Candlestick Patterns to Learn

These charts depict the open, high, low, and close of a security for a given time period, and the shapes of the candlesticks can reveal important information about market sentiment and potential future price movements.

In this article, I will discuss the most important candlestick formations for traders to be aware of.

The Most Important Candlestick Patterns

1. The Doji

The Doji is a candlestick pattern that can indicate indecision in the market or a potential reversal in the trend.

A Doji is formed when the open and close of a security are nearly equal, this creates a small real body with long upper and lower shadows. This formation suggests that neither buyers nor sellers have been able to gain control of the market, indicating indecision. The Doji can also indicate a potential reversal in the trend, as it suggests that the bulls and bears are becoming evenly matched.

There are different types of Doji candlestick patterns, such as:

The Long-Legged Doji

This is a Doji with long upper and lower shadows, which can indicate a strong indecision and potential for a trend reversal

The Dragonfly Doji

This is a Doji with a long lower shadow and no upper shadow, which can indicate a potential bullish reversal.

The Gravestone Doji

This is a Doji with a long upper shadow and no lower shadow, which can indicate a potential bearish reversal.

It’s important to note that a Doji pattern alone is not a strong signal to enter a trade and should be confirmed with other indicators or analysis before taking a trade based on it.

2. The Hammer and Hanging Man

The Hammer and Hanging Man are similar candlestick patterns that can indicate a potential reversal in the trend.

A Hammer is a bullish pattern that occurs when the open, low, and close are near the low of the period, but the high is significantly higher. This formation suggests that buyers were able to push the price up despite initial selling pressure, indicating a potential reversal to the upside. The hammer pattern is formed by a small real body, ideally at the upper end of the trading range, with a long lower shadow which is at least twice the length of the real body.

A Hanging Man is the opposite, it is a bearish pattern that occurs when the open, high, and close are near the high of the period, but the low is significantly lower. This formation suggests that sellers were able to push the price down despite initial buying pressure, indicating a potential reversal to the downside. The Hanging man pattern is formed by a small real body, ideally at the lower end of the trading range, with a long upper shadow which is at least twice the length of the real body.

It’s important to note that these patterns are more significant when they occur after a prolonged trend and when the candle has high volume. Also, it’s good to confirm the pattern with other indicators or analysis before taking a trade based on it.

3. The Bullish and Bearish Engulfing Patterns

The Bullish and Bearish Engulfing Patterns are powerful candlestick patterns that can indicate a strong change in market sentiment.

A Bullish Engulfing Pattern occurs when a small bearish candle is followed by a larger bullish candle that completely engulfs the bearish candle, meaning the bullish candle’s high is above the bearish candle’s high and the low is below the bearish candle’s low. This formation suggests that buyers have taken control of the market and that a reversal may be imminent. This pattern is considered a bullish reversal pattern, as it suggests that the bears have lost control and the bulls are taking over.

A Bearish Engulfing Pattern is the opposite, it occurs when a small bullish candle is followed by a larger bearish candle that completely engulfs the bullish candle, meaning the bearish candle’s high is above the bullish candle’s high and the low is below the bullish candle’s low. This formation suggests that sellers have taken control of the market and that a reversal may be imminent. This pattern is considered a bearish reversal pattern, as it suggests that the bulls have lost control and the bears are taking over.

It’s important to note that these patterns are more significant when they occur after a prolonged trend and when the candle has high volume. Also, it’s good to confirm the pattern with other indicators or analysis before taking a trade based on it.

4. The Morning and Evening Star

The Morning Star and Evening Star are three-candlestick patterns that can indicate a potential reversal in the trend.

A Morning Star pattern occurs when a bearish candle is followed by a doji, which is then followed by a bullish candle, the doji is located between the bearish and bullish candles, and it’s a neutral candle, meaning it has a small body and long upper and lower shadows. This formation suggests that the bears have lost control of the market and that a reversal to the upside may be imminent. This pattern is considered a bullish reversal pattern, as it suggests that the bears have lost control and the bulls are taking over.

An Evening Star pattern is the opposite, it occurs when a bullish candle is followed by a doji, which is then followed by a bearish candle, the doji is located between the bullish and bearish candles, and it’s a neutral candle, meaning it has a small body and long upper and lower shadows. This formation suggests that the bulls have lost control of the market and that a reversal to the downside may be imminent. This pattern is considered a bearish reversal pattern, as it suggests that the bulls have lost control and the bears are taking over.

It’s important to note that these patterns are more significant when they occur after a prolonged trend and when the candle has high volume. Also, it’s good to confirm the pattern with other indicators or analysis before taking a trade based on it.

5. The Bullish and Bearish Harami

The Bullish and Bearish Harami are two-candlestick patterns that can indicate a potential reversal in the trend.

