|Types of Candlesticks|
|Education - STEP 4|
We know that there candlestick is the popular method used by the traders and the investors for charting prices in the Forex market. There is much more to learn about this Japanese concept. There are many types of Candlestick patterns that the traders and investors use for Forex Trading. Lets give a short look to each of these.
Engulfing pattern is a multiple candlestick pattern. It is a major reversal signal. The two bodies composing this pattern are of opposite color.
Bearish Engulfing Pattern
This pattern signals the reversal of prices in a rally. Characteristics of this pattern include:
The open price of black candle is higher than the closing price of the white candle.
The closing price of the black candle is less than the opening price of the white candle.
Bearish engulfing pattern can be better understood in the figure below.
Bullish Engulfing Pattern
Bullish Engulfing Pattern shows that there is down trend in the market and buying pressure has overcome the selling pressure. There may be reversal at this stage. Its characteristics include:
The open price of black candle is lower than the closing price of white candle.
The closing price of black candle is higher than the opening price of the white candle. Bullish engulfing pattern can be better understood in the figure below.
Spinning top are the type of candlesticks in which the upper shadow is long, the lower shadow is long but the real body is small. The hollow or filled small real body shows small movement from opening price to the closing price. The upper shadow and the lower shadow indicate that both bears and bulls were operating during the trading session. This type of situation is not favorable to buyers or sellers. The figure below shows the dragon spinning top candlestick.
A normal candlestick has three parts, the upper shadow, the real body and the lower shadow but when there is no real body then this type of candlestick is Doji Candlesticks. In Doji Candlesticks, the opening price is same as the closing price of any currency for a time frame in the Forex market. This situation signifies a balance in the market, this means that there is neither uptrend nor down trend in the market. A situation of balance is not good for the traders willing to earn high profit because if there will no high price fluctuations then the probability of profit or loss will also be least and this least profit will not be sufficient enough to meet the expenses of the traders and investors. See below the two examples of the Doji Candlesticks.
Dragon Fly is a type of Doji candlestick in which the opening price, closing price and the high price of any currency are all equal and the lower portion forms the longer shadow at the lower side. The resulting candlestick appears to look like “T”. This type of candlestick indicates that sellers increased selling pressure and the prices reached to lower level during the trading session but in the later part of the trading session, buyers increased the buying pressure and prices again touched the opening level and this opening level is the high price of this trading session. The figure below shows the dragon fly doji candlestick.
Gravstone is a type of Doji candlestick in which the opening price, closing price and the low price of any currency are all equal and the upper portion forms the longer shadow at the upper side. The resulting candlestick appears to look like “T” hanging downside. This type of candlestick indicates that buyers pushed price level higher during the trading session but in the later part of the trading session, sellers increased the selling pressure and and again brought prices back to the opening level and this opening level is considered as the low price of this trading session. The figure below shows the Gravstone doji candlestick.
A normal candlestick has three parts but the Hammer has only two parts because there is no upper shadow in this type of candlestick. Only a small real body with the lower shadow is present in this candlestick. The real body can be either white or black. The Hammer occurs in a downtrend and signifies that period of downtrend is over and the period of reversal has started. See below an example of the Hammer Candlestick.
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