K-line Chart Reading Guide: How Beginners Can Master the Basic Skills of Forex Trading

If you want to succeed in the forex market, learning how to read candlestick charts is a must. Many professional traders rely on an in-depth understanding of candlesticks to profit handsomely in the forex market. Today, we will delve into the application of candlestick charts in forex trading to help beginners get started quickly.

What exactly are candlestick charts? What do they look like?

Candlestick charts consist of individual candles, used to reflect price movements within a specific time period. Each candlestick records four key data points: opening price, closing price, highest price, and lowest price.

Whether you use a 15-minute, 1-hour, or 1-week timeframe, candlestick charts are applicable. Their core function is to help us understand the logic behind price performance within a certain time cycle.

Basic structure of candlesticks

• Red candlestick (uptrend): appears when the closing price is higher than the opening price. If you see a long red candle, it indicates strong buying pressure overwhelming sellers.
• Black candlestick (downtrend): appears when the closing price is lower than the opening price. A long black candle shows sellers have the upper hand.
• The “body” of the candle: this thin line represents intense battle between buyers and sellers during that period.
  • Short body → little price fluctuation, buyers and sellers are evenly matched.
  • Long body → market volatility is high, with fierce competition for control.

Why do traders favor candlestick charts?

Among various chart types, candlestick charts dominate mainly for these reasons:

1. They reveal trader sentiment

Candlestick charts visually reflect the psychological state of market participants through the shape of candles and wicks. This cannot be achieved with line or bar charts.

2. Clear patterns, easy to learn

Candlestick charts have distinct graphical patterns, making trend prediction easier than other charts. When combined with tools like trend lines, support, and resistance levels, you can confirm market signals more quickly.

3. Proven over time

Candlestick charts originated over 200 years ago in Japan’s rice markets, where rice merchants used them to forecast rice prices, even becoming legendary figures. This attests to their effectiveness.

Mastering basic candlestick patterns

Before diving into complex chart analysis, let’s first understand the three fundamental candlestick formations:

Doji (Cross)

A candlestick where the opening price equals the closing price is called a Doji. It indicates that buyers and sellers are equally strong and often signals a potential trend reversal.

There are four variants of Doji:

• Standard Doji: has both upward and downward movements, ending back at the opening price, showing market hesitation.
• Gravestone Doji: buyers push prices higher but are pushed back down by sellers, possibly indicating the end of an uptrend.
• Dragonfly Doji: sellers’ pressure fails, buyers regain control, possibly signaling the end of a downtrend.
• Four Price Doji: very light trading, avoid trading during this period.

Usage tips:

• Doji after a red candle → weakening buying power, watch for reversal.
• Doji after a black candle → weakening selling power, watch for reversal.

Marubozu (Headless) Candle

A complete candlestick with no wicks on either end.

• Red Marubozu: buyers have full control, open at the lowest price, close at the highest.
• Black Marubozu: sellers have full control, open at the highest price, close at the lowest.

Spinning Top

A small real body with long upper and lower wicks. This pattern reflects market uncertainty — both sides are fighting but neither can dominate.

• Appears in uptrend → buying momentum weakens, risk of reversal.
• Appears in downtrend → selling momentum weakens, potential rebound.

Advanced: Single candlestick reversal signals

Once you master the basics, learn those single-candle signals that indicate a change in direction.

Hammer & Hanging Man

Hammer

• Location: at the bottom of a downtrend
• Signal: selling pressure exhausted, buyers stepping in, indicating a rebound
• Reminder: wait for confirmation from the next candle

Hanging Man

• Location: at the top of an uptrend
• Signal: buying momentum wanes, sellers preparing to step in, indicating a correction
• Reminder: wait for confirmation from the next candle

Inverted Hammer & Shooting Star

Inverted Hammer

• Location: during a downtrend
• Signal: buyers attempt a rebound, sellers defend successfully but may soon lose control
• Reminder: wait for confirmation candle

Shooting Star

• Location: during an uptrend
• Signal: sellers start to counterattack, buyers’ defense weakens
• Reminder: wait for confirmation candle

Two-candle pattern signals

When two candles appear together, their combined energy is often stronger.

Engulfing Pattern

Bullish Engulfing A small black candle followed by a larger red candle, with the red body clearly larger than the black. This is a strong signal of a shift from downtrend to uptrend.

Bearish Engulfing A small red candle followed by a larger black candle, with the black body clearly larger than the red. This indicates a strong shift from uptrend to downtrend.

Tweezer Pattern

Resembling tongs, hence called “Tweezer”.

Tweezer Tops An upward candle followed by a downward candle, with similar wick lengths. Usually signals a reversal from uptrend to downtrend.

Tweezer Bottoms A downward candle followed by an upward candle, with similar wick lengths. Usually signals a reversal from downtrend to uptrend.

Three-candle patterns (advanced)

Evening Star & Morning Star

Morning Star

• Composition: black candle → Doji → long red candle
• Location: in a downtrend
• Signal: reversal from decline to rise, the third red candle should be at least half the length of the first black candle

Evening Star

• Composition: red candle → Doji → long black candle
• Location: in an uptrend
• Signal: reversal from rise to fall, the third black candle should be at least half the length of the first red candle

Three White Soldiers & Three Black Crows

Three White Soldiers Three consecutive rising red candles, each higher than the previous. Strong bullish signal.

Three Black Crows Three consecutive falling black candles, each lower than the previous. Strong bearish signal.

Three Inside Pattern

Three Inside Up A long black candle followed by a medium red candle, with the close breaking above the high of the first black candle. Indicates a shift from downtrend to uptrend.

Three Inside Down A long red candle followed by a medium black candle, with the close breaking below the low of the first red candle. Indicates a shift from uptrend to downtrend.

Key summary

Basic features of candlesticks:

• Red candles indicate buying advantage; black candles indicate selling advantage.
• The length of the candle reflects the result of buyer-seller battles.
• Wick length shows market volatility.

Three major pattern systems:

1. Single-candle patterns: Marubozu, Doji, Spinning Top, Hammer, Shooting Star, etc.
2. Two-candle patterns: Engulfing, Tweezer Tops/Bottoms, etc.
3. Three-candle patterns: Evening Star, Morning Star, Three Soldiers, etc.

Trading advice: The success rate of candlestick signals is often below 50%. Before making decisions, always combine market environment, fundamental factors, and other technical indicators for comprehensive analysis. Relying solely on candlesticks for trading is insufficient — risk management is the key to long-term profitability.

Disclaimer: Forex trading involves risks and may not be suitable for all investors. Please fully understand the risks before starting to trade.