles, you learnt of the difference between a bullish and bearish candle. Now it’s time we go a little deeper into what a bullish or bearish candle means in relation to the battle.
This is a bearish candle – it forms when the bears have more power than the bulls. When the bears have the power, you will see bearish candlestick patterns. If the bears have more power for a long period of time, you will see a bearish trend.
Now imagine a Spinning Top pattern forms in the trend. That would indicate that the pair has reached a moment of indecision.
This is a clear indecision pattern. The sliders on the side have numbers from 0 to 10. When the bulls are at 10 it means they have a lot of power. At 0, it means they have no power. The same goes for the bears – so what happens when they are closely matched in terms of power?
That’s right – an indecision candlestick forms. So when the bulls and bears have equal amounts of power you will get indecision. As soon as one side gains power the candle will reflect it.
Memorizing a bunch of different patterns is not as useful as understanding what reversal patterns actually mean.