ForexBees

Bullish Dragonfly Doji:

Type :  Reversal
Direction : Bullish
Prior Trend : Bearish
Reliability : Medium

Bullish Dragonfly Doji is a reversal pattern that occurs in a downtrend. It consists of a single candlestick where the price opens at the top and closes at the same point with a long lower shadow. There won’t be any upper shadow.

How to Recognize Bullish Dragonfly Doji:

1) The market is charecterized by a downtrend.
2) A doji forms in the downtrend with the open and close at the same point.
3) The doji will have a long lower shadow.
4) The doji does not contain any upper shadow.

Important Factors:

This is a medium bulliish candlestick pattern so always use some other indicators or confimation before you enter the trade.

Bullish Breakaway Candlestick Pattern:

Bullish Breakaway Candlestcik Pattern

Type :  Reversal
Direction : Bullish
Prior Trend : Bearish
Reliability : Medium

Bullish Break Candlestick Pattern is a medium reliable reversal pattern. It consists of five candlestick body where the first one is strong bearish candlestick but the second, third and fourth are weak bearish candlesticks. The fifth candlestick is a strong bullish candlestick.

How to recognize bullish breakaway candlestick pattern:

1) This pattern consists of five candlseticks.
2) The first candlestick is a strong bearish candlestick.
3) Second, third and fourth candlesticks are also bearish candlesticks with lower closes but weaker than the first bearish candlestick.
4) Fifth candlestick is a strong bullish candlestick that closes into the body of the first or second bearish candlesticks.

Important Factors:

This is a medium bulliish candlestick pattern so always use some other indicators or confimation before you enter the trade.

The following is an interesting video I got in youtube about using stochastic oscillator with multiple time frames. Multiple time frames mean daily chart and hourly chart. Open daily chart and place stochastic oscillator on that with levels 30 and 70. If the trend is downwards the daily chart shows the stochastic oscillator moving averages go downwards from 70 to 30. At this point we have to enter sell trades in hourly chart based on the stochastic oscillator. So how can we enter sell trades in hourly chart? In the hourly chart if the price reaches the overbought region that is stochastic oscillator moving averages are above 70 line and at this point the moving averages crosses each other and trying cross below the 70 line enter a sell trade. Wait until the stochastic oscillator moving averages in the hourly chart reaches the oversold region or until the moving average lines cross each other and close the trade. Check the following video.

The following is the analysis I did for EURUSD currency pair.

1) The following is the EURUSD daily chart and I highlighted the region where stochastic oscillator was going down from the overbought region to the oversold region. I highlighted the only the region where the stochastic oscillator was trying to cross below the 70 line and was trying to cross above the 30 line.

The following is the EURUSD hourly chart for the same time of the above daily chart and I highlighted the regions where stochastic oscillator was moving from the overbought region to the oversold region and I also written down the number of pips. As you can see it is working. I have verified for other places and also other currency pairs and it is working good. Check yourself and let me know if this technique helps you.

Bullish Three Outside Up Pattern:

Type :  Reversal
Direction : Bullish
Prior Trend : Bearish
Reliability : High

Bullish three outside up candlestick pattern is a bullish reverse pattern. It consists of a bullish engulfing candlestick pattern followed by another bullish candlestick.

How to recognize three outside up patterns:

1) The market is in a downtrend.
2) A bullish engulfing candlestick structure forms at the bottom of the trend.
3) After the bullish engulfing candlestick structure a bullish candlestick forms.

Importand Factors:
Use some other indicators to confirm the reversal.

Some examples of the three outside up candlestick reversal patterns:

The following are some of the real time examples of a three outside up candlestick pattern for different currency pairs

EURUSD Hourly Chart:

GBPCAD Hourly Chart:

USDCAD Hourly Chart:

AUDCAD Hourly Chart:

Bullish Three Inside Up:

Type :  Reversal
Direction : Bullish
Prior Trend : Bearish
Reliability : High

Bullish three inside up pattern is a bullish reversal pattern. It consists of a long bearish candlestick followed by two bullish candlesticks with the first one coming until the middle of the bearish candlestick and the second one closing above the bearish candlestick.

How to recognize three inside up patterns:

1) The market is in a downtrend.
2) A long bearish candlestick forms in the downtrend.
3) After the bearish candlestick a bullish candlestick forms penetraing until the middle of the bearish candlestick.
4) After the bullish candlestick another bullish candlestick forms closing above the bearish candlestick.