A Bullish Harami is a pattern that occurs when a large bearish candle is followed by a small bullish candle that is completely engulfed by the bearish candle, meaning the bullish candle’s high is below the bearish candle’s high and the low is above the bearish candle’s low. This formation suggests that the bears have lost control of the market and that a reversal to the upside may be imminent. This pattern is considered a bullish reversal pattern, as it suggests that the bears have lost control and the bulls are taking over.

A Bearish Harami is the opposite, it occurs when a large bullish candle is followed by a small bearish candle that is completely engulfed by the bullish candle, meaning the bearish candle’s high is below the bullish candle’s high and the low is above the bullish candle’s low. This formation suggests that the bulls have lost control of the market and that a reversal to the downside may be imminent. This pattern is considered a bearish reversal pattern, as it suggests that the bulls have lost control and the bears are taking over.

It’s important to note that these patterns are more significant when they occur after a prolonged trend and when the candle has high volume. Also, it’s good to confirm the pattern with other indicators or analysis before taking a trade based on it.

6. The Bullish and Bearish Three White Soldiers and Black Crows

The Bullish and Bearish Three White Soldiers and Black Crows are three-candlestick patterns that can indicate a strong change in market sentiment.

The Bullish Three White Soldiers pattern occurs when three consecutive long bullish candlesticks appear in an uptrend, with each candle having a higher open and close than the previous one, and little or no upper shadow. This formation suggests that the bulls have taken control of the market and that a continuation of the uptrend may be imminent.

The Bearish Three Black Crows pattern is the opposite, it occurs when three consecutive long bearish candlesticks appear in a downtrend, with each candle having a lower open and close than the previous one, and little or no lower shadow. This formation suggests that the bears have taken control of the market and that a continuation of the downtrend may be imminent.

It’s important to note that these patterns are more significant when they occur after a prolonged trend and when the candle has high volume. Also, it’s good to confirm the pattern with other indicators or analysis before taking a trade based on it.

7. The Bullish and Bearish Abandoned Baby

The Bullish and Bearish Abandoned Baby are reversal patterns that can indicate a potential change in market sentiment.

A Bullish Abandoned Baby is a pattern that appears at the end of a downtrend, it is formed by a Doji candle, which is a candle with a small body and long upper and lower shadows, with a gap down from the previous bearish candle. This formation suggests that the bears have lost control of the market and that a reversal to the upside may be imminent. This pattern is considered a bullish reversal pattern, as it suggests that the bears have lost control and the bulls are taking over.

A Bearish Abandoned Baby is the opposite, it appears at the end of an uptrend, it is formed by a Doji candle, with a gap up from the previous bullish candle. This formation suggests that the bulls have lost control of the market and that a reversal to the downside may be imminent. This pattern is considered a bearish reversal pattern, as it suggests that the bulls have lost control and the bears are taking over.

It’s important to note that these patterns are more significant when they occur after a prolonged trend and when the candle has high volume. Also, it’s good to confirm the pattern with other indicators or analysis before taking a trade based on it.

8. The Bullish and Bearish Piercing Line

The Bullish and Bearish Piercing Line are candlestick patterns that indicate a potential reversal in the trend.

A Bullish Piercing Line is formed by a long bearish candle followed by a bullish candle that opens lower and closes more than halfway up the bearish candle. This formation suggests that the bears have lost control of the market and that a reversal to the upside may be imminent. This pattern is considered a bullish reversal pattern, as it suggests that the bears have lost control and the bulls are taking over.

A Bearish Piercing Line is the opposite, with a long bullish candle followed by a bearish candle that opens higher and closes more than halfway down the bullish candle. This formation suggests that the bulls have lost control of the market and that a reversal to the downside may be imminent. This pattern is considered a bearish reversal pattern, as it suggests that the bulls have lost control and the bears are taking over.

It’s important to note that these patterns are more significant when they occur after a prolonged trend and when the candle has high volume. It’s also good to confirm the pattern with other indicators or analysis before taking a trade based on it.

9. The Bullish Belt Hold and Bearish Belt Hold

Bullish and bearish belt hold candlestick patterns that indicate a potential reversal in the trend.

A Bullish Belt Hold is a bullish reversal pattern formed by a long bearish candle, in which the open and close are at the low of the period and the high is significantly higher. This pattern suggests that buyers were able to push the price up despite initial selling pressure, indicating a potential reversal to the upside.

A Bearish Belt Hold is the opposite, with a long bullish candle, in which the open and close are at the high of the period and the low is significantly lower. This pattern suggests that sellers were able to push the price down despite initial buying pressure, indicating a potential reversal to the downside.

It’s worth noting that these patterns are more significant when they occur after a prolonged trend and when the candle has a high volume. Also, it’s good to confirm the pattern with other indicators or analysis before taking a trade based on it.