Candle patterns

There are many different candlestick patterns. When traders recognize these patterns on the chart, they act accordingly. As a result, the probability of a given price action following a specific pattern is high. Traders examine candlestick patterns through visual analysis of the charts. There are also different pattern recognition indicators for MetaTrader. You can find these tools on the Internet and install them in your trading software. Still, even if an indicator or expert advisor highlights chart patterns for you, you’ll need to know what each pattern means.

There are two main types of candlestick patterns: reversal patterns and continuation patterns. As evidenced by these names, they show the likely direction of the market relative to previous price action.

Reversal Patterns

Reversal patterns indicate the high probability of a trend changing direction or making a deep correction. These patterns help identify possible entry points at the beginning of a new trend or a large counter-trend move. Not all reversal patterns have similar weight. It is very important to know where that pattern took place and what happened before. The reversal signal is strong in 2 cases:

•When the previous trend is strong and steep.
•If a reversal candlestick pattern occurs near a strong support/resistance level.
In the image below, you can see an example of a strong reversal signal: the reversal candlestick pattern formed after a strong uptrend.

Continuation patterns

Continuation patterns suggest that the market will maintain the existing trend after a pause. These patterns help to find a new entry point in line with the trend, as well as provide evidence to maintain already open positions or increase them.

Keep in mind that reversal patterns are easier to recognize than continuation patterns. As a result, for beginner traders, we recommend starting to learn reversal patterns. It is also possible to divide candlestick patterns into bullish and bearish. In most cases, they represent mirror images of each other. In the following tutorials, we will explain the most popular reversal and continuation candlestick patterns.