Candlestick strategies

Candlestick charts are by far one of the most widely used technical tools to gauge market sentiments and price actions. They present a visually detailed information about the market trends and has stood the test of time in proving handy to many traders. In Forex too there is no denying that their significance stand tall. As a matter of fact many trading platforms provide access to candlestick form of charting. With these chart trends easily available at your disposal, how exactly do you make use of them? While we have already walked through the basics of candlesticks in our previous post,  what we are going to unmask here are the most recurring, tested and popular candlestick strategies to conquer profitable Forex trades.

Doji

When the prices have opened and the closed at the same level with practically no solid body, the pattern is only supported by wicks or shadows. This trend indicates that the bulls and bears are in for a tie-break making traders cling anxiously for the next move on the markets.

Generally speaking, doji formation calls in for a probable reversal in the trend. And so it is advisable that traders resist from taking any calls on the basis of this indicator and keep a close watch until the next candle is formed.

Although there are many types of Doji, the most common ones are the Gravestone Doji and Dragonfly Doji. A gravestone doji has a longer upper shadow indicating for a bearish trend. And a dragonfly doji on the other hand has a long lower shadow indicating for a bullish trend.

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a doji candlestick

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The last one is a bullish gravestone candlestick

 

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The last one is a bearish dragonfly candlestick

Engulfing Candles

Another set of important indicators is the two engulfing candles – bullish engulfing and bearish engulfing. A bullish engulfing consists of a short black body immediately followed by a longer white body. The point here is the opening of the white body is usually lower than the black body and closing is higher than the black. The underlying message is that the bulls have taken over the bears and that the market can experience a powerful reversal in terms of demand and supply.

Completely opposite is the formation of bearish engulfing candle. Here a taller black body candlestick immediately follows the shorter white body candlestick signalling a bearish trend.

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The last two candlesticks make a bullish engulfing pattern

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The last two candlesticks make a bearish engulfing pattern

Hammer & Shooting star

These indicators have short bodies and longer wicks pointing either upward or downward. A hammer has a long lower wick indicating stronger sentiments towards selling (read bearish). A shooting star has a long upper wick signalling bulls are taking control with strong buying.

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The piercing patterns & Cloud Cover formation

These two indicators have longer bodies and are polar opposites to each other sending out stronger signals of reversal movements. A piercing pattern is when a longer black body is followed by a longer white body where the white closes halfway up the black body. Here the trend is bearish and is likely to continue moving upward for some time. On the contrary when a long black body follows a long white body, the trend is spelled out to be bullish and the markets would continue trading downward for quite some time.

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