Which is the best candlestick pattern?
This question may seem like an easy answer but it isn’t. Candlestick patterns can look very similar, especially if you don’t look closely.
This is why it is extremely important to master each one of them and not get confused by similar-looking patterns.
This article provides insight into the different types of candlestick patterns available to forex traders, including the four most commonly-used ones.
Let’s check out some of the best performers (based on experience).
Which Candlestick Pattern Is Best?
Candlestick patterns are a popular tool used by traders and investors to determine the current trend and price direction of an asset. Some of the best candlestick patterns are the Engulfing Pattern, Harami Pattern and Hammer Pattern.
These patterns are based on 3 criteria:
- How easy are they to trade
- Their accuracy
- Their total risk
As you are more than likely aware, these are not guaranteed to be successful every time. The information below is some of the better-performing profitable candlestick signals you can master.
However, over time, they do perform well – especially when using other confluences such as supply and demand zones.
With that being said, you should learn about candlestick patterns as they are a clear-cut way of viewing price action, rapidly.
You can see the market’s entire trading action in one session by viewing the open, high, low, and close of the trading session.
The length of the body, which is the open and close price, indicates the pressure generated by the buy or sell side.
If the body is long, the buy side is strong, and vice versa for the sell side.
The shadows represent the activity on the buy and sell sides too, telling you where price has been during that trading session.
The Hammer Candlestick Pattern
Once you know how to identify these bullish reversal pattern signals, you can begin trading with confidence.
This is because it’s an easy pattern to spot and is equally as easy to trade.
A hammer pattern indicates a possible reversal in an existing downtrend.
In other words, when the selling pressure has dwindled to zero, the buyers can come in and drive the price higher.
This is why the hammer pattern is so good:
It visually shows you this in real-time.
Why this pattern is considered one of the best because of this easy-to-read representation of the market.
You can visually see the moment sellers get squeezed and buyers can enter the market.
Giving you confidence in a possible reversal.
Bullish and Bearish Engulfing Patterns
Engulfing patterns are those markets that have experienced a significant price movement in either direction, either up or down.
Bullish and bearish engulfing candle patterns are two of the most commonly-seen types of Japanese candlestick patterns.
While these patterns are simple in structure, they are extremely important.
They are used to understand market trends.
They are also used by traders to predict what will happen in the market in the near future.
Both bullish and bearish engulfing candle patterns indicate the beginning of a trend but can appear during the trend as a continuation pattern too.
The bullish engulfing candle is an easy-to-spot bullish reversal signal.
The bearish engulfing candle is an easy-to-spot bearish reversal.
A bullish engulfing pattern is when a rising price continues beyond the end of the previous candle, like so:
A bearish engulfing pattern is when a falling price continues beyond the end of the previous candle.
This gives you a strong candle indicator that the move upwards should have momentum behind it.
They are usually large candles that have short low and high wicks, but a large body between the open and close price.
The reason why this pattern is called engulfing is that it takes over the previous candlestick’s close and high positions.
When an engulfing pattern is found, this is usually a strong signal to take the trade.
Shooting Star Pattern
A shooting star pattern is a candle that appears to shoot up from nowhere, and then suddenly reverses.
This may seem impossible, but the movement of price can create a false appearance of sudden movement, especially if the candle is large.
The Shooting Star candle pattern type is considered a bearish reversal indicator, meaning that it’s usually seen when prices fall.
Traders should pay attention to how many of these candles occur, as well as their length and volume.
The shooting star pattern is one of the most important candle patterns to watch out for during the early stages of trading.
In general, it’s the same as the hammer pattern, but in reverse which is what makes it easy to remember and trade.
It’s most often used in the forex market to indicate a possible reversal of trend, so it’s a good time to sell.
The candle pattern also tends to appear around a strong resistance, providing further evidence for a change in trend.
Harami Candlestick Patterns (Inside bar)
Harami candlestick patterns, otherwise known as inside bar patterns, are one of my favourite patterns to look out for.
Harami candle patterns are candlestick patterns that are used to determine market direction.
These patterns can be found in stock charts and other financial markets.
They can help you spot major trends in the market and predict the future of your investments.
This is an extremely popular Japanese candlestick pattern type that can be seen during a trend, and can also occur as a continuation candle pattern, but when they appear at the bottom of a downtrend, they have a much higher probability of success indicating a bullish reversal.
These patterns are caused when buyers or sellers begin to enter the market to counter the current trend. However, they are unable to create enough pressure to change the direction of the price.
With that being said, it does indicate that momentum has stopped and could reverse because the opposite side has closed a trading session in their favour.
Three Black Crows
The Three Black Crows pattern is an excellent indicator to get used to.
It is one of the most powerful patterns in the market because it can be used to identify a bearish reversal.
Three black crows is an unusual candle pattern that is only seen when bears overtake the bulls during three consecutive trading sessions.
In this pattern type there are three long-body bear candles and no shadows or wicks, showing the price is in the hands of the sellers.
This pattern is generated after a strong push by the bulls, gradually moving the price of the asset higher. Then there is an influx of sellers to push the price down over three trading periods.
This can indicate that there is a supply zone near the market had hit either:
- Lots of stop losses (early short sellers)
- Lots of taking profits (bulls taking money off the table – thus signalling they think that price has risen too much)
- Institutional selling at the current price level (usually 00 levels).
Either way, there is a huge shift in market dynamics in the short term which is what this candlestick pattern signals.
Three Line Strike
The three line strike pattern type is another easy-to-find trading pattern that you should know.
It’s great because when you see one you can know for sure the market is going to go higher in the short term.
The three line strike pattern is a very basic chart pattern.
This pattern is a bullish reversal because it consists of three bearish candlesticks that are creating lower lows.
The fourth candlestick is bullish because it closes above the first candlestick.
The three line strike is one of the best reversal indicators you can look out for.
That’s because we’re seeing a soaring rise of buying power pouring into the market that was able to change the direction of the market by driving the price higher and consuming all the previous three candles.
Railway Tracks Pattern
This is an uncommon candle pattern but I find it to be very effective.
The Railway Tracks Pattern is a signal of a possible reversal.
It is often used by traders because it is easy to find in any chart and it doesn’t require many indicators for it to be visible.
This pattern can be used both in an uptrend or downtrend, which makes it easier to learn and recognise.
So it can be considered a bullish & a bearish reversal indicator
These patterns are easy to recognise as one candlestick is red and the other is green.
The red bearish candle also has a higher high wick and the green bullish candle has a lower low wick.
Thus forming a railway track pattern, like so:
These are great indicators to look out for as they can provide a powerful reversal price signal.
Candle Patterns are Great, But You Need The Bigger Picture
The bigger picture is the idea that, when you look at a market from the long-term perspective, you get a better understanding of what’s going on.
This is because, as the market evolves over time, the market will tend to follow similar trends and cycles, which means you can use long-term historical patterns to predict the behaviour of the market.
You need to understand if there is a bigger, more powerful, overall trend happening.
In addition to that, you need to understand market strength, or if there are any near-term larger technicals that can impact the outcome of the candle pattern.
Which Candlestick Pattern Is Best? You Can Decide.
Which candlestick pattern is best is a common question I get asked a lot. So now you have a few patterns that you can use with confidence.
These are good and profitable candlestick signals you can use.
So what do you think?
Ready to take on the trading world?
You can learn more about trading candlesticks for free with the articles below: