Top 10 Candlestick Patterns For Swing Trading

There are many candlestick patterns that you can use for  forex trading but you don’t really need to know all of them unless you really want to confuse yourself.

What you need is to study and know only a few candlestick patterns that are worth knowing.

As a swing trader, it is also important to know what kind of forces are at work to make these patterns form and  know these candlestick patterns that are listed here.

 

BULLISH CANDLESTICK PATTERNS

When the forex market is in a downtrend, that’s the time you should be looking out for bullish candlesticks. The 5 bullish reversal candlestick patterns are :

  • Bullish Engulfing
  • Hammer(the colour can be both green or red, it does not really matter)
  • Bearish Hammer(some traders call it the pregnant candlestick pattern…it is obvious why :) )
  • Piercing
  • Doji

Continue to read below for the description of each of the bullish candlesticks above and also find out  how each candlestick pattern is formed and how this information can help you trade successfully with candlesticks.

 

 

 

 

 

 

(1) Bullish Engulfing Candlestick Pattern

The bullish engulfing candlestick pattern consists of 2 candles. The first candle is a narrow range candle closes red.

What this means is that there are lot more sellers than the buyers but because it is such a narrow range candle, it also tells you that the sellers are not that aggressive.

The second candle is a bullish wide range candle that engulfs the body of the first candlestick and closes  near the top of the range.

What this means for this second candle is that that the market forces have changed:they buyers have overcome the sellers and have taken control of this currency pair.

If you see a bullish engulfing candlestick pattern in a level of support, fibs or pivots, then these can provide a powerful reversal!

 

(2) Bullish Hammer Candlestick Pattern

The bullish hammer is a single candlestick pattern. Note that, this candle can be either red or green.

This is how the candle forms: when the currency pair opened, at some point, the sellers took control of the currency pair and pushed it lower.

However, eventually, the buyers started buying and pushing back price up and it closes higher than it opened or a bit lower than its opening.

If you see a bullish harami candlestick pattern in a level of support, fibs or pivots, then these can provide a powerful reversal!

 

(3) Bullish Harami Candlestick Pattern

The bullish harami is a 2 candle pattern. The first candle is is a red candle, which would have a wide range.

The second candle would be a green narrow range candle.

What this this tell you about the forces in the market?

When you see the bullish harami candlestick pattern,  it simply tells you that the downward or (bearish) momentum has stopped or slowed.

Why? Because on the first candle, the sellers were seriously in control. Then on the 2nd candle, a bullish candle, the buyers managed to defeat the sellers and at least got the candle in green.

If you see a bullish harami pattern in a level of support, fibs or pivots, then these can provide a powerful reversal!

 

(4) Bullish Piercing Candlestick Pattern

The piercing pattern is a two candle reversal pattern. The firs candlestick is a red one followed by a green candlestick.

Both candlesticks are roughly equal and of the same wide range.

What does this mean?

It means that in the first candle, the sellers were really in control. When the next candle forms, instead of going down, the opposite happens, it goes up. The candlestick is green! This means the the buyers (or you can also say the bulls!) came in with such ferocity and pushed the candlestick price to close more than (or at least) halfway up the range of the previous red candlestick.

If you see a Piercing candlestick pattern in level of support, fibs or pivots, then these can provide a powerful reversal!

 

(5) Bullish Doji Candlestick Pattern

Doji is without doubt, the most popular candlestick pattern. This is what happens in a doji candle: the candle open up and goes pretty much nowhere and closes at or near to its opening price. The doji candlestick can both be green or red.

What does this mean then?

It means that the market forces of buyers and sellers are undecided.  It shows a period of indecision by traders questioning the current trend.

And if the current trend was bearish, the formation of a doji candle would trigger an uptrend.

If you see a doji candle in a level of support, fibs, or pivots, then these can provide a powerful reversal as well!

 

BEARISH CANDLESTICK PATTERNS

You should be looking out for bearish candlesticks when the market is in an uptrend. Now for Bearish candlesticks:

  • Bearish Engulfing
  • Shooting Star (the exact opposite of Bullish Hammer…as usual, the colour of this candlestick can be alos green)
  • Bearish Harami(looks like a pregnant woman…the big green candlestick is the mother candle and the littlr red inside bar(candlestick) is the baby candle)
  • Dark Cloud Cover
  • Doji

 

 

 

 

 

 

What you will notice with the bearish candlestick patterns (if you haven’t yet!) is that they are completely opposite of the bullish candlestick patterns given above.

