Reversal candle clusters are one of the useful types of analysis tools. Helps investors identify price fluctuation trends in the foreign exchange market. In today’s article, Forex Trading will introduce to you the reversal candlestick patterns that are commonly used today.
Some characteristics of candlestick reversal clusters
Candlestick pattern reversal is like other candlestick patterns, each with its unique characteristics:
What is a reversal candlestick pattern?
Candlestick pattern reversal includes candles with special shapes. They are used as a tool to analyze and predict upward and downward trends in stock prices. Through candlestick reversal clusters, investors can make appropriate trading decisions.
This line of candles often appears at the end of an up or downtrend. They can signal to investors whether the current trend is increasing or weakening.
How to read reversal candlestick patterns correctly
Reversal candlestick patterns usually represent price fluctuations over a certain period. The candlestick pattern consists of two parts: the candle body and the candle shadow.
- The candle body represents the range between the closing time and the opening time.
- The candle shadow represents the upper and lower price range of the trading product.
- If the candlestick chart appears green -> Shows that the opening price is lower than the closing price -> Shows that the market trend is increasing
- If the candlestick chart appears red -> Shows that the opening price is higher than the closing price -> The sign shows a downward trend.
See more: Master the Forex “game” with Price action
Reversal candlestick patterns are the most popular today
If you are a trader and do not know popular candlestick patterns. Immediately refer to the candlestick patterns below:
Strong bullish reversal candlestick pattern
The bullish reversal candlestick pattern signals that the downtrend is about to end and the uptrend is about to begin. Below are popular bullish reversal candlestick patterns, including:
Bullish engulfing candle: This reversal candlestick pattern consists of 2 candles, the first is a bearish candle and the second is a bullish candle. In particular, the second candle’s length covers the first candle in a U-shaped shape like cup handles.
Flying Doji candlestick: This type of candlestick is shaped like a dragonfly spreading its wings. The body is designed to be flat like a dash line. Besides, this type of candle often appears at the end of a downtrend.
Sharp line candlestick pattern: This candlestick pattern consists of the first candle being a bearish candle and the second candle being a bullish candle. The second candle is about 50% longer than the first candle. The opening price of the bullish candle must create a certain distance from the closing price of the bearish reversal candle.
Bullish Harami reversal candle: This pattern includes a red candle as the first candle, representing a downtrend. The second type of candle is a green candle that represents an increasing price trend.
Inverted Hammer candlestick: This type of candlestick has a relatively similar shape to the Doji candlestick but the candle body is larger. The candle’s lower shadow is long and the upper shadow is short or absent.
Morningstar hammer candlestick: This candlestick is headed by a red tree, indicating a strong downtrend. Next is a naked candle and finally a green candle.
Bearish reversal candlestick pattern
The opposite of the bullish reversal candlestick pattern is the bearish reversal candlestick pattern. Below, are bearish candlestick reversal clusters:
Tombstone Doji candlestick: This is a type of Japanese candlestick pattern that many people know and use. When this type appears, it will show signs of a reversal from bullish to bearish starting to take place.
Bearish Engulfing Candle: This type of candle is a strong reversal candlestick pattern. Appears at the end of an uptrend and base 2 covers the entire candlestick 1.
Shooting Star Candlestick: Shooting Star Candlestick is also known as Shooting Star. This is a popular form of reversal candle in the Forex market. This type of candle has a small candle body, the upper candle shadow is 2 times longer than the candle body.
Evening Star Candlestick: Evening Star Candlestick is one of the 3 types of candlestick patterns. Candle 1 is a bullish candle with a long body. Candlestick 2 is a small candle, with a short body and looks like a star. Candle 3 is a large bearish candle and has a closing price within the first candle.
Tweezer top candle: Tweezer top is a double candlestick pattern with 2 identical candles that only differ in color. The first candle is a bullish candle with a long upper shadow, small body, and short lower shadow. The second candle is a bearish candle, with a long shadow and a small body.
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How to trade reversal candlestick patterns
Below is how to do it, you can refer to how to trade with reversal candlestick clusters through the following steps:
Step 1: Evaluate and determine market trends
Investors need to determine whether the price trend in the market is increasing or decreasing. Whether this trend will show signs of weakening remains to be seen. If it is still the main trend, you absolutely should not make a transaction. However, to be able to correctly determine the market trend. Investors can learn price action, and use charts, trendlines, and price channels to determine trends and time frames.
Step 2: Identify the appearance of Japanese candlestick patterns
Based on the characteristics of candle reversal pattern identification. Note, that reversal candlestick patterns are only highly accurate in forecasting when they are at resistance or important price zones.
Step 3: Combine candlestick patterns with other types of tools
Instead of just relying on signals from candlestick pattern reversal, investors should combine it with other analytical tools.
Step 4: Place an order to execute the transaction
Place a buy order when you see signs from the bullish reversal candlestick pattern. And execute a sell order when you know the trend from the bearish reversal candle.
Place your stop loss a few pips away from the nearest top or bottom of the reversal candlestick pattern.
Set take profit at a ratio of about 1:2 – 1:3
Tips for trading with candlestick pattern reversal
To trade candlestick patterns easily, you can refer to the following tips:
First, you need to wait for the candles to close to accurately confirm the candlestick reversal cluster
- The trading time frames M1, M5, M15, M30, H1, W1, and MN make it very easy to determine the candle closing time.
- The H4 and D1 trading time frames make it difficult to determine the candle closing time.
- Trading in the months from April to September, candlestick D1 will close at around 4 am. H4 candlesticks will close at 0:00, 4:00, 8:00, 12:00, 16:00, and 20:00 according to UK time frame.
- Trading in the months from October to March, candlestick D1 will usually close at 5 am. H4 candles will close at 1:00, 5:00, 9:00, 13:00, 17:00, and 21:00 according to the UK time frame.
Second, you must always set Stop loss and take profit to minimize risks or optimize profits
Third, you should combine the candlestick pattern reversal with other tools such as trendline, MA line, RSI line.…
Conclude:
Above is all the information about reversal candlestick patterns. It can be said that the candlestick pattern reversal is a useful support tool that traders should learn carefully before applying. However, the advice for investors is to pay attention to how to conduct transactions so that the foreign exchange investment process is convenient and safe. Hopefully after reading the above article, you can better understand Japanese candlestick pattern clusters. In particular, don’t forget to follow Forex Trading to update more useful information about the Forex market!
FAQs:
Is it safe to use reversal candlestick patterns?
Using candlestick reversals for trading may pose some risks and cannot be guaranteed to be completely safe.
Are there any fees for trading candlestick reversals?
Trading fees when using Japanese candlestick reversals depend on the trading platform and account type you use.
For reversal candles to be effective, what tools should be combined with them?
For this model to be effective, it needs to be combined with technical analysis tools such as trendline, MA line, RSI line, support, and resistance…
