Must-know about Forex trading: Candlestick analysis for beginners

If you are obsessed with Forex trading and want to succeed, understanding how to read candlesticks is an essential fundamental skill. Candlesticks are tools available on every trading platform and trusted by many traders. This article will introduce basic candlestick analysis methods that will help you better understand market movements in Forex.

Why are candlesticks important in trading?

Before diving deeper, let’s understand why traders favor using candlesticks.

Ability to reflect market sentiment - Candlesticks can show the conflict between buyers and sellers through the patterns of the body and wicks, which differ from line charts that may hide important details.

Ease of application - Candlestick patterns are clear and easy to understand. When combined with other tools such as support and resistance levels or trend lines, the accuracy of predictions significantly increases.

Proven history - Candlestick reading techniques originated in Japan over 200 years ago when rice traders used this system in the Osaka market. Today, it remains trusted by global traders.

Basic structure of candlesticks you need to know

What is a candlestick? A candlestick consists of four key pieces of information:

• Opening price (Open)
• Closing price (Close)
• Highest price (High)
• Lowest price (Low)

Within a specified period (whether it’s 5 minutes, 1 hour, or 1 week)

Body and wicks - The thick part of the candlestick shows the range between the opening and closing prices. The thin lines show the highest and lowest prices during that period.

Color of the candlestick - When the closing price is higher than the opening price, the candlestick is white (Bullish), indicating buying dominance. When the closing price is lower than the opening, the candlestick is black (Bearish), indicating selling dominance.

Categorizing candlestick patterns by difficulty level

Level 1: Single candlestick patterns

Doji - A candlestick where open and close are the same, indicating market indecision. Types include Gravestone Doji (buying pressure suppressed), Dragonfly Doji (selling pressure resisted), and Four Price Doji (very low volume, avoid trading)

Marubozu - Candles with no wicks, showing decisiveness of buyers or sellers. A white Marubozu indicates strong buying from start to finish; a black Marubozu indicates strong selling.

Spinning Top - Candles with short bodies and long wicks, indicating no clear dominance. In an uptrend, it may suggest weakening buying; in a downtrend, it may signal fading selling pressure.

Hammer and Hanging Man - Similar in shape but different in meaning depending on context. Hammer appears at the bottom and suggests a potential reversal upward. Hanging Man appears at the top and warns of a possible reversal downward.

Inverted Hammer and Shooting Star - Opposite shapes. Inverted Hammer at the bottom = bullish signal; Shooting Star at the top = bearish signal.

Level 2: Double candlestick patterns

Bullish Engulfing and Bearish Engulfing - When a larger candle “engulfs” a smaller one, the reversal signal becomes clearer. Bullish Engulfing (white-black) = from downtrend to uptrend; Bearish Engulfing (black-white) = from uptrend to downtrend.

Tweezer Tops and Tweezer Bottoms - Similar to tweezers. Tweezer Tops (at high) = reversal downward; Tweezer Bottoms (at low) = reversal upward.

Level 3: Three or more candlestick patterns

Morning Star and Evening Star - Consist of 3 candles. Morning Star (black-doji-white) = reversal from down to up; Evening Star (white-doji-black) = reversal from up to down.

Three White Soldiers and Three Black Crows - Sequences of the same type of candles but in different directions. The second and third candles should be larger or equal to the previous ones to confirm continued momentum.

Three Inside Up and Three Inside Down - Inside bar patterns. The third candle breaks beyond the extremes of the first to confirm a change.

Applying candlestick patterns in trading

When you observe these patterns on your chart, the correct steps are:

1. Check the context - Does the pattern occur at support/resistance levels or trend ends?
2. Wait for confirmation - Don’t rely on a single pattern; wait for the next candle to verify the signal.
3. Check volume - Trading volume should support the predicted direction.
4. Set risk parameters - Before entering a position, clearly define where your stop loss will be.

Summary for continuous study

Reading candlesticks is not an art but a skill that requires practice. Whether you study Forex for just one week or longer, risk management and understanding core principles are more important. Even if a pattern is complete, the success rate is not always above 50% in unstable markets. Therefore, combine it with fundamental factors, other technical analyses, and money management strategies to increase your chances.

Real trading involves risk of loss. Always trade according to your mental state and risk tolerance.