Japanese candlestick patterns are an important tool in technical analysis. It is used by traders to describe price movements. In this article, Learn Forex Trading will introduce you to the concept of Reversal candlestick pattern, bullish and bearish reversal candlesticks, and effective trading secrets. Follow the article to learn more details about this candlestick pattern.

Learn general information about reversal candlestick pattern

The reversal candlestick pattern is a useful tool to help investors enter and exit orders appropriately. However, to achieve profits, it is necessary to apply new tactics during trading.

What is the general concept of the Japanese candlestick reversal pattern?

Reversal candlestick pattern is also known as the Japanese candlestick reversal pattern. This is a useful technical analysis tool in trading used by traders. This pattern is used to identify signals that indicate an uptrend or downtrend. The bullish pattern often appears after a series of falling prices, showing a signal that the price tends to reverse and increase.

Bearish reversal candles often appear after a series of rising prices. At the same time, it signals that the price tends to reverse and go down. Traders use it to determine when prices reverse. From there, decide to exit the current order or look for highly profitable entry points. This model is an important tool in technical analysis and helps optimize profits.

How to read candlestick reversal charts in Forex

Japanese candlesticks have two main parts: the candle shadow and the candle body. Normally, when candles have both body and shadow, they have the following meaning:

• The body of the candle shows the range of closing and opening prices for a specific period.
• Candle shadows represent the higher and lower price ranges of the traded product on the market. 

Each candle represents value information such as opening price, closing price, highest price, and lowest price over a specified period on the chart. Specifically:

• Green candles indicate that the opening price is lower than the closing price, symbolizing a price increase.
• Red candles indicate that the opening price is higher than the closing price, symbolizing a price decrease.

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Some bullish reversal candlestick patterns that traders need to know

Below are some bullish reversal Japanese candlestick patterns. It signals a reversal from a downtrend to an uptrend. Traders often take advantage of these reversal points to open buy orders.

Forex Dragonfly Doji candlestick pattern (dragon doji candlestick)

Identifying characteristics of Dragonfly Doji Candle: The Dragonfly Doji candlestick is one of the most popular patterns in bullish trend reversal. This candle has a special shape like a dragonfly opening its wings.

• Dragonfly Doji candles often appear at the end of a downtrend.
• The characteristic of this candle is that it has no body, only extended wings.
• The lower shadow is shorter than the longer upper shadow.

Meaning of Dragonfly Doji Candle: The Dragonfly Doji candle is formed when the opening price and closing price coincide. When the Dragonfly Doji candlestick appears, it shows that the buyers have complete control of the trading sessions. After that, there is a strong trend of reversal.

Bullish Engulfing (pattern should engulf bulls)

Identifying characteristics of Bullish Engulfing (bullish engulfing): Bullish Engulfing is a reversal pattern consisting of two candles. Its characteristics are:

• The first candle is bearish.
• The second candle is bullish.
• The second candle must be longer than the previous candle and completely cover the first candle.

Meaning of Bullish Engulfing: The Bullish Engulfing pattern often appears at the end of a downtrend. The reversal signal becomes clearer when the first candle is a doji candle. This pattern has shown that buyers are in control of the situation and the price increase is very strong.

Piercing Pattern (Japanese candlestick pattern Sharp line)

Piercing Pattern Candlestick Identification Characteristics: The Piercing Pattern candlestick is a pattern formed at the end of a downtrend and consists of two candlesticks. Its characteristics are:

• The first candle is a bearish reversal candle.
• The second candle is a bullish reversal candle.
• The length of the second candle must be at least 50% of the previous bearish candle.
• At the same time, the opening price of the second candle must create a gap with the closing price of the first candle.

Meaning of Piercing Pattern Candlestick: When the Piercing Pattern candlestick pattern appears, the buyers gain the advantage and an uptrend in the market will begin.

