Reading Candlestick Patterns in the Forex Market
If this were any other site right now you would probably get a very long (or sometimes short) list of generic candlestick patterns with names like ‘hanging man’, ‘shooting star’ and ‘hammer’. However, this is not any other site. There are a few flaws with how candlestick patterns are taught on other Forex websites:
Candle patterns are taught as they work in the stock market and that differs from how they work in Forex.
Traders are taught to view candles as generic patterns but it is much more efficient to learn to read candles.
All Reversal Patterns Are The Same
Essentially all reversal patterns are the same. When they form in a trend they always mean the same thing. They mean that a transition of power has occurred. This is not the easiest concept to understand. It will be explained here but bookmark this page and come back to it after you finished the entire education section.
Reading candles is all about thinking about the candles you see on your chart in terms of the battle between the bulls and the bears. In the first section on candles, you learned the difference between a bullish and bearish candle. Now it’s time to look a little deeper into what a bullish or bearish candle means, in relation to the battle between the bulls and the bears.
So this is a bearish candle, it forms when the bears have more power than the bulls. When the bears have more power than the bulls you get bearish candlestick patterns If the bears have more power for a long period of time you get a bearish trend.
Now imagine a spinning top type pattern forms in the trend. That would indicate that the pair has reached a period of indecision.
This is clearly an indecision pattern. The sliders have numbers from 0 to 10. When the bulls are at 10 it means they have a lot of power when they are 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 show who has gained power.
Learning a bunch of different patterns is not is not as useful as actually understanding what reversal patterns actually mean.