Pick up any book on Candlestick analysis and you will find literally hundreds of patterns available to help with your forex trading decisions. Trading needs to be kept simple, and trying to remember that many patterns will just confuse you and ultimately work against you.
I am going to reveal 5 of the most powerful, reliable patterns that are simple to remember and use in your trading. These 5 patterns all signal possible market reversals and help us decide when to enter or exit our trades for maximum profits.
Engulfing Pattern – 2 candle reversal pattern found either at the top or bottom of a trend indicating a possible market reversal.
Dark Cloud Cover – Another 2 candle reversal pattern, used in the same way as the Engulfing pattern but not quite as powerful.
Gravestone Doji- A candle with no coloured body, showing indecision amongst the traders. It is a bearish pattern and should only be used when found at the top of a trend.
Harami – 2 candle pattern indicating either a bullish of bearish reversal, depending on where it appears on your chart.
Hanging Man / Hammer – A candle with a small portion of body with a wick at least twice the body length. Becomes a Hanging man when found at the top of a trend indicating a market reversal down. When found at the bottom of a recent trend, it becomes a Hammer and indicates a market reversal up.
These 5 Japanese candlestick patterns appear frequently and can soon be picked up and used to great effect in your trading when used alongside other technical indicators such as support and resistance levels, moving averages and Fibonnaci levels.
Don’t be fooled by the simplicity of these patterns, they are used regularly by both novice and advanced traders and are used in all kinds of trading including forex trading and stock trading.
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