If you want to understand how to read Forex charts, where should you start?

Forex trading is not as difficult as you think. Once you understand candlestick charts, you’re halfway there because they are the “language” of the market that tells you what buyers and sellers are doing.

What are candlestick charts and how important are they?

What is a candlestick chart?

It is a chart created from four data points: opening price, closing price, highest price, and lowest price within a certain period. The candlestick itself consists of the main body (Body) and the long wick (Wick).

If the closing price is higher than the opening price, you will see a white (or green) candlestick, indicating that buyers are in control. Seeing a long white candlestick suggests strong buying pressure. Conversely, if the closing price is lower than the opening price, a black (or red) candlestick appears, indicating sellers dominate the market during that period.

What is the wick?

The long wick of a candlestick (Wick) shows the struggle between buyers and sellers. A short wick indicates little price movement, meaning buyers and sellers agree quite a bit. A long wick shows intense fighting, with one side pushing but ending up near a certain level.

Why do traders like candlestick charts?

First, they are easy to understand. Many traders can profit just by reading candlesticks. They convey market sentiment, not just raw numbers. Another reason is their long history—Japanese traders have used them since over 200 years ago for rice trading, and they have only recently been adopted in Forex, yet they remain effective.

Learn 5 candlestick patterns you must know

1. Doji - Indecision signal

Characteristics: Open and close prices are the same. The candlestick looks like a cross.

Meaning: Buyers and sellers are evenly matched; no clear winner. This signals that the current trend may pause.

Types of Doji to know:

• Gravestone Doji: Long wick at the top, indicating buyers tried to push prices up but sellers pushed it down. In an uptrend, this is a warning sign.
• Dragonfly Doji: Long wick at the bottom, showing sellers pushed down but buyers resisted. In a downtrend, it may signal a reversal.
• Four Price Doji: No wicks at all, indicating high uncertainty. Avoid trading at this point.

2. Marubozu - Dominance

Characteristics: A full-bodied candlestick with no wicks.

Meaning:

• Marubozu White: Buyers dominate from open to close, with the open at the lowest and close at the highest.
• Marubozu Black: Sellers dominate throughout, with open at the highest and close at the lowest.

Seeing these indicates a clear market direction.

3. Spinning Top - Indecision

Characteristics: Very short body with long wicks on both ends.

Meaning: Mild hesitation. Buyers and sellers fight continuously but no one wins. This signals weakening momentum and possible reversal.

4. Hammer and Hanging Man - Reversal signals

Hammer
Appears in a downtrend. Short body with a long lower wick. Sellers pushed down hard but buyers resisted. A bullish reversal signal.

Hanging Man
Similar to Hammer but appears in an uptrend. Indicates sellers are entering, possibly signaling a reversal downward.

5. Inverted Hammer and Shooting Star - Reversal signals

Inverted Hammer
Appears in a downtrend. Long upper wick, buyers attempted to push prices higher but sellers pressed down. The close is high, showing buyer strength.

Shooting Star
Appears in an uptrend. Looks like an inverted hammer but indicates that sellers are taking control.

Two and three candlestick patterns - Wedge pull-in

As candlestick patterns extend to two or three candles, signals become clearer.

Bullish Engulfing and Bearish Engulfing

Bullish Engulfing: A black (down) candle followed by a much larger white (up) candle that completely engulfs the previous one. This is a strong reversal signal from downtrend to uptrend.

Bearish Engulfing: A white candle followed by a much larger black candle, signaling a reversal from uptrend to downtrend.

Tweezer Tops and Tweezer Bottoms

Both look like tweezers with two candles having equal long wicks:

• Tweezer Tops: Uptrend then reversal downward.
• Tweezer Bottoms: Downtrend then reversal upward.

Three White Soldiers and Three Black Crows

Three White Soldiers: Three consecutive white candles, each higher or equal to the previous, indicating strong bullish momentum.

Three Black Crows: Three consecutive black candles, each lower than the previous, indicating strong bearish momentum.

Morning Star and Evening Star

Morning Star: Appears after a downtrend. Consists of a long black candle, a Doji, and a large white candle. Signals a bullish reversal.

Evening Star: Appears after an uptrend. Consists of a large white candle, a Doji, and a large black candle. Signals a bearish reversal.

Three Inside Up and Three Inside Down

Three Inside Up: A downtrend with a long black candle, followed by a small white candle that stays within the previous black candle, then a large white candle that surpasses the high of the first black candle. Strong bullish signal.

Three Inside Down: The opposite, indicating a strong bearish reversal.

Summary and key points to remember

Reading candlestick charts for Forex trading is not as hard as it seems. Start by learning the basics: white candles indicate buying pressure, black candles indicate selling pressure. Once you recognize these patterns, you have a powerful tool to analyze the Forex market.

But remember, candlestick patterns are only part of the decision-making process. Success rate is about 50% or less. The key is to consider the overall market situation, fundamental data, and use other tools to confirm your decisions.

Practice reading candlestick charts often, and keep in mind that successful traders are not born skilled—they are people who are willing to learn a lot.