Candlestick Patterns

Difficulty beginner

Overview

Japanese candlestick patterns reveal market sentiment through the relationship between open, high, low, and close. Each candle tells a story of the battle between buyers and sellers.

Anatomy of a candle

       │  ← high (top of wick)            │              
       │                                  │              
      ┌─┴─┐  ← close                    ┌─┴─┐  ← open    
      │   │                             │███│            
      │   │  body (hollow = bullish)    │███│  body (filled = bearish)
      │   │                             │███│            
      └─┬─┘  ← open                     └─┬─┘  ← close   
       │                                  │              
       │   ← low (bottom of wick)         │              

              BULLISH                        BEARISH     
       close > open                       close < open  

Pattern cheat-sheet

   DOJI         HAMMER       SHOOTING       MARUBOZU      ENGULFING    
                              STAR                                     

    │            ──┐            │           ──┐           │   │        
    │              │            │           ███│          │ ┌─┴─┐      
  ──┼──          ──┘          ──┐──         ███│        ──┤ │   │      
    │             │             │           ███│        │ │ │   │      
    │             │             │           ──┘         │ └─┬─┘ │      
                  │                          │            └─┬─┘       
                  │                                          │        

  indecision   bullish      bearish        strong          bullish     
   ↕ reversal  reversal    reversal       conviction      reversal    
                ↑ at        ↓ at top                       ↑ at bottom
                bottom                                                 

Doji

Open and close are virtually equal. Indecision.

    │
    │
    ────   (small body)
    │
    │

Types:
- Standard Doji: equal upper/lower shadows
- Dragonfly Doji: long lower, no upper (bullish at bottom)
- Gravestone Doji: long upper, no lower (bearish at top)
- Long-legged Doji: long both shadows (high indecision)

Signal: Potential reversal, especially after trend Confirmation: Wait for next candle

Hammer / Hanging Man

Hammer (at bottom): Hanging Man (at top):
    │                    │
    ────                 ────
    │                    │
    │                    │
    │                    │

Requirements: - Small body at top - Lower shadow ≥ 2× body - Little to no upper shadow

Hammer: Bullish reversal at bottom Hanging Man: Bearish reversal at top (needs confirmation)

Inverted Hammer / Shooting Star

Inverted Hammer (at bottom): Shooting Star (at top):
    │                        │
    │                        │
    ────                     ────
    │                        │

Inverted Hammer: Bullish reversal (needs confirmation) Shooting Star: Bearish reversal at top

Marubozu

Bullish Marubozu:    Bearish Marubozu:
│                    │
│ (no shadows)       │ (no shadows)
│                    │

Full body, no shadows. Strong conviction.

Bullish: Strong buying pressure Bearish: Strong selling pressure

Two-Candle Patterns

Engulfing Pattern

Bullish Engulfing:       Bearish Engulfing:
    │    │                   │    │
    │ ┌──┤                   ├──┐ │
    └─┤  │                   │  ├─┘
      │  │                   │  │

Second candle's body completely engulfs first candle's body.

Bullish Engulfing: At bottom, green engulfs red Bearish Engulfing: At top, red engulfs green

Harami

Bullish Harami:        Bearish Harami:
    │    │                 │    │
    │ ┌┤ │                 │ ├┐ │
    └─┤├─┘                 └─┤├─┘
      ││                     ││

Small body contained within previous candle's body.

Bullish Harami: At bottom, small green inside red Bearish Harami: At top, small red inside green

Harami Cross: Second candle is a doji → stronger signal

Tweezer Tops/Bottoms

Tweezer Top:           Tweezer Bottom:
  │    │                ┌────┐
  ┌────┐                │    │
  │    │                │    │

Two candles with matching highs (tops) or lows (bottoms).

Three-Candle Patterns

Morning Star / Evening Star

Morning Star (bullish):  Evening Star (bearish):
│         ┌───┐                ┌───┐         │
│    ┌─┐  │   │                │   │  ┌─┐    │
└────┘ └──┴───┘                └───┴──┘ └────┘
  Large    Small    Large        Large  Small  Large
  Red      Doji     Green        Green  Doji   Red

Morning Star: Bottom reversal Evening Star: Top reversal

Three White Soldiers / Three Black Crows

Three White Soldiers:    Three Black Crows:
     │                         │
   ┌─┤                       ┌─┤
  ┌┤ │                      ┌┤ │
 ┌┤│ │                     ┌┤│ │
 │││ │                     │││ │

Three consecutive long candles in same direction, each closing higher/lower.

White Soldiers: Strong bullish continuation/reversal Black Crows: Strong bearish continuation/reversal

Three Inside Up/Down

1. Engulfing pattern
2. Third candle confirms in direction of engulfing

Pattern Reliability

Pattern	Reliability	Best Context	Confirmation Needed
Engulfing	High	At support/resistance	Volume
Morning/Evening Star	High	After extended move	None
Hammer	Medium	After downtrend	Next candle
Doji	Medium	At key levels	Next candle
Harami	Medium-Low	At key levels	Next candle
Three Soldiers/Crows	High	Start of new trend	Volume
Shooting Star	Medium	After uptrend	Next candle

Combining Candlesticks with Other Tools

With Moving Averages

• Hammer at rising MA → bullish
• Shooting star at declining MA → bearish
• Engulfing at MA crossover → strong signal

With RSI

• Bullish pattern + RSI oversold → strong buy
• Bearish pattern + RSI overbought → strong sell

Practical Guidelines

1. Context Matters — Patterns at key levels are stronger
2. Confirmation — Wait for next candle or volume
3. Timeframe — Higher timeframe patterns are more reliable
4. Volume — Above-average volume strengthens signal
5. Don't Trade in Isolation — Combine with trend, S/R, indicators
6. Size Matters — Larger candles = stronger signal
7. Wicks Tell Stories — Long wicks show rejection

Key Takeaways

1. Candlestick patterns are probability enhancers, not guarantees
2. Always consider the broader context (trend, S/R, volume)
3. Higher timeframes produce more reliable signals
4. Combine multiple signals for higher conviction
5. Always use stop losses regardless of pattern strength

Next Steps

• Support and Resistance — Key price levels
• Moving Averages — Trend indicators
• Volume Analysis — Confirming patterns with volume