Japanese candlesticks were originally developed in the 17th century by rice traders. Many proponents of candle stick theory claim that they offer very high probability signals for such things as trend reversals and trend continuation. Candlestick patterns can be difficult to understand at first, but once you do begin to understand them, they can offer a simple visual tool to identify possible winning trading patterns.

Some examples, a the hammer and inverted hammer which are formed following a decline and are bullish reversal patterns, while the hanging man and shooting star candlestick patterns are formed following an up move and are bearish reversal.  While the basic candlestick patterns can tell you what the market is thinking, they often generate false signals because they are so common. Candlestick patterns provide a trader with a picture of human emotions that are used to make buy and sell decisions.

Whilst some candlestick patterns such as hammer, hanging man, inverted hammer and shooting star are formed with a single candlestick a large number of candlestick patterns are based on the relationship of the prior bar's closing price and the new bar's opening price. Candlestick patterns are best used in conjunction with other analytical tools in order to produce optimum performance. Potential reversals are many times identified by bullish and bearish candlestick patterns.

Once you are comfortable with the major candlestick signals, and you have learned how to read forex charts you can continue to expand your expertise by learning the various secondary candlestick patterns. After learning the 12 major candlestick patterns, such as the hanging man candle , the bullish engulfing pattern , and the evening star candlestick , traders can then move on to learning about the secondary signals generated by candlestick patterns. Below are some of the more common candlestick patterns and their significance.

	A DOJI is formed when the open and the close are the same or very close. The length of the shadows are not important. Dojis form when a security's open and close are virtually equal.
	The Gravestone Doji is formed when the open and the close occur at the low of the day. It is found occasionally at market bottoms, but it's forte is calling market tops. The name, Gravestone Doji, is derived by the formation of the signal looking like a gravestone.
	The Long-legged Doji has one or two very long shadows. Long-legged Dojis are often signs of market tops. If the open and the close are in the center of the session's trading range, the signal is referred to as a Rickshaw Man. .
	The Bullish Engulfing Pattern occurs when a small black candlestick is followed by a large white candlestick that completely eclipses or "engulfs" the previous day's candlestick. The shadows or tails of the small candlestick are short, which enables the body of the large candlestick to cover the entire candlestick from the previous day. This type of pattern usually accompanies a declining trend in a security, suggesting that a low or end to a market's decline has occurred. The trader must however, take the preceding and following days' prices into account before making any decisions regarding the security.
	The Bearish Engulfing Pattern is a chart pattern that consists of a small white candlestick with short shadows or tails followed by a large black candlestick that eclipses or "engulfs" the small white one. It is the exact opposite of a Bullish Engulfing Pattern. This type of pattern usually accompanies an uptrend in a market, possibly signaling a peak or slowdown in its advancement.
	The Dark Cloud Cover is a two-day bearish pattern found at the end of an upturn or at the top of a congested trading area. The first day of the pattern is a strong white real body. The second day's price opens higher than any of the previous day's trading range.
	The Piercing Pattern is a bottom reversal. It is a two candle pattern at the end of a declining market. The first day real body is black. The second day is a long white body. The white day opens sharply lower, under the trading range of the previous day. The price comes up to where it closes above the 50% level of the black body.
	Hammer and Hanging-man are candlesticks with long lower shadows and small real bodies. The bodies are at the top of the trading session. This pattern at the bottom of the down-trend is called a Hammer. It is hammering out a base. The Japanese word is takuri, meaning "trying to gauge the depth".
	The Morning Star is a bottom reversal signal. Like the morning star, the planet Mercury, it foretells the sunrise, or the rising prices. The pattern consists of a three day signal.
	The Evening Star is the exact opposite of the morning star. The evening star, the planet Venus, occurs just before the darkness sets in. The evening star is found at the end of the uptrend.
	A Shooting Star sends a warning that the top is near. It got its name by looking like a shooting star. The Shooting Star Formation, at the bottom of a trend, is a bullish signal. It is known as an inverted hammer. It is important to wait for the bullish verification.