K-line candlestick chart can fully and thoroughly observe the real changes in the market, not only can see the trend of the exchange rate (or the market), but also can understand the fluctuations of the daily market conditions. K-line is an indispensable assistant for market analysis in foreign exchange transactions. Today, I will talk about the basic candlestick patterns, so that novices will have more understanding.
The patterns formed by the combination of multiple candlesticks are far more than the individually drawn candlesticks with special meanings. Specific combinations include star-shaped, long-headed or short-headed devouring, pregnant line, evening star and morning star, three white soldiers or three black crows, flat bottom or flat top, etc. There are more than 100 candlestick patterns, but learning only a few can also help you understand market sentiment. Many people think that candlestick patterns are excellent at judging reversal points; in the foreign exchange industry, many people also agree with this view: If you don’t learn at least one key pattern, it must be your loss.
Doji is a special candle chart. Its opening price and closing price are very close, resulting in its entity having only one line. The high and low prices are located prominently within the top and bottom, but the main activity—the range between the opening and closing prices—is very small. The doji looks like a “+” sign. This pattern means that buyers may try to push the price higher during the trading hours, but the closing price cannot exceed the opening price. Similarly, the seller may encounter a lower price during the trading session, but the closing price cannot exceed the opening price. Similarly, the seller may encounter a lower price during the trading session, but the closing price cannot go below the opening price. The long and short forces of intraday trading are at a stalemate, and both buyers and sellers are evenly matched. The appearance of a doji — or worse, the appearance of a group of dojis — means that the market is deadlocked and volatile. To continue trading, the market needs stimulation from a new factor, and when that factor appears, the price will break through.
When the lower shadow of the doji is very long, that is, the opening price is the same as the closing price and is close to the top of the lower shadow, this pattern is called a dragonfly doji. If a dragonfly doji appears after a gradual decline in multiple closing prices, it indicates that the downtrend is coming to an end-the bears cannot push the closing price below the opening price. When the upper shadow of the doji is very long, that is, the opening price is the same as the closing price and is close to the bottom end of the upper shadow, this pattern is called a tombstone doji. In the foreign exchange industry, if a tombstone candle appears in an uptrend, it means that the bulls cannot push the closing price above the opening price-please be vigilant.
The upper and lower shadows of the spindle candlestick chart are longer than the entity. Just like the Doji, you can know why it represents the lack of directionality in the market after a little thought. Traders encounter a wave of sharp rises, but cannot make the currency close at a high level, and after encountering a wave of sharp drops, they cannot make the currency stay Low closing.
If there is a series of doji or spindles, and their closing prices are not far from each other, this is a red flag-indicating that the market is trading within a range and needs to break through the stimulus.
The lower shadow of the hammer line is longer, which means that the price went lower after the opening, but then rebounded to near the opening price, but it was still lower than the opening price at the close. This means that this candlestick chart is black or solid. If a series of falling candles have appeared in the previous market, then it is a sort of consolidation pattern. If a series of rising candlesticks have appeared in the previous market and the market outlook is bearish, then this kind of candlestick is called a hanging line because it releases a signal that the upward trend may end. It can be said that the hammer line is not a true independent pattern, but you often think of it as an independent pattern first, and then realize that you also need to observe its previous trend.
The star candlestick stands apart from the previous candlestick-separated by a gap. The gap usually reflects special circumstances, especially in the foreign exchange market, which is almost never closed. Breaking news or events make prices gap up or down and create gaps. There are various forms of star candlesticks, but the entity is always small-meaning that although the gap is as the name suggests, there is at least a little uncertainty in the market. In the candlestick chart, the term for the gap is a suggestive name-rising (or falling) window. If the star pattern is a white candle above the rising window and the previous market is up, it usually means that the price uptrend is about to end. At first thought, this might seem counterintuitive, but if you see the gap as the last opportunity, it’s not difficult to understand. The next candlestick is likely to be black, and it can “fill the gap” (fill the gap) well.
The engulfing candle is the opposite of the doji. Its entity is so long that the opening and closing prices both exceed the opening and closing prices of the previous candle. Like all candlesticks, the larger the candlestick body, the more trading behavior during the time period. The opening price of the bullish engulfing candlestick is lower than the bottom of the previous day’s wax paper chart entity, and the closing price is higher than the previous day’s entity-the trading volume is large and the ending is good. The bearish engulfing candlestick is a black entity. Its opening price is higher than the top of the candlestick entity in the previous period, but it loses its armor afterwards, and its closing price is lower than the previous candlestick entity. The relatively large entity “engulfs” the candlestick entity of the previous period and implies strong market sentiment. Both bullish engulfing and bearish engulfing candlesticks can be seen in the foreign exchange industry, and most of the time they are relatively reliable.
The Bulls Devouring Candlestick Patterns and the Short Devouring Candlestick Patterns, which are not suitable for the foreign exchange industry are the three white soldiers and the three black crows. They have three continuous long candlesticks. According to the traditional explanation, the fourth candle will also be pulled up (or closed down) in turn, but this is not the case in the foreign exchange industry. The next highest or lowest price may continue the trend, but the closing price may not follow suit. This is one of many examples to let traders know that in some cases it is necessary to combine candlestick charts with other indicators, especially momentum, relative strength and MACD.