Top 10 Forex Reversal Candles

Top 10 Forex Reversal Candles

reversal candlestick patterns

Not all forex reversal candle patterns are created equal. Some of them are more telling than others. And can give clearer meaning to what the price is doing.

That’s why using Reversal candlestick patterns in Forex (correctly) can have a positive impact on your trading performance. It’s also a key to spotting trend reversal or confirming a trade.

The number of candlestick patterns is endless! dozens of shapes. But you shouldn’t know them all.

Many of them are made for the stock market, and can’t be applied to the forex market. Others are less reliable.

That’s why I summarized a list of the most indicative and powerful ones for you.

Let’s start by briefly explaining what is a candlestick.

What is a Candlestick

A candlestick is a way of representing the price graphically. Where each candle consists of the opening, closing, high and low of the period. Whether the time period was a day a week or an hour.

Candlestick

The candlestick has a wide part, called the “body.” 

The body represents the price range between the open and close of that trading period. When the body is black, it means the close was lower than the open. If the body is empty(white), it means the close was higher than the open.

That means in a white candle, the price ended the period higher. As the closing price of the period is above the opening price. Thus, it’s an up candle.

The opposite for a down candle(black), the price ended the period at a price lower than the opening price. Hence, it’s a down candle.

The notches you see on the top and bottom of the candles are called wicks or shadows. They represent the fluctuations of the price within the period. It illustrates the highest and lowest prices over a time period.

The candlestick shape is a visual representation of the price action. Which gives traders information on what happened during the time period (That’s why candlestick patterns fall under the price action patterns).

It is an excellent representation of the supply and demand in the market. As it tells traders where the price opened and closed, and the trading range of the period.

What is a Candlestick Pattern

Candlestick patterns are identifiable shapes of candlesticks that provide an indication of the next possible price movement.

For example,

Doji candle pattern

This candle pattern is called a “Doji”. It forms when the period trading range is relatively narrow. This means the high and the low of the day are generally close. In addition to that, the period open and close are near the same level around the middle of the range.

Doji examples

What is a Reversal Candle Pattern

A reversal candlestick pattern is a candlestick shape that indicates a possible change in the recent price direction preceding the candle.

For example, examine the following candle.

According to the candlestick above, the price climbed higher during the time but fell back to close the period below the open price.

That suggests that more people were buying than selling. That caused the price to increase and create that high.

But, that changed later. The price dropped as a result of more selling than buying. In the end, the closing price was lower than the opening price.

The form of the candle you see above is the consequence of this buying and selling interaction. Resulting in a bearish reversal candle called a “shooting star”.

This buying and selling interaction can produce a variety of candle forms. We will talk about some of the most significant reversal candlestick patterns.

Reversal Candle Patterns Trading Rules

Trading success is all about following your trading rules. Therefore, before outlining my top reversal candlestick patterns, let me introduce a few general rules on how to use them.

  1. Use candlestick patterns to trade in the direction of the underlying trend, not against it. Using candles within the context of a trend-following strategy is powerful.
  2. Candlestick patterns should fit within a trading strategy, and not be traded solely.
  3. The longer the body and shadows of the candle the more reliable it is. Ignore shorter candlestick patterns. (See figure below).
  4. A breakout is only valid if it happens on a closing basis. If you need further explanation refer to the breakout part in our technical analysis basics tutorial.
  5. Make sure you are using only a one-time zone for your charts. Preferably the New York time zone.

    This is because candles close every 24 hours at 12 AM of the chart time. Hence, every candle’s closing price will depend on the time zone of the chart. i.e the closing on the Tokyo time chart will be different than New York time. So you will see different shapes on every chart.

You can change the timezone of your charts on tradingview by clicking on the time in the bottom right corner.

timezones on trading view charts
Forex Reversal candlestick pattern quality
Candlestick pattern quality

Do we agree on our rules? let’s get started.

Reversal Candle Patterns List

1. Bullish Hammer

Reversal Candlestick pattern: Hammer.
Prior trend: Down.
Likely implication: Bullish reversal.
Alternative implication: Bearish continuation.

Explanation: The Hammer forms in a downtrend. The price moves sharply lower after the open, but rebounds to close significantly higher. Typically, in the upper third of the candle. The body can be white(up) or black(down).

Hammer candlestick pattern

The hammer candle suggests that trading action was strong during the period. As selling pushed the price lower, buyers managed to regain and push the price to close the period near the open.

The sharp rebound from the low indicates rejection at that price, and hints it could be a support level.

