What’s the deal with candlesticks? They are all over the place in Forex trading and have nothing to do with keeping things lit up in case of a power outage. If anything, being able to properly read and understand candlesticks will give you a sort of secret power that can be used along with all the other data you collect. As is the case with any other pattern related to Forex trading, single candlesticks have significance and cute little names. The names are descriptive and are used to keep it easy on the newbies still figuring out the ins and outs of trading. Well, that’s not entirely true. The simple names make it easy for anyone to follow Forex trading even if you have little or no interest in it whatsoever.
Ah, yes. The Hammer candlestick. It’s a hard one to miss. It has a long shadow that is two or three times the length of the body and has little or no upper shadow. The real body of the Hammer sits at the upper end of the trading range and they can tell you some interesting things. For example, when prices are falling, a Hammer can tell you that the fall is near completion and will reverse. As typical as this is, the signal has to be taken with consideration to other data so just because a hammer appears, you shouldn’t suddenly dump your fortune on a possible price increase.
The Hanging Man is in no way as creepy as the name indicates. However, it does signify something important in the trading session. The way to recognize a Hanging Man is simple, it will be a candlestick with a long lower shadow that extends to about two or three times the length of the real body and it will have a very small or no upper shadow.
The real body of the Hanging Man will sit at the upper end of the trading range. The Hanging Man candlestick tells you that a bearish reversal pattern has formed and it can also indicate the top of a strong level of resistance. In a session where prices are increasing, a Hanging Man can show that sellers are starting to outnumber the buyers. When this happens you should see some red flags because this sort of situation means a loss of buyers is not going to push up prices.
Inverted Hammer and Shooting Star
A bullish reversal candlestick is called an inverted hammer. A bearish reversal candlestick is called a shooting star. Both are powerful indicators that can signal rapid changes in the trading session. The inverted hammer appears when prices are falling and can be a tip off that the falling is about to end and turn around. The shooting star is the opposite.
It appears when prices are climbing and are about to reach their peak. Can you really learn from these different patterns? Of course you can. They are nifty little visual signals that help your education and will turn you into a smarter trader if you know how and when to use the information to your advantage.