Important factors:

1) Alwyas make sure that the second bullish candlestick closes above the bearish candlestick.
2) Use another indicator like CCI to confirm the reversal.

Some examples of the three inside up candlestick reversal patterns:

The following are some examples of the three inside up candlestick reversal patterns for different currency pairs.

EURUSD Hourly Chart:

GBPCAD Hourly Chart:

GBPJPY Hourly Chart:

GBPUSD Hourly Chart:

Three White Soldiers:

Type :  Reversal
Direction : Bullish
Prior Trend : Bearish
Reliability : High

Three white soldiers is a very highly reliable bullish reversal candlestick pattern. It consists of three long bullish candlesticks formed in a downtrend after a bearish candlestick.

How to recognize three white soldiers pattern:

1) The market is in a downtrend.

2) Three long bullish candlesticks forms in the downtrend.

3) Each bullish candlestick closes above the previous candlestick.

Important factors:

1) Do not use this pattern for entry in Asian market session if there is a strong downtrend. Because once the London market session starts the price will reverse and may follow the downtrend.

2) When you are entering the trade make sure that the price is not in the overbought region.

3) When the price is in a strong downtrend and you entered a long trade after seeing three white soldiers make sure you move your stop loss above the entry after you got some profit. Also if any evening doji star or a bearish engulfing candlestick is formed try to exit the trade as it may be an indication of the continuation of the downtrend.

Some of the real time examples of three white soldiers for different currency pairs:

EURUSD Hourly Chart:

GBPJPY Hourly Chart:

GBPUSD Hourly Chart:

USDCHF Hourly Chart:

EURJPY Four Hour Chart:

GBPAUD Four Hour Chart:

GBPNZD Four Hour Chart:

USDCAD Four Hour Chart:

Bullish Engulfing Candlesticks:

Type :  Reversal
Direction : Bullish
Prior Trend : Bearish
Reliability : High

Generally forex traders say that bullish engulfing is a medium bullish reversal pattern but I consider this as a very strong bullish pattern when combined with other indicators like support lines or support trend lines. So I am putting it under strong bullish reversal patterns instead of medium bullish reversal patterns. A bullish candlestick pattern consists of a two candlesticks in which the first candlestick is completely occupied by the second candlestick.

How to recognize bullish engulfing candlestick pattern:

1) The market is in a downtrend.
2) A strong bearish candlestick forms.
3) After the bearish candlestick, a bullish candlestick forms with the opening price same as the closing price of the bearish candlestick or below the closing price of the bearish candlestick.
4) The bullish candlestick closes above the bearish candlestick.

Generally a bullish engulfing pattern should have the bullish candlestick opening price below the close price of the bearish candlestick like the second one in the above picture. But I still consider the pattern as a bullish engulfing pattern even if the close price of the bearish candlestick and open price of the bullish candlestick are same like the first one in the above picture.

Important Factors:

The size of the first and second candlesticks plays an important role in the reversal of the trend. For example if the first candlestick of the bullish engulfing pattern is a very small candlestick and the second candlestick is a very long candlestick there is is a very high probability for price reversal.

Use some other indicators like trend lines, Bollinger Bands, CCI, Stochastics with bullish engulfing pattern to confirm the price reversal.

The following are some of the real time examples for different currency pairs.

EURJPY Bullish Engulfing Candlesticks:

GBPUSD Bullish Engulfing Candlestick Pattern:

How To Trade Bullish Engulfing:

The reason I put bullish engulfing in strong bullish reversal patterns instead of medium bullish engulfing patterns, as I explained above, is they are very effective with other indicators. The following are some of the ways you can use engulfing bullish candlestick patterns with other indicators.

1) Bullish engulfing at support lines

If a bullish engulfing candlestick pattern is formed at the support line this is a very good opportunity to enter a long trade. I have taken many successful trades and they always worked very well. Check the following pictures.

GBPUSD hourly chart bullish engulfing candlestick pattern at support line:

The following is the GBPUSD hourly chart. You can see the support line at the bottom and a bullish engulfing candlestick pattern is formed at the support line and the price bumped up.

Another GBPUSD hourly chart bullish engulfing candlestick pattern at support line:

The following is another GBPUSD hourly chart with a support line. A bullish engulfing candlestick pattern is formed at the support line and the price reversed.

GBPJPY four hour chart bullish engulfing candlestick pattern at support line:

The following is the GBPJPY four hour chart.You can see that a bullish candlestick pattern is formed at the support line and the price bumped up.

2) Bullish engulfing at trend lines

If at any trend line that you draw a bullish engulfing candlestick pattern is formed, it is very good opportunity to enter a long trade.

