Candlestick charts are the cornerstone of technical analysis in Forex. Developed in 18th-century Japan to track rice prices, they pack four critical pieces of information into every single bar: open, high, low and close. Once you can read them fluently, the market's price action becomes significantly clearer.
Candlestick Anatomy
Every candlestick has three components:
- Body — the thick rectangle between open and close price
- Upper wick (shadow) — the thin line above the body showing the session high
- Lower wick (shadow) — the thin line below the body showing the session low
A green (bullish) candle means price closed higher than it opened — buyers were in control. A red (bearish) candle means price closed lower than it opened — sellers dominated.
The size of the body relative to the wicks tells you about conviction. A large body with tiny wicks = strong directional move. A small body with long wicks = indecision or rejection.
Key Single-Candle Patterns
Doji
Open and close are almost equal, creating a cross or plus shape. Signals indecision in the market. Powerful when it appears after a strong trend — indicates the trend may be exhausted.
Hammer & Hanging Man
Small body at the top, long lower wick (at least 2x the body). A Hammer at the bottom of a downtrend signals bullish reversal — sellers tried to push lower but buyers took control. A Hanging Man at the top of an uptrend signals potential reversal.
Shooting Star & Inverted Hammer
Small body at the bottom, long upper wick. A Shooting Star at the top of a trend signals bearish reversal — buyers tried to push higher but sellers rejected the move. The Inverted Hammer appears at the bottom of a downtrend and signals potential bullish reversal.
Marubozu
A full-body candle with no wicks. Signals extremely strong momentum in one direction. A bullish Marubozu opened at the low and closed at the high; sellers had no presence at all.
Key Multi-Candle Patterns
Engulfing Patterns
A Bullish Engulfing consists of a small red candle followed by a large green candle that completely engulfs the first. It signals a powerful shift in momentum from sellers to buyers. The Bearish Engulfing is the opposite.
Morning Star & Evening Star
Three-candle patterns. The Morning Star (bullish reversal) consists of: a large bearish candle, a small indecision candle (Doji or small body), then a large bullish candle. The gap between candles is the key signal. The Evening Star is the bearish equivalent.
Inside Bar
The entire second candle (high and low) fits within the first candle's range. This pattern signals consolidation and potential breakout. Traders often place stop orders above and below the mother bar to trade whichever direction breaks first.
Never trade candlestick patterns in isolation. Always confirm with the trend direction, support/resistance levels, and ideally a second indicator. A hammer at a major support level in an uptrend is far more powerful than a hammer in the middle of a range.
How to Use Candlesticks in Your Trading
- Identify the overall trend on a higher timeframe (H4 or Daily)
- Find key support/resistance zones where price has reacted before
- Wait for a confirming candlestick pattern at those levels
- Enter on the close of the signal candle (or open of the next)
- Place your stop loss beyond the signal candle's wick
- Target the next key level for take profit
Practice reading charts in our free course
Module 6 of the Beginner level covers candlestick patterns with interactive quizzes and real chart examples.
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