Bullish Harami reversal Japanese candlestick pattern

Identifying characteristics of Bullish Engulfing Candle: Bullish Engulfing Candle is a reversal candlestick pattern consisting of two candles. It is used to mark a reversal at the end of a downtrend. Its characteristics are:

• The first candle will be red, and easy to see by investors.
• The second candle will be green.
• The opening price of the second candle is usually higher than the first candle, creating a gap (GAP) between them.
• The first candle covers the entire second candle.

Meaning of Bullish Engulfing Candles: The price difference between two candles (GAP) allows investors to carefully review and evaluate to make reasonable investment decisions. After the second candlestick increases in price and creates a gap with the first candlestick. This shows that the bears are losing their advantage and the bulls are gaining the upper hand. An upward trend reversal is forecast, and investors can consider opening a buy order.

Hammer candlestick

Hammer Candlestick Identification Characteristics: Hammer Candlestick is a single candlestick with similar identifying characteristics to the Doji candlestick. With a small body and a long lower shadow, the upper shadow is short or almost absent.

Meaning of the Hammer Candle: When the Hammer candle appears, it shows that the buyers are in control of the situation and pushing the price higher. This is a signal of an upward price trend and investors can consider opening a buy order.

Morning Star Candle

Identifying characteristics of the Morning Star Candlestick: The Morning Star Candlestick is a pattern consisting of three candles.

• The first candle is red and is a long bearish candle.
• The second candle has a small body and can be a Doji, Hammer, or Spinning Top candle.
• The third candle is green and is a bullish candle.

Meaning of Morning Star Candlestick: The first candle shows that the sellers are controlling the situation and pushing the price down. Then, as the market continues to push prices and buyers become hesitant, the second candle appears. The third candle shows that the buyers won and pushed the closing price up. When this model appears, investors can consider opening a buy order to profit.

Reversal candlestick in forex Bullish Abandoned Baby

Identifying characteristics: The Bullish Abandoned Baby pattern is a Reversal candlestick pattern consisting of three candles.

• The first and third candles are outside and are large.
• The second candle is located inside and is smaller in size. Due to its small size, it looks like an “abandoned baby”.

Meaning: The Bullish Abandoned Baby pattern often appears at the end of a price increase. When there is a gap (Gap). The first candle shows that the price continues to decrease continuously until the amplitude of fluctuations between buying and selling narrows to the point where the closing price is almost equal to the opening price. Create a second candle. This continuous decrease creates a gap and then the third candle appears. It triggered an uptrend on a large scale.

Tweezer Bottom reversal Japanese candlestick pattern

Identifying characteristics: The Tweezer Bottom pattern is a pattern that appears to signal a price decline. Then reverse from downtrend to uptrend.

• The first candle is a bearish candle, with a long form.
• The second candle is a bullish candle, with the opening price equal to the previous day’s closing price.
• Often, the two candlesticks in the Tweezer Bottom pattern have opposite colors.

Meaning: The first candle shows that the price agrees with the downtrend, creating a bearish signal. On the contrary, the second candle shows signs of market recovery. Thanks to that, investors can identify price movements. It regulates its trading decisions in the currency market.

Some bearish reversal candlestick patterns that traders need to know

Bearish candlestick reversals are another classification of Japanese candlestick reversal patterns. Predict the end of an uptrend and the formation of a downtrend. These patterns provide traders with signals of a bearish reversal. It is often used to identify selling points in the market.

Gravestone Doji (gravestone doji)

The most known and widely used Japanese candlestick reversal pattern is the Gravestone Doji (tombstone doji). When Gravestone Doji appears, it signals a reversal from an uptrend to a downtrend in the market. Identifying characteristics of Gravestone Doji:

• Gravestone Doji which is a single candlestick pattern.
• It does not have a candle body, only a candle shadow.
• The candle shadow is very long.

Meaning: When the Gravestone Doji pattern appears, it shows that buyers are still in control and the stock price is expected to continue rising. However, when the market reaches its peak, selling power increases and stock prices fall.