GBPUSD hourly chart bullish candlestick at support trend line:

Check the following picture. It is a GBPUSD hourly chart and you can see a support trend line. There is bullish engulfing candlestick formed at the support trend line and the price reversed.

3) Bullish engulfing in an uptrend

When the price is in an up trend there will be short reversals. If in the reversals a bullish engulfing candlesticks pattern is formed it is a very good opportunity to enter a long trade. Check the following currency pairs.

EURJPY hourly chart bullish engulfing in an uptrend:

The following is the hourly chart for EURJPY currency pair. You can see that the currency pair is in an uptrend. In the uptrend the price reversed back and a bullish engulfing pattern is formed. So this is a good opportunity to enter long trade at this point.

EURUSD hourly chart bullish engulfing in an uptrend:

The following is the hourly chart for EURUSD currency pair and the pair is in an uptrend. The price reversed back and a bullish engulfing candlestick is formed. and the priced followed the trend.

4) Bullish engulfing when resistance becomes support

Support and resistances are very common in forex trading and sometimes when the price crosses them they act in reverse. For example when price crosses a support line and the price reverses back the support line may act as a resistance line. The same way when the price crosses a resistance line and reverses back the resistance line may act as a support line. In this case if a bullish engulfing signal is formed we can enter a long trade. Check the following currency pair.

GBPCAD bullish engulfing when resistance becomes support:

The following is the GBPCAD currency pair and you can see a resistance line for this currency pair. The price crossed the resistance line and it reversed back. When it reversed back at the resistance line a bullish engulfing candlestick is formed and the resistance became a support line and the price bumped up.

5) Bullish engulfing and divergence

Divergence occurs when the price forms the lower lows but MACD shows higher lows. At this point if a bullish engulfing candlestick is formed you can enter a long trade. Check the following currency pair examples.

EURUSD hourly chart MACD divergence and Bullish engulfing:

The following is the hourly chart of EURUSD and you can see that there is divergence formed. The price is showing a lower lows and the MACD showing a higher lows and a bullish engulfing candlestick pattern formed and the price reversed here.

GBPUSD hourly chart MACD divergence and Bullish engulfing:

The following is the hourly chart of GBPUSD and the price is showing lower lows but MACD is showing higher lows and it formed a divergence. A bullish engulfing candlestick pattern is formed at this point and the price reversed.

Type :  Reversal
Direction : Bullish
Prior Trend : Bearish
Reliability : High

Morning Doji Star pattern consists of three candlesticks. This is a bullish reversal pattern which occurs in a down trend. This is an highly reliable candlestick pattern if it is combined with other indicators like Bollinger Bands, CCI, Stochastics etc. This pattern consists of of a bearish candlestick in a downtrend followed by a doji followed by a bullish candlestick.

How to recognize morning doji stars:

1) The market is in a downtrend.
2) A bearish candlestick forms.
3) After the bearish candlestick a doji forms.
4) A bullish candlestick appears after the doji.

Important Factors:

1) It is always important to wait for the third candlestick after the doji is formed and confirm that it is a bullish candlestick.
2) As a doji means the open and close prices are same, it is very very rare that you will see a real doji formation in forex. But if the candlestick visually appears like the open and close prices are same, I consider it as a doji.
3) Morning doji stars are very powerful if they are combined with other indicators like bollinger bands, CCI or stochastics. So always use morning doji stars with other indicators to confirm the reversal.

The following are some of the real time examples of morning doji stars:

GBPCAD Hourly Chart Morning Doji Star:

USDJPY Four Hour Chart Morning Doji Stars:

How to trade morning doji stars:

As I mentioned above morning doji stars work very good with other indicators. The following are some of the examples of how you can use morning doji stars.

1) If the market is in a range bound market where the bollinger bands are parallel and if a morning doji star is formed at the bottom of the bollinger bands it’s a good entry for a long trade. The following is the GBPCAD hourly chart, which I have shown above but with the indicators bollinger bands, CCI and Stochastics. If you observe the maket, it is in a range bound market. If you observe the morning doji star, the doji has formed completely outside of the bollinger bands. Moreover CCI is below -100 and stochastics has touched the -20 line. After the bullish candlestick completed after the doji, the stochastics moving averages crossed each other. So it’s a good opportunity to enter a long trade.

