A complete reference for reading candlestick charts in forex, from basic anatomy to reversal and continuation patterns.
Candlestick charts were developed in 18th century Japan to track rice prices and are now the standard charting format for forex, stocks, and crypto. Each candle represents a defined time period, such as one minute, one hour, or one day, and includes four critical pieces of data in a single view: the open, high, low, and close price for that period.
A bullish (green) candle closes higher than it opened, meaning buyers won that session. A bearish (red) candle closes lower than it opened, meaning sellers were in control. The wicks (also called shadows) show the extremes reached during the session that did not hold at the close. Long wicks reveal rejection of a price level, which is often one of the most informative parts of a candle.
These patterns form on a single candle and can signal a potential reversal or indecision in the market. They are most reliable when they appear at a key support or resistance level, a swing high or low, or following a prolonged trend.
Open and close are virtually the same price, creating a cross or plus shape. This signals that neither buyers nor sellers gained control. Context is everything, and a doji after a long uptrend is far more significant than one in ranging conditions.
Small body at the top of the candle with a long lower wick that is at least twice the body length. It appears at the bottom of a downtrend. Sellers drove the price down sharply, but buyers pushed it back up before the close, signaling a potential reversal.
Long upper wick, small body at the bottom of the candle. Found at the bottom of downtrends. Buyers tried to push price higher and although they didn't fully succeed, the attempt signals a potential shift in momentum.
Long upper wick, small body at the bottom, appears at the top of an uptrend. Buyers drove price significantly higher during the session, but sellers overwhelmed them and pushed it back down. A strong bearish reversal signal.
Identical shape to the hammer but appears at the top of an uptrend rather than the bottom of a downtrend. The long lower wick shows that sellers tested lower prices, which is a warning that bullish momentum may be fading.
Small body with upper and lower wicks of roughly equal length. Neither buyers nor sellers were able to dominate. Signals indecision and often precedes a consolidation period. More significant after a strong directional move.
A large body candle with little or no wicks. One side controlled the session completely from open to close, with no significant counterattack. One of the strongest single-candle momentum signals available.
Open, high, and close are all at the same level at the top of the candle, with a long lower wick. Sellers pushed price aggressively lower but buyers reclaimed all losses by the close. A strong bullish reversal signal at support.
Open, low, and close are at the same level at the bottom of the candle, with a long upper wick. Buyers pushed price sharply higher but sellers reclaimed all gains by the close. A strong bearish reversal signal at resistance.
Two-candle patterns give more confirmation than single-candle signals because they show how price reacted over two consecutive sessions. The second candle confirms the direction the first candle hinted at.
A small bearish candle followed by a large bullish candle whose body completely engulfs the previous one. Found at the bottom of a downtrend. The larger the second candle relative to the first, the stronger the signal.
A small bullish candle followed by a large bearish candle that fully engulfs it. Found at the top of an uptrend. Signals that sellers have overwhelmed buyers with conviction. One of the most reliable bearish reversal signals.
Two candles with matching highs, the first bullish and the second bearish. The identical high shows that price was rejected twice at the same level, indicating strong overhead resistance. This pattern is particularly effective at known resistance zones.
Two candles with matching lows, the first bearish and the second bullish. Price was rejected from the same low twice, confirming strong support at that level. This is a reliable reversal signal when found at a key support zone.
A bearish candle followed by a bullish candle that opens below the previous low and closes above the midpoint of the bearish body. Shows that buyers stepped in strongly after a push lower. A moderately bullish reversal signal.
A bullish candle followed by a bearish candle that opens above the previous high and closes below the midpoint of the bullish body. The bearish reversal counterpart to the piercing line. Found at the tops of uptrends.
Three-candle patterns offer stronger confirmation because price action must behave consistently across three consecutive sessions. They are generally considered more reliable than one or two-candle signals and are widely used by professional traders.
Three candles: a large bearish, a small-bodied middle candle (the star) gapping below, and a large bullish candle closing well into the first candle's body. Signals a decisive reversal from a downtrend. One of the most powerful bullish patterns.
The bearish mirror of the morning star: a large bullish candle, a small star gapping above, and a large bearish candle closing well into the first body. This signals a reversal at the top of an uptrend. Confirmation matters, so wait for the third candle to close.
Three consecutive bullish candles, each opening within the previous body and closing progressively higher, with small or no upper wicks. Signals strong, sustained buying pressure and a decisive trend reversal or continuation to the upside.
Three consecutive bearish candles, each opening within the previous body and closing progressively lower with small lower wicks. The mirror of three white soldiers. Signals relentless selling pressure and is one of the most bearish patterns available.
A large bearish candle, followed by a smaller bullish candle that closes within the first, then a third bullish candle that closes above the first candle's open. A bullish harami confirmed by a third candle. More reliable than a two-candle harami alone.
