Candlestick patterns help traders understand the psychology behind trading. The most important thing is to learn how to interpret such patterns. While there are several dozens of candlestick patterns, most Forex traders focus on a limited number of reversal formations. With candlestick pattern indicators, you don’t need to remember every pattern. You can take a more relaxed approach and simply look for entry signals.
Before reading the article and writing your questions in the comments section, I recommend to watch this video. It’s not long but covers the biggest part of questions on the topic.
As you know, a candle has a real body and a wick (shadow). Candlestick pattern indicators generate signals based on a wick-body ratio. The only problem is that there is no “right” wick-body ratio that would allow us to view a pattern as trustworthy.
Nonetheless, candlestick pattern indicators do a great job helping traders timely recognize candlestick patterns on a chart. In this article, we’ll cover the best candlestick pattern indicators for MT4 and MT5 traders.
Candlestick pattern recognition (CPR) is a simple algorithm that is freely available in MT4 and MT5. Not only does it identify candlestick patterns on a chart, but it also displays their names.
This is how the indicator looks on a chart.
The chart may get cluttered, and you can’t always tell which name corresponds to which pattern. Another shortcoming is that this is not the most accurate indicator. It’s not uncommon that it identifies patterns that are far from perfect. We guess that the author must have used a wick-body ratio range which is too loose.
The good news is that you can disable the patterns you don’t want to see of the chart. For example, you can remove trend continuation patterns and only leave reversal patterns.
Here’s a word of advice: be sure to manually check CPR patterns.
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CANDLESTICK PATTERN INDICATOR
Although this indicator is very similar to CPR, it still has a few differences:
- it writes the names of patterns in Russian, keeping the chart more organized and clean (remember chaotic CPR charts?);
- it can recognize more than 30 patterns, both reversal and trend continuation ones.
While you can’t disable individual patterns, you can manage certain categories of patterns, e.g. trend continuation or reversal patterns.
While CPI is a convenient tool, you can’t fully rely on it. It identifies patterns with certain wick-body ratios, without paying attention to the market situation. The only way out is to stay alert and filter CPI signals manually.
BHEUREKSO PATTERN INDICATOR
Heures pattern indicator (BPI) displays pattern names right on the chart and indicates entry direction. Compared to the previous two indicators, it has a poorer functionality, fewer settings, and can detect fewer candlestick patterns.
BPI only recognized strong reversal models. Plus, it lacks basic filters to eradicate unfit signals.
On the chart above, BPI generates sell signals after identifying a bearish candle with a long body. Although the candle meets all criteria in terms of engulfing the previous candles, no seasoned trader would go short upon seeing this formation.
IBFX-CPR М3: Ready-to-use trading strategy
While this indicator is freely available on the Internet, you won’t find it in MT5. The algorithm incorporates 16 candlestick patterns. However, we’re mostly interested not in the selection of patterns but in how this indicator works:
- it analyzes the market across several timeframes at the same time;
- it uses red and green points for identifying patterns and displays all additional information under the chart. Patterns bear no names;
- for each newly formed pattern, IBFX-CPR indicates entry direction and stop-loss/take profit levels.
There is no way we urge you to unconditionally trust this indicator but sometimes it produces accurate trading guidelines. For example, on the chart above, it identified correct support and resistance levels, stop loss and take profit.
Experiment with settings to customize the indicator to your trading style. You can disable certain patterns, set up alerts, select appropriate timeframes, and many more.
Figures Candles is probably the simplest tool covered in this article. Its settings are limited and include the following:
- enable/disable sound notifications;
- enable/disable lines on candles;
- select pattern colors.
Unfortunately, you can’t remove certain patterns from the chart. Figures Candles indicates the direction of a price with blue and red arrows and gives the names of patterns in English.
Honestly speaking, you’ll hardly find this tool useful. It recognizes too few patterns and is poorly customizable. Furthermore, Figures Candles only relies on wick-body ratios, without paying attention to other important parameters, such as volatility.
On the chart above, the indicator recognized a few patterns during a consolidation period. While the formations meet the criteria incorporated into the algorithm, they’re hardly fit for trading.
This indicator can recognize 12 patterns (you can disable the ones you don’t need). Pattern Options uses arrows to display the direction of a price and gives the names of patterns in Russian.
This indicator is another CPI but with fewer patterns. Every time a pattern occurs, Pattern Options issues a sound notification.
Because of overlapping pattern names, a chart looks like a mess (see above). This prevents a trader from getting a clear picture of what’s going on in the market. Anyway, you decide whether to use Pattern Options or look for more user-friendly tools.