2) If the market is in a trend retracements are very common. If the trend is an uptrend and if in the retracements a morning doji star is formed it’s a good opportunity to enter long trades in the direction of trend. Check the following example. The following is the USDJPY four hour chart. If you check the chart you can see that it’s in an uptrend and you can see the retracements. In the retracements the morning doji stars are formed and the market started following the trend. So these are good points to enter the trend.

3) Trend lines are one of the important trading techniques of many forex traders. Once a trend line is broken in many cases the price reverses back to the trend line. For example the following is the USDCAD hourly chart and I have drawn a trend line which is a resistance line. The resistance trend line is broken at some point and you can see that the price returned back to the trend line. Now the resistance trend line acted as a support trend line and a morning doji star is formed at this point and you can see that the price bumped up almost 200 pips. So when a trend line is broken the the price returned back and if a morning doji star is formed at the trend line it’s a good opportunity to enter a long trade.

Type : Reversal
Direction : Bullish
Prior Trend : Bearish
Reliability : High

Piercing Line Candlestick is a bullish reversal pattern which occurs in a down trend. This is an highly reliable candlestick pattern. After long bearish candlestick closes the price opens below the closing price of the bearish candlestick and a long bullish candlestick forms. The bullish candlestick closes below the opening price of the bearish candlestick.

How to recognize piercing line candlestick:

1) The market is in a downtrend.
2) A long bearish candlestick forms.
3) For the next candlestick the price opens below the closing price of the long bearish candlestick.
4) A long bullish candlestick appears but the price closes below the open price of the bearish candlestick forming a piercing line candlestick.

Important Factors:

1) In piercing line pattern the greater the degree of the penetration of the bullish candlestick in to the bearish candlestick the greater the reversal strength. An ideal piercing line pattern should have the bullish candlestick body penetrated more than half of the bearish candlestick body.
2) Even though piercing line candlestick pattern itself is a good reversal pattern use some other indicator to confirm it like support lines, stochastic indicator etc.

The following are some of the real time examples for piercing line candlestick pattern.

USDCHF Currency Pair:

USDCAD Currency Pair:

USDJPY Currency Pair:

NZDUSD Currency Pair:

EURJPY Currency Pair:

How to trade the piercing line pattern:

Although  piercing line candlestick pattern is a very reliable strong bullish candlestick pattern always use some other indicators to enter trading. Check the following picture. This is a NZDUSD daily chart. You can see two piercing line formations. I am using four indicators here. Bollinger Bands, Trend Lines, CCI and Stochastics.

1) First Piercing Line Candlestick Formation
It is formed at the bottom of the bollinger bands.
There is a support line where it formed the piercing line candlestick formation.
The CCI has crossed the -100 line and it has reached around -200 which is an indication for reversal.
The stochastics crossed below 20 line and when the piercing line candlesticks formation is completed the moving average lines of the stochastics have crossed each other.

Based on all the above factors it is a good entry.

2) Second Piercing Line Candlestick Formations
The piercing line candlestick formation is formed but not in a downtrend. If you observer the candlesticks they are in a range market.
CCI is not below the -100 line.
Stochastics is not below 20 line.

Based on the above factors it is not a good entry.

Candlesticks were introduced by Japanese rice traders and they used them long time back for the purpose of analyzing the rice markets. Now a lot of traders are using these candlestick techniques for analyzing forex markets and stock markets.

If you are using metatrader for forex trading the following is how a candlestick chart appears. You can set the properties of the metatrader to change the colors for the candlestick chart. I am using a white background and red color for bearish candlesticks and Limegreen color for bullish candlesticks.

Candlestick charts primarily contain the main body and wicks or shadows. The following is the picture of bullish and bearish candlesticks. If the close price is above the open price it is called a bullish candlestick. If the close price is below the open price it is called bearish candlestick. The extensions above each candlestick are called upper shadows/wicks. The extensions below each candlestick are called lower shadows/wicks. Each candlestick represents a period of data. If you open the hourly chart, each candlestick represents the currency price movements in that hour. The extensions represent the extreme low price or extreme high price in that particular time frame. Metatrader provides different time frame charts like one minute, 5 minutes, 30 minutes, hourly, four hour, daily, weekly and monthly charts.

Traders use candlesticks to check different patterns which can be either reversal patterns or continuous patterns. There are many reversal or continuation patterns that traders use. Many traders use them in combination with other technical indicators like Commodity Channel Index, Stochastics Indicator, Bollinger Bands etc to find out the price movements correctly.

In the coming articles we will discuss many candlestick patterns and how to use them with different indicators to find out the price movements.

The following is a small video from you tube on how to read the Japanese candlesticks. check it.