The bearish equivalent of three inside up. A bearish harami confirmed by a third candle that closes below the first candle's open. Signals a convincing reversal from an uptrend with confirmation across three sessions.
Not all candlestick patterns signal a reversal. Continuation patterns suggest that the prevailing trend is likely to resume after a brief pause or consolidation. They are most powerful when they form during a pullback within a strong trend.
A large bullish candle, followed by three small bearish candles that stay within the range of the first, then a final large bullish candle that closes above all previous highs. The three small candles represent a brief pause before the uptrend resumes with force.
The bearish version: a large bearish candle, three small bullish candles contained within the first candle's range, then a final large bearish candle that closes below all previous lows. Signals the downtrend is resuming after a minor pullback.
A large bullish candle followed by a smaller candle whose body is fully contained within the first. Works best as a continuation signal in an established uptrend, where it shows buyers pausing briefly before the move resumes. Equivalent to an inside bar in western charting.
A large bearish candle followed by a smaller candle whose body is fully contained within the first. Works best as a continuation signal in a downtrend, indicating that sellers are taking a brief pause before pressing lower. The smaller the second candle, the more indecision is present and the stronger the eventual continuation tends to be.
Similar to rising three methods but rarer. A strong bullish candle is followed by a gap up, then small bearish candles that drift lower without closing the gap, and finally a large bullish candle that closes at a new high. Shows controlled consolidation before continuation.
Two bullish candles with a gap between them, followed by a bearish candle that partially fills the gap but does not close it. The inability to fully fill the gap confirms that buyers remain in control and the uptrend is likely to continue.
There are dozens of named candlestick patterns, and no trader has them all memorised. The good news is that you do not need to. Every candlestick pattern, regardless of its name, can be decoded using three underlying principles. Master these and you can interpret any candle you encounter on a live chart.
| Principle | What to observe | What it tells you |
|---|---|---|
| 1. Body colour | Is the candle bullish (closes above open) or bearish (closes below open)? | Whichever side closed the candle in their favour was momentarily in control during that session. A green body means buyers won; a red body means sellers won. |
| 2. Wick length | How long are the upper and lower wicks relative to the body? | A long upper wick shows that price reached significantly higher but was rejected before the close, and selling pressure was strong at the highs. A long lower wick shows buyers stepped in to reject lower prices. Short wicks indicate that one side dominated with little opposition. |
| 3. Body-to-wick ratio | How does the size of the body compare to the total candle range? | A large body relative to the wicks means one side controlled the session convincingly. A small body with large wicks means the session was contested, with aggression from both sides but no decisive winner. Never look at the body or wick in isolation; the ratio between them completes the story. |
As a practical example: a candle that closes bullish (principle 1, buyers won) but has a very long upper wick relative to its body (principle 2, strong rejection of higher prices) is telling a mixed story. The body says buyers closed it higher, but the wick says sellers pushed back hard. The overall read is cautious rather than confidently bullish. This is the reasoning behind patterns like the shooting star and hanging man, and why a large bullish body with almost no upper wick carries far more conviction than a doji or spinning top with wicks in both directions.
The biggest mistake traders make with candlestick patterns is trading them in isolation. A hammer that appears in the middle of a ranging market has far less significance than one that forms at a major weekly support level after a sustained downtrend. Context elevates the signal.
| Factor | What to look for | Why it matters |
|---|---|---|
| Trend direction | Confirm the prior trend before interpreting a pattern | Reversal patterns only work if there is a trend to reverse. A hammer in a sideways market is meaningless. |
| Key levels | Support, resistance, trendlines, Fibonacci levels | Patterns at key levels are far more likely to produce a meaningful move than those in open space. |
| Timeframe | Higher timeframes produce more reliable signals | A daily engulfing pattern carries significantly more weight than the same pattern on a 5-minute chart. |
| Volume / spread | Look for expansion on the signal candle (where data is available) | A large engulfing candle with high volume confirms that real money was behind the move. |
| Confluence | Multiple signals aligning at the same level | A hammer at support, with an RSI divergence, on the daily chart is a far stronger signal than any one factor alone. |
At PipMetrics, candlestick pattern analysis is one layer of a broader multi-factor approach. No signal is issued based on a candlestick pattern alone. Patterns are evaluated alongside the current trend structure, key support and resistance levels, session timing, and relevant economic calendar events before a trade is considered.
We pay particular attention to high-timeframe patterns, including one-hour, four-hour, and daily charts, as these tend to produce more reliable and manageable moves than lower timeframes. When a significant pattern such as a daily engulfing or morning star appears at a key structural level we have been monitoring, it carries considerable weight in our decision-making process.
Risk management always comes first. Even the cleanest candlestick setup will be passed on if the risk-to-reward ratio or market conditions do not meet our criteria. Understanding patterns is essential knowledge for any forex trader, and applying them with discipline is what separates consistent traders from the rest.