MARK EA CANDLESTICK PATTERNS FREE
This algorithm is available in MT4 for free. Keep in mind that it only works with two candlestick patterns, a bullish engulfing and a bearish engulfing. The author recommends using Mark EA Candlestick Patterns to filter entry signals. It works best when combined with other indicators.
Here are two ready-to-use trading strategies involving Mark EA:
According to the first strategy, you can make an entry if a price rebounds off of EMA30 and Mark EA identifies a candlestick pattern. Note that EMA30 must be higher than EMA200 and both of them must go with a trend.
This strategy works best on a 1H chart of major currency pairs. Although few, entry signals are pretty accurate. You should give this strategy a chance.
A common reason why traders are unwilling to part with the familiar MT4 is that MT4 indicators don’t work in MT5. While you can’t convert the algorithms automatically, you’ll have to manually write them from scratch in MQL5.
MT5 has few candlestick indicators, and most of them are only available for purchase.
Morning Star is one of the few MT5 indicators available for free. The free version only works on daily timeframes and with one pattern.
The only significant difference between Morning Star and MT4 indicators is how they visualize entry signals. While MT4 tools use arrows and colored circles, the Morning Star indicator justifies its name by plotting a beautiful star symbol.
PZ CANDLESTICK PATTERNS
PZ Candlestick Pattern is a paid indicator available in MT5. The best thing about this tool is an impressive range of candlestick patterns (over 30). Plus, it boasts vast customization options:
- you can enable/disable specific patterns;
- you can filter patterns by several candles. For example, you can remove all 3-candle formations from the chart;
- you can use the Donchian Channel to filter out false reversal patterns. For example, the indicator won’t display a bearish engulfing that occurred below a newly formed low;
- you can remove redundant patterns and keep your chart clean;
- you can set up sound notifications for entry signals.
For a trader’s convenience, the indicator takes patterns into rectangles and writes their names. By arranging the names in vertical lines, the indicator solves the common problem of overlapping text on the charts.
Although it can only recognize 5 candlestick patterns, this indicator costs a whopping $100. Instead of giving pattern names, the Japanese Candlesticks indicator differentiates patterns by color:
- Grey – Hammer;
- Red – Bullish Engulfing;
- Indigo – Doji;
- Green – Bearish Engulfing or Dark Cloud Cover.
Despite a heavy price tag, Japanese Candlesticks has no filters that would say whether a pattern can be trusted. It’s not surprising that the indicator issues false signals. For example, it mistook a bullish candle, which formed after a gap, for a Doji (see above).
ANALYZER CANDLESTICK PATTERNS
Unfortunately, the author of this indicator failed to mention which patterns his tool can detect. Plus, you can’t disable the patterns you don’t need. However, Analyzer Candlestick Patterns has a few interesting features that are worth your attention. It calculates a take profit for each pattern and the possibility to lock in a profit if you go long/short.
And now to drawbacks. First, patterns go without names. Second, the interface could be more user-friendly.
HOW TO USE alert CANDLESTICK pattern INDICATORS
If you want to make a good use of candlestick patterns indicators, here are some rules you should pay attention to:
- most candlestick pattern indicators don’t filter patterns by strength or position on the chart;
- on low timeframes, candlestick pattern indicators generate an abundance of signals, most of them false.
With that said, here is the most important tip: you should only use candlestick pattern indicators as an additional tool. For example, if a price bounced off of a trend line, you can use a candlestick pattern indicator to check whether there is a pattern present. Don’t enter the market relying on a candlestick pattern indicator alone.
As for МТ5, things are not looking good here. The platform lacks free candlestick pattern indicators, whereas paid tools are available at sky-high prices. For example, the Japanese Candlesticks indicator at $149 can’t hold a candle (no punch intended!) to CPI which is available in MT4 for free.
CONCLUSION: CANDLESTICK PATTERN INDICATORS FOR МТ4 AND МТ5
There is no denying that candlestick pattern indicators can be very helpful to both novice and seasoned traders. Their biggest limitation is that they can’t provide trustworthy signals that would be 100% accurate. Therefore, you should only use them as filters in combination with other tools. Even if you think you know all candlestick models like the back of your hand, a clever candlestick pattern indicator can detect formations that might’ve skipped your attention.
If you’re trading in МТ4, be sure to choose CPI. It is hands down, the best tool in its category. Plus, it won’t cost you a thing. As for MT5, let’s hope that the situation with free candlestick pattern indicators will change for the better.