The candlestick patterns are patterns that take place on the Japanese candlestick charts. The candlestick chart is a type of chart that changes color based on whether price closed higher or lower than the open price.
In other words, the candlestick charts are a technical tool that gathers data for multiple time frames into single price bars. This makes them more advanced and useful than traditional open-close, high-low bars or simple lines that connect the dots of closing prices. The biggest advantage of candlesticks is the fact, that they build patterns with the potential to predict price direction once completed. Additionally, proper color coding gives more depth to this colorful technical tool.
That was general introduction to what are candlestick patterns.
There are many different chart types that one can use to analyze the price of a financial instrument. Besides the candlestick charts, other widely used chart types include:
- Bar charts
- Line charts
- Renko charts
- Three line break charts
- Point and figure charts
- Kagi charts
Taking into consideration that you are looking for candlestick patterns, it means you already know something about candlestick patterns.
What are the types of candlestick patterns?
There are several main types of candlestick patterns: Doji, Engulfing, Morning Star, Evening Star, Hammer and Hanging Man. Let’s take a deeper look on each one of them.
The Doji Candlestick Pattern
When markets open and close are almost at the same price point, the candlestick visually looks like a cross or plus sign. The Doji is represented by long upper and lower wicks and a small body.
This Doji candlestick pattern reflects indecision in the market – a struggle between buying and selling traders that results in no net gain for either side. Alone a Doji is neutral signal, but it can be found in reversal patterns such as the bullish morning star and bearish evening star.
To sum up, when the Doji pattern occurs you can expect both trend continuation or price reversal. It depends on the market context.
The Engulfing Pattern
The bullish and the bearish engulfing patterns are formed of two candles. This is a reversal pattern in the market and it usually happens during a down trend. The first candlestick with a red and relatively short body should be completely engulfed by the next large green candle.
The engulfing pattern is a pretty reliable indicator. When it occurs within the direction of the trend, these engulfing patterns are continuation patterns, and when it occurs near the end of a rally it indicates a possible reversal of the trend.
The Morning Star and The Evening Star Pattern
The Morning and Evening Star are another popular candlestick patterns. They are formed of three candles: one short-bodied candle (like the Doji) between two long red and green candles.
These patterns are more common in the stock market, in the forex market they tend to happen a little bit less often. They occur after a prolonged gain or decline of the price of a security. They are highly reliable in predicting the reversal – a change of a trend direction.
The Hammer and The Hanging Man Pattern
The hammer is a bullish candlestick reversal pattern that is formed of a short body with a long lower wick and it takes place at the bottom of a downward trend. Alternatively, the hanging man is a bearish candlestick pattern that is also formed of a short body with a long higher wick and it occurs at the end of an upward trend.
These candlesticks patterns fall into the reversal patterns category and happen with a good amount of frequency.
How to install the Best Candlestick Pattern Indicator on your Metatrader 4 trading platform?
- Download the indicator by clicking “LINK” button at the bottom of this post.
- Copy and paste the Best Candlestick Pattern Indicator into following folder of your Metatrader 4 (MT4) platform: MQL4 > Indicators.
- You can gain access to the folders this way: File > Open Data Folder > MQL4 > Indicators (paste files here).
- Restart your Metatrader 4 Client.
- Select Chart and Timeframe where you want to test the indicator
- Browse “Custom Indicators” in your Navigator that is located on the left in your Metatrader 4 platform.
- Right click on Candlestick_Pattern.ex4 and than click “Attach to the chart”.
- You can modify settings if you need and than click ok.
- The indicator is ready and running on the chart.
In the downloadable archives you will find following Metatrader 4 files included:
Best Candlestick Pattern Indicator Free Download
To download the Best Candlestick Pattern Indicator for Metatrader 4 (MT4) for free just click the button below: