Basic Candlestick Patterns in Forex

Top. Marubozus. Dojis.

No, this lesson is not in a different language.  All of the above are basic candlestick patterns used by traders on candlestick charts. They provide an indication for the next price movement of an asset and are some of the most important aspects of technical analysis.  

So, let’s take a look at each type of candlestick pattern and what these candlestick patterns mean in terms of price action in candlestick charting.

Spinning Tops

Our first candlestick pattern is spinning tops, which are essentially candles with really small bodies that usually indicate a reversal in price action. 

What is a Spinning Top?

A spinning top is a candlestick pattern with a short real body that’s vertically centered between long upper and lower shadows. Usually, the spinning top candlestick pattern indicates uncertainty in the market and therefore indecision between the buyers and sellers.

Why Are They Called Spinning Tops?

The Forex spinning tops are named after them simply because they share the same body structure.

What does a spinning top look like in a Forex candlestick chart?

As you can see, the small body (hollow or filled, green or red) shows little price movements from opening and closing prices, and the shadows indicate that both buyers and sellers were fighting but nobody could gain the upper hand so the result was a standoff.

Two general rules to take into consideration when you notice the top spinning candlestick pattern:

• If a spinning top candlestick pattern occurs during an upward trend, this usually means there aren’t many buyers left and a possible bearish reversal pattern in direction could occur.
• If a spinning top forms candlestick formation during a downward trend, this usually means there aren’t many sellers left and a possible bullish reversal pattern in direction could occur.

Now let’s see what a spinning top looks like on an actual Forex chart. 

Marubozu

Sounds like an African clan or that we are about to teach you some Voodoo spells, but worry not. This is still a Forex Trading Academy.

In Japanese, the word “marubozu ” translates to “bald head” or “shaved head”. So what do you think it means for our candlestick?

In Forex, Marubozu is simply a long candlestick pattern with no upper shadow or lower shadow (or wick) and can appear anywhere on the chart. It basically looks like a vertical rectangle. 

In case you missed school when you were learning about vertical rectangles, here’s what they look like. 

Marubozu comes in both a bearish (red or black) and a bullish (green or white) form and is super easy to spot due to its long body. The longer the single candlestick pattern, the stronger the price move (whether it jumped up or down).

Now, let’s see what Marubozu candlestick patterns look like on a Forex chart. 

Pretty easy to spot, right? 

Depending on where a Marubozu candlestick pattern is located and what color it is, here are a few guidelines:

Green or White Marubozu

• If a Green Marubozu candlestick pattern forms at the end of a bullish trend, a continuation is likely.
• If a Green Marubozu candlestick pattern forms at the end of a bearish trend, a reversal is likely.

Red or Black Marubozu

• If a Red Marubozu candlestick pattern forms at the end of a downtrend, a continuation is likely.
• If a Red Marubozu candlestick pattern forms at the end of an uptrend, a reversal is likely.

Doji Candlestick Pattern

Doji candlesticks are unique and common candlestick patterns that reveal indecision between buyers and sellers in the Forex market. This candlestick pattern indicates a future reversal pattern, meaning due to the neutrality at the end of a trend, a reversal in price direction is expected.

In a Doji candlestick pattern, the open and close prices are equal (or almost exactly equal) and as a result, the candlestick has a very small body.

Even though the image above might resemble an indecisive thin candlestick, it is not what Dojis look like in Forex candlestick charts. Want to see what they really look like? Here you go.

As you can see, the closing price of the financial instrument is equal to the opening price. And what does it look like on a Forex chart? Just like this

Types of Doji Candles to Watch Out on Candlestick Charts:

There are four types of Doji candlestick patterns you can find on charts:

• Long-legged Doji has a lengthy wick both above and below the body
• Gravestone Doji has a high wick above the body and nothing underneath
• Dragonfly Doji has a long wick beneath the body and little to no wick above it
• Four-price Doji has no wick at all

While the traditional Doji star (also known as Doji evening star) represents indecisiveness, the other variations can tell a different story, and therefore will impact the strategy and decisions traders make. Some of the other forms are simple and complex patterns that should be analyzed based on the previous market action and the market sentiment of the asset.

Let’s explore each type in more detail below.

Long-Legged Doji

A long-legged Doji candlestick pattern, or a ‘rickshaw man’, is similar to a neutral Doji, except for the fact that the wicks are longer on either side.

➡️ Characteristics: 

• Extended upper wick
• Extended lower wick
• Greater volatility

➡️ Indicates: Indecision

➡️ Chart Formation:

➡️ Chart Formation on Forex Chart

Gravestone Doji

A gravestone Doji candle is a unique bearish candle formation as it only has an upper shadow. It is viewed as a bearish reversal candlestick pattern that mainly occurs at the top of uptrends. 

This candle has open, high, and close prices that are near the same price in the lower half of the candle.

➡️ Characteristics: 

• Appears at the top of an uptrend
• Shows the rejection of higher prices
• Bearish reversal signal

➡️ Indicates: Change in a price movement direction

➡️ Chart Formation:

➡️ Chart Formation on Forex Chart

Dragonfly Doji

A dragonfly Doji candlestick pattern is the opposite of gravestone Doji as the open, high, and close are near the same price in the upper half of the candle. Therefore, this is a bullish reversal candlestick pattern that indicates the selling pressure is over.

It can occur in both an uptrend and a downtrend, but it is considered to be stronger when it takes place at the bottom of the downtrend. In case the first candle after the Dragonfly Doji candle is a bullish candle, then a trader typically takes a long position.

➡️ Characteristics: 

• Appears at the bottom of a downtrend
• Shows the rejection of lower prices
• Indicates the beginning of a bullish pattern

➡️ Indicates:

Change in a price movement direction

➡️ Chart Formation:

➡️ Chart Formation on Forex Chart

The Four Price Doji Candlestick Pattern

Four price Doji is a rare type of candlestick pattern where the open, high, low, and close prices are all the same. Usually, this candle shape happens in very non-liquid assets, and reflects the highest extent of indecision between bulls and bears, and often appears in pre-market and after-hours trading.

➡️ Characteristics: 

• Horizontal line
• High, low, open, and close prices are all at the same level
• Unique pattern signifying indecision and low volatility 

➡️ Indicates: Ultimate Indecision

➡️ Chart Formation on Forex Chart

Wrapping Up

To sum up, knowing how to identify and use the various candlestick patterns above can extremely help you in your trading success. This is a simple and effective technical analysis method to find lots of trading opportunities.

In fact, many traders use clean charts without any other technical analysis indicators just for the purpose of finding these small shapes like the evening star pattern, the harm candlestick, the hanging man candlestick pattern, and the inverted hammer candlestick pattern.