It is important that you look for these patterns after an upward rally and when these candles form, that may signify a possible reversal. As mentioned previously, if these candlestick patterns from around levels of resistance, fibs and pivots, you should pay attention to them!

Ok, let me get into each of these bearish candlestick patterns…

 

(1) Bearish Engulfing Candlestick Pattern

The bearish engulfing candlestick pattern is just the complete opposite of bullish engulfing pattern.

What happens is that the market is in an upward rally (uptrend) then the first green candlestick forms. This candlestick is a narrow range candlestick. Then the 2nd red candlestick forms which has a wide range and its “shadow” completely engulfs the first candlesticks.

What does it mean? What’s going on behind the scenes?

The fact that the first candle had a short range meant that the bulls may be possibly losing the upward steam. The further confirmation to this was the formation of the 2nd red candlestick.

When you see a bearish engulfing pattern in levels of resistance, fibs or pivots, then these can provide powerful reversal!

 

(2) Bearish Shooting Star Candlestick Pattern

This is generally a red candle that looks like a shooting star: a short head and a long tail. Note that it can both be red or green.  The shooting star is the opposite of bullish hammer. The key point here is that the shooting star candlestick has to form during an uptrend. The shooting star candlestick is characterized by a very long tail and a narrow head.

This is what happens in a shooting star candlestick: buyers took over initially pushing the price all the way up, but then the sellers came in with such force and pushed the price all the way down ensuring that it close way below its opening price. When this candlestick forms, you always should know that the sellers are dominant.

Note also that the shooting star candlestick can be both red(bearish) or green (bullish) but it has to form in an uptrend market.

When you see a shooting star candlestick pattern in levels of resistance, fibs or pivots, then these can provide powerful reversals!

 

(4) Bearish Dark Cloud Cover Candlestick Pattern 

The dark cloud cover candlestick pattern is a 2 candle pattern.  The first is a green green candle with a wide range and then followed by a red candle also with a range somewhat similar to the first rand candlestick. The 2nd candlestick should close at least halfway point down in comparison to the first green candle.

This is what happens in a dark cloud cover candle: the buyers came in strongly on the first candle, pushing price strongly up. The second red candlestick generally would have opened higher and gone up a bit but then the sellers came in with such force and pushed price all the way  down to halfway point or more of the 1st green candlestick.

This tells you that the the sellers are in control. It may also mean that the buyers may have realized that they are on the wrong side of the market and closed their buy positions and taking profits and may have started selling as well pushing the price down.

When you see a dark cloud cover candlestick pattern in levels of resistance, fibs or pivots, then these can provide powerful reversals!

 

(5) Bearish Doji Candlestick Pattern

The bearish doji candlestick pattern is a single candlestick pattern that you should be looking for during an uptrend market. With doji’s the opening and the closing price are equal or so close that they really don’t have a body at all. They almost look like a cross.

Doji’s are one of the simplest candlestick patterns to identify. The color of the bearish doji candlestick pattern can be both red or green but it is important that it forms in an uptrend market.

When you see a bearish doji candlestick pattern in levels of resistance, fibs or pivots, then these can provide powerful reversals!

 

WHY YOU NEED REVERSAL CANDLESTICK PATTERNS

  • First, when you use reversal candlestick patterns, you are now using price action to make your trade decisions. Price action is much more better than using a lagging forex indicator to get into a trade.
  • Reversal Candlesticks, when they form around areas of support and resistance  etc…they give you are good trade entry confirmation.
  • You can use this reversal candlestick patterns and apply them in any swing trading strategy in this website where it can be used
    as part of its trade entry rules.
  • These reversal candlestick patterns when used in larger timeframes like the 1hr and upwards, give much more accurate signals.

ARE ALL REVERSAL CANDLESTICK PATTERNS ACCURATE?

No. Like all things in forex trading, nothing is 100% accurate. You see, reversal candlestick, the reason they are useful is that certain behavior in the forex market price produces certain candlestick patterns. Now, if you go and do a historical analysis of these candlesticks, you tend to see a picture regarding these candlesticks.