Bearish Engulfing (bearish engulfing Japanese candlestick pattern)

Bearish Engulfing is a strong reversal Japanese candlestick pattern, appearing at the end of an uptrend. This is a double candlestick pattern. Identifying characteristics of Bearish Engulfing:

• The first candle is bullish.
• The second candle is a bearish candle and the second candle must cover the entire first candle.

Meaning of Bearish Engulfing: If the first candle is green. This shows that the market is indecisive and there is no consensus between buyers and sellers. On the contrary, if the first candle is red, this shows that the sellers have overwhelmed the buyers. In particular, in addition to color, the longer the second candlestick is, the stronger the bearish signal will be.

Shooting Star (shooting star candle)

Shooting Star is a popular Reversal candlestick pattern in the Forex trading market. Identification is as follows:

• The candlestick has a similar shape to the Doji candlestick but has some distinct characteristics.
• The body of the candle is small.
• The upper candle shadow is 2-3 times longer than the candle body.
• The lower shadow of this candlestick pattern is almost absent.
• The color of this candle can be blue or red.

Meaning: When the market is experiencing volatility, it is necessary to patiently wait for this candlestick pattern to be confirmed. Wait until the next bearish candle appears to increase efficiency before deciding to enter the order. Shooting Star is not suitable for investors who are impatient during the investment process.

Evening Star (Evening Star Candle)

The Evening Star candlestick is a bearish pattern consisting of three candles. Features of Evening Star Candles:

• The first candle is bullish and it has a long body.
• The second candle is small, has a short body, and is shaped like a star.
• The third candle is a bearish candle with a large body, and the closing price is always within the range of the first candle.

Meaning of Evening Star Candlestick: When the Evening Star Candlestick pattern appears there is a gap between the first and second candlesticks. This creates an extremely strong reversal signal.

Tweezer Top (tweezer top)

Tweezer Top is a double candlestick pattern that has two quite similar candles, differing only in color. One red candle and one blue candle. Identifying characteristics of Tweezer Top:

• The first candle is a bullish candle, with a long upper shadow, small body, and short lower shadow.
• If the second candle is a bearish candle, with long shadows and a small body, the closing price is equal to the opening price of the first candle.

Meaning of Tweezer Top: In the first candle, the buyers pushed the price up. However, after the market opened the next day, buyers tried to push prices higher. But it was not successful and the sellers dominated. When this happens, investors may consider placing sell orders to take advantage of the situation.

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Trading strategy with reversal candles in Forex

Reversal candlestick patterns can assist investors in placing and exiting orders appropriately. However, to trade effectively, it is necessary to apply appropriate strategies to achieve profits.

Enter orders

When a reversal candle appears, investors need to wait until the candle forms later to confirm the new trend. To avoid losses, it is necessary to wait patiently and retest the trend. For example, with a Bullish Engulfing reversal candlestick, investors can consider placing a buy order. However, professional investors often wait until the next 2 or 3 candles before entering an order.

Cut losses

In any case, it is necessary to cut losses, because nothing is 100% certain. Stop losses helps reduce risks that cannot be predicted in advance. It is necessary to set the stop loss point about 2-3 pips away from the price of the candle to avoid situations where the price turns around and causes damage.

Take profit

To take profits, the R: R rule can be applied with a ratio of 1:1 or 1:2. In addition, you can also set a profit target based on the size of the Japanese candlestick reversal pattern. Note that applying these strategies requires trading knowledge and skills. Research and testing need to be done before applying it in practice.

In addition, to trade smoothly, in addition to mastering the knowledge of reversal candles, investors can learn more about Pin bar candle or chart forex free.

Epilogue

Below is the most detailed and shared information about the Reversal candlestick pattern. This model is considered a useful support tool that traders should master to apply in transactions. However, Learn Forex Trading advises investors to pay attention to important rules when trading to ensure the foreign exchange investment process takes place most conveniently and safely.