Top 5 Best Candlestick Patterns for Gold XAUUSD Trading with Examples

Today, I will reveal the best candlestick patterns for Gold XAUUSD trading.

You will learn the structure and meaning of each pattern.

And I will explain how to identify these patterns easily.

Doji Candle

The first candlestick pattern that you must know is Doji candle.

It has a very simple structure with its opening and closing levels being equal or almost equal.

Doji candle signifies the market equilibrium and the balance between supply and demand.

Its formation can provide important insights into a behavior of the market participants.

To understand its true meaning, I always recommend my students analyzing that in relation to preceding candles.

Doji Candle Example in Uptrend

Examine the following chart:

Gold price was steadily growing on an hourly time frame.

This rise happened because of the excess of the market demand.

A formation of a doji candle signified that an excess of the market demand was finally absorbed by the sellers and the market found equilibrium.

That is an indicator that at least locally the market found a fair value.

Not a Signal

When I trade Gold XAUUSD, I don't use doji candle as an entry signal.

To me, a formation of this candlestick is a critical indicator of a changing market sentiment.

By the way, usually doji candles form when Gold price reaches some liquidity zone.

Its formation can confirm a significance of a liquidity zone that you identified.

The next candlesticks that we will discuss will provide the signals.

Example of Weakness

Doji candle may also signify a market weakness and low momentum.

Being formed during the periods of consolidation, it will signify low trading volumes and volatility on Gold.

Doji Candle Example in Down

Once you see a strong bearish momentum on Gold, always remember that it happens because of the excess of supply.

A formation of a doji candle on the low of a bearish movement will signify that the excess of supply was finally absorbed by the buyers and the market found an equilibrium.

It will mean that sellers, at least temporarily, lost control.

Rejection Candle

The second important candlestick that I use for Gold XAUUSD analysis is rejection candle.

A bullish rejection candle should have a long upper wick.

Its high will indicate a critical price level - a key resistance level from where a strong bearish reaction followed.

We will keep an eye on such a level in futures, because market orders keep being concentrated there. 

A bearish one should have a long lower wick.

Its low will indicate a key support level.

We will assume that buyers are placing their orders on that level, and we can anticipate a similar reaction to that in the future.

Rejection Candle Examples

Check this chart.

We see a nice bearish rejection and a formation of a long tail.

Its low accurately indicated a key level.

In the future, when the price tested that again, we saw a strong bullish reaction to that.

While a bullish rejection that I identified higher indicated a strong key resistance level.

High Momentum Candle

The third important candlestick that you must know is high momentum candle.

A bullish high momentum candle has a large green body and tiny or no wicks.

It will signify a strong buying imbalance.

While a bearish high momentum candle has a large red body and tiny or no wicks.

It will signify strong selling imbalance.

Remember that the body of a high momentum candle is large in relation to preceding candles.

High Momentum Bullish Candle Example

In this example, we can see 2 high momentum bullish candles.

Their bodies have a big range in comparison to previous candles.

A formation of a high momentum bullish candle will signify a strong bullish sentiment and aggressive buying interest of the market participants.

High Momentum Bearish Candle Example

On the chart above, we see a great example of a high momentum bearish candle.

Its formation means a strong bearish sentiment and aggressive selling interest of the crowd.

The first 3 candlesticks will help you to analyze the market sentiment on Gold XAUUSD and assess a current distribution of supply and demand.

The last 2 candlesticks can be used not only for analysis but also for accurate entries.

Engulfing Candle

The first powerful candlestick that I use for trade entries on Gold XAUUSD is engulfing candle.

Bullish Engulfing Candle Structure

A bullish engulfing candle should engulf the entire range of a previous bearish candle with its body, and close above that.

It will signify a buying imbalance and provide a strong signal to buy Gold.

Bullish Engulfing Candle Example

A formation of a bullish engulfing candle on Gold on an hourly time frame provided an accurate signal to buy.

It confirmed a strong buying imbalance.

The best entry should be immediately after this candlestick closes, with a stop loss lying below its lows.

Bearish Engulfing Candle Structure

A bearish engulfing candle should engulf the range of a previous bullish candle with its body, and strictly close below that.

It will signify a selling imbalance and provide a strong signal to sell Gold.

Bearish Engulfing Candle Example

Check the example:

Gold was growing up steadily.

A bearish engulfing candle formation confirmed a bearish reversal.

The price dropped sharply then.

Looking for safe entries, you could simply open your trade immediately after bearish engulfing candle closed, with a stop loss above its high.

Inside Bar Candlestick Pattern

The last powerful candlestick pattern that you should learn to recognize trading Gold XAUUSD is called inside bar.

This pattern should be based on at least 3 candles.

The first candlestick is called Mother's bar - it can be bullish or bearish candle.

The candles that open and close within its range will be called inside bars.

Such a pattern will signify an accumulation of buying or selling orders and consolidation.

We will assume that smart money are silently absorbing market orders within the pattern's range.

When the accumulation is over, a breakout and a candle close above or below the range of the Mother's bar provides a strong signal.

Bearish breakout will provide a signal to sell Gold.

Bearish Inside Bar Candlestick Patterns Example

In the following example, a range of the Mother's bar was broken to the downside.

It was a strong signal to sell.

Trading inside bar, simply open your trade after a breakout candle closes.

Bullish Inside Bar Candlestick Patterns Example

In the example above, Gold formed an inside bar pattern and was consolidating for quite a long time period.

The candles were perfectly respecting the range of the mothers bar and closed within.

A breakout and a candle close above its range was a strong bullish signal.

It signified a significant buying imbalance and the price rose strongly then.

• If you buy, your stop loss should lie below the low of the Mother's bar.

• If you sell, set it above the high of the Mother's bar.

Combine These Patterns

After you learn to identify all these patterns, use them in a combination.

Combining multiple candlestick patterns will help you to predict market reversals and strong waves way before they happen.

Integrate these powerful candlesticks in your trading strategy and gold luck in trading Gold XAUUSD.