Indication:

  • Bullish reversal: The hammer candlestick pattern must be preceded by a downtrend. And it indicates that although strong selling happened. Buyers entered the market and were strong enough to reverse the price higher, to close just above or below the open price. In most cases, the pattern has a bullish implication.
reversal candlestick patterns - hammer example 1
  • Bearish continuation: In case the main scenario fails. As the price breaks out below the low of the hammer candle within the following few candles. A bearish continuation of the downtrend is likely.
hammer-pattern-failure

Remember: The body should be small relative to the shadows. A general rule of thumb is that the shadow must be at least twice the size of the body.

2. Hanging Man

Reversal Candlestick pattern: Hanging Man.
Prior trend: Up.
Likely implication: Bullish continuation or bearish reversal.

Explanation: The hanging man candlestick pattern has the exact shape of the hammer candlestick. The only difference is that it forms in an uptrend. 

The sharp rebound from the low indicates rejection at that price, and hints it could be a support level.

Indication: The chances of a bearish reversal or bullish continuation for a hanging man are roughly equal, and depend on the following price action.

  • Bullish continuation: The hanging man indicates that although strong selling entered the market, buying was strong enough to reverse the price higher, and close just above or below the open price. Wait for the price to break the high of the hanging man candle to confirm the continuation of the uptrend.
forex-reversal candlestick patterns- hanging man example 1
  • Bearish reversal: A bearish reversal will be the most likely outcome If we don’t get a follow-through above the high of the hanging man. And the price retreats to close below the hanging man low.
Hanging Man candlestick failure chart example - forex reversal candlestick pattern

3. Shooting Star

Reversal Candlestick pattern: Shooting Star.
Prior trend: Up.
Likely implication: Bearish reversal.
Alternative implication:  Bullish continuation.

Explanation: The shooting star forms in an uptrend. As the price moves sharply higher after the opening but reverses to close significantly below the high of the session. Typically, in the upper third of the candle. The body can be white(up) or black(down).

The sharp reversal from the high indicates rejection at that price, and hints it could be a resistance level.

shooting star candlestick pattern

Indication:

  • Bearish reversal: The shooting star indicates that although buyers continued to push the price to new highs within the context of the uptrend, strong selling pressure forced the price to reverse. Thus, the pattern indicates further selling ahead.
shooting-star-example
  • Bullish continuation: If the price closes above the high of the shooting star, further upside within the context of the uptrend is likely.

The breakout above the first shooting star in the chart example above led to an extension of the uptrend. However, another shooting star pattern formed later and was followed by a bearish reversal.

4. Inverted Hammer

Reversal Candlestick pattern: Inverted Hammer
Prior trend: Down
Likely implication: Bearish continuation or bullish reversal

Explanation: Has the exact shape of a shooting star. But forms in an uptrend. Also, the sharp reversal from the high suggests rejection at that price, and hints it could be a resistance level.

The sharp rebound from the low indicates rejection at that price, and hints it could be a support level.

Indication: The chances of a bearish continuation or bullish reversal for an inverted hammer are roughly equal, and depend on the following price action.

  • Bearish continuation: The inverted hammer indicates that although strong buying pushed the price higher against the main downtrend, selling pressures remained in control and forced the price lower again. The pattern can be interpreted that the bearish trend may continue.
Inverted-hammer-example
  • Bullish reversal: If we do not get a follow-through below the inverted hammer low, and the price break the high of the candle, further upside will be the likely outcome.
bullish inverted hammer  candlestick chart example

5. Gravestone Doji

Reversal Candlestick pattern: Gravestone Doji.
Prior trend: Up or Down
Likely implication: Bearish Reversal.
Alternative implication: Bullish continuation.

gravestone doji candlestick pattern

Explanation: The Gravestone Doji is similar to the Shooting Star candle. But the opening and closing prices are equal or almost equal and near to the high. Also, it can form in both, up and downtrends.

The sharp reversal from the high indicates rejection at that price, and hints it could be a resistance level.

Indication: The Gravestone Doji pattern should be treated exactly like a Shooting Star pattern.

  • Bearish Reversal
Gravestone-doji-example
  • Bullish continuation
bullish gravestone doji candlestick chart example

6. Dragonfly Doji

Candlestick pattern: Dragonfly Doji.
Prior trend: Down or Up.
Likely implication: Bullish reversal.
Alternative implication: Bearish continuation.

dragonfly doji candlestick pattern-

Explanation: The Dragonfly Doji is similar to the Hammer pattern. But the opening and closing prices are equal or almost equal and near the low. Also, it can form in both, up and downtrends.

The sharp rebound from the low indicates rejection at that price, and hints it could be a support level.

Indication: The Dragonfly should be treated exactly like a Hammer pattern.

  • Bullish Reversal
dragonfly-doji-example
  • Bearish continuation
dragonfly-doji-examle-2

7. Bullish Engulfing

Reversal Candlestick pattern: Bullish Engulfing.
Prior trend: Down.
Likely implication: Bullish reversal.