You tend to see things like: “ok, when this candlestick formed at this level(maybe support or resistance level), price rose dramatically, or price fell”.

So then what happens is that you start to get a picture and feel of what to expect every time you see such a candlestick pattern forming. This is where reversal candlesticks other candlestick patterns become useful to forex swing traders.

 

WHAT FOREX TRADING STRATEGIES CAN YOU USE THESE CANDLESTICK PATTERNS?

You can use these candlesticks in most forex trading strategies . You just have to find a forex trading strategy and try to incorporate these candlestick trading techniques into your trading.

Personally, I am of the opinion that you should not trade candlesticks all alone by themselves. You need to trade them in conjunction with support and resistance levels, Fibonacci levels etc. There may be some instances where a forex trading strategy is based entirely on one candlestick and such a case would be like the inside bar trading forex trading strategy here.

 

(UPDATE) QUESTIONS FROM ANDREW.

QUESTION 1: SHOULD THERE BE ANY GAPS ON BULLISH ENGULFING AND BEARISH ENGULFING PATTERNS, PIERCING LINE?

Answer: In in forex, the market is so liquid that from my observations, there’s hardly ever any gaps if you observe from larger timeframes like daily, 4hr etc. Maybe on Monday’s when the forex market opens, and in smaller timeframes like the 1minute up 1hr charts you may see some gaps happening. For me, as long as the 1st candlesticks is OVERSHADOWED by the 2nd candlestick that is good enough for me. See chart below for example…

QUESTION 2: FOR EXAMPLE, ON A BULLISH ENGULFING OR PIERCING PATTERN, DOES THE 2ND CANDLESTICK NEED TO OPEN BELOW THE CLOSE OF THE BEARISH CANDLESTICK?

Not necessarily…

  • it can open on the same level
  • or it can have a tail stick downward  after opening (see bullish engulfing pattern example on the chart below with a little bit of tail sticking out on the bottom)
  • The important thing you need to ask yourself is this question: does the candlestick overshadow the 1st candlestick?
  • You’d also like at least to have a candlestick with a much longer body showing a really strong bullish momentum on the 2nd candlestick.

 

Bullish & Bearish Engulfing Pattern Gaps

In the stock market, its a different story and I think you will see a lot of gaps on patterns like bullish and bearish engulfing.

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3 Responses to “Top 10 Candlestick Patterns For Swing Trading”

  1. Andrew says:

    Hi Mangi,

    Thank you for providing this post and your site. I have found them helpful in trying to learn a new and successful forex trading strategy. I have a question about some of these reversal candlestick patterns. On certain patterns such as bullish or bearish engulfing, piercing line and dark cloud cover, I am wondering about whether or not there needs to be a gap between the close of the first candlestick and the open of the second one.

    For example, on a bullish engulfing or piercing line, does the second/bullish candlestick need to open below the close of the bearish candlestick? Or is it still a strong and reliable reversal candlestick pattern if the second bullish candlestick opens at the same spot where the first bearish candlestick closed (ie. no gap), as long as the second candlestick appropriately engulfs or pierces?

    Any information provided would be greatly appreciated.

    Regards,

    Andrew

    • Mangi Madang says:

      Hello Andrew,

      I’ve written an update on the post above with answers to your questions.

      Hope this helps.

      Thanks

      Mangi

      • Andrew says:

        Hi Mangi,

        Thank you very much for your response. That does answer my questions. The reason I asked is because just last week I did my first few trades in a demo account based on bullish engulfing and piercing line, and there were no gaps between the bearish close and bullish open. The first two trades profited and I closed them. The third one is down right now but I am holding it to see if it goes up next week.

        Another question, do you still recommend the following strategy (link below), of looking for the types of reversal candlestick patterns mentioned in this post combined with bollinger bands touching the top/bottom band and stochastic above 80/below 20? This is the strategy I have used for the first few trades I mentioned above.

        http://swing-trading-strategies.com/bollinger-band-swing-trading-system/

        Just wondered if you had any thoughts or additional comments on trading with this type of strategy on daily charts.

        Thanks again for your assistance,

        Andrew

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