Candlestick Patterns

List of the most well-known Japanese candlestick patterns used by traders from a variety of financial markets, including Forex, stocks, commodities, and others. These patterns are grouped according to their reliability.

The principles of technical analysis can be traced to the mid-17th century when Japanese farmers used charts to track the price of rice. Later, in the mid-18th century, these farmers began the use of candlestick charts, specifically shortly after 1850. The development of this important tool of analysis of prices is credited to Munehisa Homma, a rice trader from Sakata.

Currently, the candlestick chart is one of the most widely used tools for market analysis worldwide thanks to its easy interpretation and the large amount of information that it presents which can be used to study any financial market including the Forex. It also facilitates the interpretation of more or less reliable chart patterns which are used by many traders as trading signals to open and close positions.

The candlestick patterns can provide the trader with invaluable information on the price action with a simple glance. While common candlestick formations can provide important data about what is “thinking” the market, they can sometimes generate false signals precisely because they are frequent. Therefore, it is also important to know the more advanced patterns which have a high degree of reliability and their use in combination with other market analysis tools. As with any other resource of technical analysis, the candlestick patterns should be used with other analysis tools to confirm their signals.

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• In this pattern the market trend is not important.
• The first candlestick of the formation consists of a Black Marabozu.
• The second candlestick consists of a white Marabozu with a gap (hole) upwards with respect to the first candlestick.

The candlestick pattern Matching Lows is a formation of two bearish candles presented in markets with a downward trend. It has a moderate reliability and indicates that the price is likely to change from bearish to bullish trend. This pattern can be identified as follows:

• The current market trend is bearish.
• During the first period a big black candle is formed.
• In the second period there is a shorter black candle which has a close that is equal or almost equal to the close of the first candle.

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The Rising Window candlestick pattern is a highly reliable formation presented in uptrends which indicates that the current upward trend is likely to continue higher. This pattern can be identified as follows:

• The previous trend should be upward.
• There is a gap between the high of the first candle and low of the next candle.

The candlestick pattern Abandoned Baby Bullish is a trend change formation of high reliability which is generated in bearish markets and indicates that there is a high probability that a change occurs from bearish to bullish trend. This formation can be identified as follows:

• The current trend in the market should be bearish.
• A large black candle which is followed by a Doji candle whose maximum occurs below the low of the previous black candle.
• Between these candlesticks there is a gap whichs is known as “falling window”. During the next period a large white candle above the Doji is formed with an upward gap (rising window). This white candle penetrates deeply and closes within the larger black candlestick.

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