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[Oluti]

First and foremost a trader should determine the direction that the market has been taking the pair over time…the longer term trend. Once that is determined, the trader can then look for entry signals in the direction of that trend as that will be the direction that offers the greater likelihood of success.

As we look at our 4 hour chart of the EURJPY below, we can see that the pair is in an uptrend (has a bullish bias) as price is trading above the 200 Simple Moving Average and, at the time of this chart, the EUR was stronger than the JPY.


So, if the pair is in an uptrend (bullish bias), we would want to look for candlesticks and candlestick patterns that demonstrate a potential for a bullish reversal. That would be a reversal by price action back in the direction of the trend.

On the chart above we would be looking at the Hammer Candlesticks, Doji, Bullish Engulfing pattern and the Morning Star pattern for that bullish reversal signal. When we see these candlesticks and patterns forming at the end of a retracement, a support level, this is a “tip” the price action may very well reverse back in the direction of the overall trend. Again, nothing in trading is a certainty but these patterns can provide us with a trading edge, the tip that we are looking for.

What if the pair is in a downtrend?

On the chart above I have also included some of the patterns that we would look for that would indicate that price action may be reversing to the downside after a reversal (pullback) to a level of resistance. Those patterns would be the Shooting Star, Bearish Engulfing, Doji, Evening Star and the Spinning Top.

While in most cases on this chart price action did reverse to the downside after these patterns showed up on the chart, the higher probability trade will still exist in the direction of the trend.

While it is not necessary to discard your indicator of choice in favor of candlestick patterns, using these patterns in conjunction with your indicator, be it MACD, Stochastics, RSI, etc., can provide an additional tip when it comes to looking for a pair to reverse its direction.

 

[kerryjoy]

I always look at the longer-term trend before making a trade; I don't make any assumptions; I just read the price action. I can tell I'm leaning bullish if a pair, like EURJPY, is trading above the 200 SMA. I then zoom in and search for those traditional reversal patterns, such as Hammers, Dojis, and Bullish Engulfing, particularly at support following a pullback. I feel as though the market is alerting me. Candlestick patterns frequently provide me with the early signal I require, but I still keep my indicators handy—MACD and RSI are my go-to wingmen. I'm keeping an eye out for those bearish reversal candles even during a downtrend. Trading based on trend and pattern confirmation is not a guarantee. That gives me an advantage.

 

[lioralace]

In my experience, identifying the longer-term trend is a salutary step before proceeding with any trading decision. The first thing I do is analyze the higher timeframe—the 4-hour chart, for example—to establish whether the market is in an uptrend or downtrend. If, say, the trend is up, I look for bullish reversal candlestick patterns such as Hammer, Doji, or Bullish Engulfing at support. On the downside, I look for downside reversal patterns like Shooting Star and Bearish Engulfing near resistance. I do not solely rely on candlesticks; when paired with other indicators such as RSI or MACD, recently, I feel even more confident in my entries.