Forex Candlestick Patterns

A candlestick pattern is a shape made by one, two or three candles that hints at what buyers and sellers are doing. Patterns do not predict the future. They show you who won a battle at a certain price, so you can decide whether to act.

This lesson assumes you can read a single candle (open, high, low, close, body and wicks). If not, read Candlesticks first.

Single-Candle Patterns

Single-candle patterns are all about the wicks (also called shadows). A long wick shows that price went somewhere and was pushed back. That rejection is the message.

The Doji

A doji forms when the close is the same as (or very close to) the open. Buyers and sellers ended the period in a draw. After a strong move, a doji says the move is losing energy. It is a signal to pay attention, not a signal to trade on its own.

• Dragonfly doji — long lower wick, no upper wick. Sellers pushed down and failed.
• Gravestone doji — long upper wick, no lower wick. Buyers pushed up and failed.
• Long-legged doji — long wicks on both sides. Big fight, no winner.

Hammer and Hanging Man

These two candles have the same shape: a small body near the top and a lower wick at least twice the size of the body. The only difference is where they appear.

Body       = 1.0862 − 1.0859 = 3 pips
Lower wick = 1.0859 − 1.0838 = 21 pips
Upper wick = 1.0863 − 1.0862 = 1 pip
Lower wick ÷ body = 21 ÷ 3 = 7×  →  well above the 2× rule

Inverted Hammer and Shooting Star

Flip the hammer upside down and you get a small body near the bottom with a long upper wick. After a fall it is an inverted hammer (buyers are testing higher prices). After a rally it is a shooting star (buyers tried and were rejected).

Engulfing Patterns

An engulfing pattern has two candles. The second candle's body completely covers ("engulfs") the first candle's body. It shows a sudden change of control.

• Bullish engulfing — after a fall, a small red candle is followed by a bigger green candle whose body covers it.
• Bearish engulfing — after a rise, a small green candle is followed by a bigger red candle whose body covers it.

Harami, Piercing Line and Dark Cloud Cover

Harami ("pregnant")

A harami is the opposite of an engulfing. A small candle sits inside the body of the big candle before it. It shows that the strong move has paused. A bullish harami appears after a fall; a bearish harami appears after a rise. It is weaker than an engulfing and usually needs confirmation (see the doji chart above).

Piercing Line and Dark Cloud Cover

These are "half-engulfing" patterns. The second candle does not cover the whole first body, but it closes past the middle of it.

Red candle:  open 1.0880, close 1.0860
Midpoint   = (1.0880 + 1.0860) ÷ 2 = 1.0870
Next candle closes at 1.0873  →  above 1.0870  →  piercing line ✓

Three-Candle Patterns: Morning & Evening Star

Star patterns tell a short story in three candles: strong move → hesitation → strong move the other way.

1. A big candle in the direction of the trend.
2. A small candle (or doji) — the "star". Momentum stalls.
3. A big candle in the opposite direction that closes past the middle of candle 1.

The morning star forms at a bottom (bullish). The evening star forms at a top (bearish).

Three Soldiers, Three Crows and Tweezers

Three White Soldiers / Three Black Crows

Three white soldiers are three green candles in a row, each opening inside the previous body and closing near its high. They show steady, strong buying. Three black crows are the bearish version: three red candles, each closing near its low.

Tweezer Tops and Bottoms

A tweezer is two candles with (almost) the same high (tweezer top) or the same low (tweezer bottom). Price tested a level twice and was rejected both times.

Summary Table

Context Matters

A pattern in the middle of nowhere means very little. The same hammer can be a great signal or pure noise depending on where it forms. Score each pattern on these points before you trade it:

• Location — is it at support or resistance, a trendline, a Fibonacci level or a moving average?
• Prior move — reversal patterns need something to reverse. No trend, no reversal.
• Timeframe — a pattern on the daily chart carries far more weight than one on a 1-minute chart.
• Confirmation — wait for the next candle to move in the expected direction, or for price to break the pattern's high/low.
• Size — a pattern much bigger or smaller than the candles around it is more meaningful than an average one.

Entry (buy stop above hammer high) = 1.2715
Stop loss (below hammer low)        = 1.2680
Risk                                = 1.2715 − 1.2680 = 35 pips
Target at 2R                        = 1.2715 + 70 pips = 1.2785