Why Reading Forex Candlestick Charts Is a Must-Have Skill: The Complete Trader's Guide

In the Forex industry, understanding how to read candlesticks is the gateway to successful trading. Many traders who consistently make profits often say they rely solely on deep candlestick analysis because candlesticks are available on all Forex trading platforms and clearly tell the story of the market.

A Long History: Why Candlesticks Still Live On

Before diving into technical details, it’s interesting to look at the history of candlesticks. Imagine in Japan over 200 years ago, Japanese rice traders developed a candlestick reading system to analyze rice prices in Osaka markets. They had no computers or software; their “magic” was observation and pattern recognition. This method became legendary in trading circles. These traders were even granted samurai status. This shows that reading candlesticks is not random but an art and science validated by time.

Candlestick Structure: Revealing What’s Hidden in Each Candle

You Need to Know the Basic Components

A candlestick chart consists of the following key parts:

Each candlestick tells the story of a specific period—be it 15 minutes, 1 hour, or 1 week. Inside the candlestick, there are:

• Open Price - The market start price
• Close Price - The market end price for that period
• High Price - The highest point reached
• Low Price - The lowest point reached

The Meaning of Colors: Buying Power vs Selling Power

When Close > Open, you’ll see a white (Bullish) candlestick, indicating strong buying pressure. If the white candle is very long, it means buyers overwhelmingly outnumber sellers.

When Close < Open, a black (Bearish) candlestick appears, signaling that sellers dominated during that period. A long black candle shows strong selling with many participants.

Wicks (Shadows): Telling the Battle Story

Wicks (or Shadows) are thin lines extending from the body of the candle. They tell of the struggle between buyers and sellers:

• Short Wicks mean prices stayed close to open and close, indicating a balance.
• Long Wicks show intense battle, with prices moving significantly before settling.

5 Types of Candlestick Patterns Used in Forex

Level 1: Single Candlestick Patterns

Doji - Market Indecision

A Doji has open and close prices at the same level, resembling a plus sign or T. It indicates market indecision, with no clear winner—often a sign of a potential trend reversal. There are 4 types:

• Standard Doji - Market is in equilibrium
• Gravestone Doji - Buyers tried to push higher but sellers pulled back (possible end of uptrend)
• Dragonfly Doji - Sellers attempted to lower prices but buyers regained control (possible end of downtrend)
• Four-Price Doji - Open, close, high, and low are all the same, indicating a very quiet market; avoid trading during this.

Marubozu - Clear Dominance

A Marubozu has no wicks, just a solid body:

• White Marubozu - Buyers controlled from open to close, opening at the low and closing at the high.
• Black Marubozu - Sellers dominated, opening at the high and closing at the low.

This pattern shows a clear intent of either buyers or sellers.

Spinning Top - Market Hesitation

A Spinning Top has a small body with long upper and lower wicks, like a spinning top toy. It indicates market indecision:

• In an uptrend, it suggests weakening buying pressure, possibly reversing down.
• In a downtrend, it hints at weakening selling pressure, possibly reversing up.

Level 2: Hammer and Hanging Man

Hammer - Long Lower Wick in a Downtrend

Imagine a candle with a small body at the top and a long wick below, resembling a hammer. In a downtrend, it signals:

• Sellers pushed prices down (long lower wick)
• Buyers regained control (body closed near high)
• Possible trend reversal to the upside

Hanging Man - Long Lower Wick in an Uptrend

In an uptrend, a similar candle suggests:

• Buyers pushed prices higher
• Sellers then took control, pushing the close down
• Possible trend reversal to the downside

Inverted Hammer & Shooting Star

• Inverted Hammer (in a downtrend): Long upper wick, indicating buying pressure but potential reversal.
• Shooting Star (in an uptrend): Long upper wick, signaling selling pressure and possible reversal down.

Level 3: Engulfing Patterns - When Buyers or Sellers Take Over

Bullish Engulfing - Reversal Up

A small black (bearish) candle is followed by a large white (bullish) candle that completely engulfs the previous one:

• First candle: sellers in control
• Second candle: buyers overpower sellers
• Signaling a potential trend reversal to the upside

Bearish Engulfing - Reversal Down

A small white candle is followed by a large black candle that engulfs it:

• First: buyers in control
• Second: sellers take over strongly
• Signaling a reversal to the downside

Level 4: Tweezer Patterns - Market Clamps

Tweezer Tops - End of Uptrend

Two candles with matching upper wicks at the same high point, but opposite colors:

• First: bullish (white)
• Second: bearish (black)
• Signaling market exhaustion and potential reversal down

Tweezer Bottoms - End of Downtrend

Two candles with matching lower wicks at the same low point, opposite colors:

• First: bearish (black)
• Second: bullish (white)
• Signaling market bottom and potential reversal up

Level 5: Star Patterns - Market Reversals

Morning Star - Dawn of Uptrend

Three candles:

• First: large black (downtrend continues)
• Second: small or doji (market pause)
• Third: large white closing above the first’s midpoint

Indicates the end of a downtrend and start of an uptrend.

Evening Star - Dusk of Uptrend

Three candles:

• First: large white (uptrend)
• Second: small or doji
• Third: large black closing below the first’s midpoint

Signals the end of an uptrend and potential reversal down.

Three White Soldiers - Strong Uptrend

Three consecutive white candles, each closing higher:

• Confirming a robust upward move

Three Black Crows - Strong Downtrend

Three consecutive black candles, each closing lower:

• Confirming a strong downward move

Important Reminders for Traders

While candlestick analysis is powerful, it’s not foolproof:

• Signals are not 100% accurate — even tested patterns have less than 50% success rate at times. Always:

  • Use additional tools: trendlines, support/resistance, RSI, etc.
  • Wait for confirmation from subsequent candles before entering trades.
  • Consider fundamental factors like news and economic data.

• Forex trading involves risk — you can lose money. Relying solely on candlestick patterns is insufficient. You must also:

  • Have a risk management plan
  • Use appropriate stop-loss orders
  • Manage position sizes wisely
  • Keep emotions in check—avoid greed and fear

Summary: From Theory to Practice

Reading Forex candlesticks isn’t as hard as it seems, but it requires consistent practice. The key points:

• White candles = buying pressure wins
• Black candles = selling pressure wins
• Long wicks = fierce battle
• Short wicks = consensus

Learn various patterns like Doji, Hammer, Engulfing, Morning/Evening Star one by one. Once you understand deeply, candlestick reading becomes a core part of your Forex strategy.

For practice: Many Forex platforms offer free demo accounts. Practice reading candlesticks with virtual money to improve skills without risk. Start by recognizing 5-10 patterns, then move on to real trading when confident.

Trading is based on risk management, knowledge, and experience. Learning to read candlesticks is just the first step toward becoming a successful trader.