Explanation: The engulfing is a long candle with a body that covers the preceding candle(s) whole range(body and shadow). It engulfs the prior candle or candles.

bullish engulfing candlestick pattern

A bullish engulfing candle must be preceded by a downtrend. The candle opens at the price of the close of the prior candle and closes above the high of the prior candle.

The bullish engulfing candle suggests that trading was active during the period. Where buying was in control and pushed the price higher to surpass prior candles open to high range.

Indication: The bullish engulfing pattern indicates that the prior downtrend could be reversing.

bullish engulfing candlestick chart example

8. Bearish Engulfing

Candlestick pattern: Bearish Engulfing.
Prior trend: Up.
Likely implication: Bearish reversal.

bullish engulfing candlestick pattern

Explanation: The exact opposite of a bullish engulfing. The candle is a down-red candle that opens at or above the close of the prior candle and closes below the low of the prior candle(s).

Indication: The candle forms in an uptrend and suggests a bearish reversal may have started.

bearish engulfing candlestick chart example

BONUS Forex Reversal Candlestick Patterns:

9. Long-legged Doji

Reversal Candlestick pattern: Long-legged Doji
Prior trend: Up or Down
Main implication: All outcomes are possible.

Explanation: The long-legged Doji forms when the opening and closing prices are equal or near equal. And upper and lower shadows are noticeably long.

long legged doji candlestick pattern -

The long-legged Doji suggests that trading was very active during the period. Both buyers and sellers pushed the price in both directions. However, the price was rejected at the high and the low. And at the end it settled near the middle, indicating equilibrium and indecision.

Indication: If forms after an uptrend, the pattern suggests the buying pressure is no longer in full control. It is fifty-fifty now between buyers and sellers. Therefore, the uptrend may stop for correction or reversal. The opposite is true if the pattern forms following a downtrend.

  • Bullish reversal
long-legged-doji-example
  • Bearish reversal
bearish long legged doji candlestick chart example -
  • Bullish continuation
bullish continuation long legged doji candlestick chart example
  • Bearish continuation
bearish continuation long legged doji candlestick chart example

Tip: The sharp reversal from the long-legged Doji’s high and low indicates rejection. And hints the high may form a resistance and the low is possible support.

long legged doji as support and resistance

10. High Wave Candle

Reversal Candlestick pattern: High Wave Candle.
Prior trend: Up or Down.
Likely implication: Bearish or bearish reversal. The outcome depends on the candle shape and the preceding trend.

The high-wave candle is a gigantic candle. Its range can be longer than a whole month of trading. Usually happens following an unexpected and unscheduled significant news event. Most of the move happens in the initial spike in the few minutes following the news.

high wave candlestick pattern


To be a high wave candle, the candle range must be MORE than 6 times the average range for the last 14 periods. (The longer the better). If you can’t decide manually, you can use the Average True Range (ATR) indicator to measure this:

1- Add the ATR indicators with the settings period set to 14.
2- Add another ATR for the same chart with the setting period set to 1.
3- Find the value of ATR(1) for the suspected high wave candle
4- Find the value of f ATR 14 one candle before the high wave.
5- Compare the two values, if the value of ATR(1) is 6 times or more than the value of ATR(14), then it’s a valid high wave candle.

reversal candlestick patterns- high wave candle measuring

Indication:

Bullish reversal if(and ONLY if):

1- Forms following a downtrend.

2- The candle has a long bullish body(up), with a short upper shadow compared to the body. Typically, the body should be more than twice the size of the shadow.

bullish reversal high wave candle

3- Or, the candle has a small body(can up or down) with a long lower shadow compared to the body. Typically, the body should be longer than 60 percent of the whole candle.

bullish high wave candle example

Bearish reversal if(and Only if):

1- Forms following an uptrend.

2- The candle has a long bearish body(up), with a short lower shadow compared to the body. Typically, the body should be more than twice the size of the shadow. The likely outcome is a reversal of the uptrend.

bearish high wave candle

3- Or, the candle has a small body(can up or down) with a long upper shadow compared to the body. Typically, the body should be more than 60 percent of the whole candle. The likely outcome is a reversal of the uptrend.

bearish high wave candle 2

Hint: DO NOT rush to short the price as the risk to reward would be poor, and usually, the price will attempt to revisit the candle high providing a better entry price before reversing lower. Or you can wait for a shorter time frame bearish confirmation signal before shorting.

Extra Reversal Candlestick Patterns Chart Examples

chart example 1
chart example 2

Combining candlestick patterns with other technical tools, such as Forex price action patterns, in addition, to support and resistance levels would provide high-probability Forex trade setups with strong conviction.

If you are curious about other candlestick patterns, you can check Bukowski’s list.

If you have any concerns, questions or thoughts just drop them in the comment section below. I will be happy to discuss it.

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Lu'ay Af.
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Lu'ay Af.
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