Introduction to Candlestick Patterns

Candlestick patterns are powerful tools in technical analysis that help traders understand market sentiment and make informed trading decisions. By examining the shape and formation of candlesticks, traders can spot potential reversals, continuations, or periods of indecision in the market. In this post, we’ll explore the most common and useful candlestick patterns, each explained briefly and accompanied by an image for clarity. Whether you’re a seasoned trader or just starting out, understanding these patterns can provide valuable insights into price action and improve your trading performance. Let’s dive into the list and start mastering candlestick analysis!

 

Doji candlestick pattern

Doji

The Doji candlestick pattern is a signal in technical analysis that reflects market indecision. This pattern forms when the opening and closing prices are nearly identical, resulting in a small or non-existent body. The Doji is typically characterized by long upper and lower wicks, signifying that price moved both higher and lower during the session but closed near its opening price. This pattern often signals a potential reversal or pause in the prevailing trend, making it important to monitor subsequent candles for confirmation.

Hammer candlestick pattern

Hammer

The Hammer candlestick pattern is a bullish reversal pattern that typically appears at the end of a downtrend. It signals that a stock may be nearing its bottom, suggesting that the sellers have exhausted their strength and buyers are starting to take control. The Hammer is characterized by a small real body at the top of the candlestick, with a long lower shadow at least twice the length of the body, indicating that the price initially dropped significantly during the session but recovered by the close, signaling potential upward momentum. Traders use this pattern to identify potential buying opportunities when the market has been declining.

Inverted hammer candlestick pattern

Inverted Hammer

The Inverted Hammer candlestick pattern is a bullish reversal signal that typically forms at the bottom of a downtrend. It features a small real body at the bottom, with a long upper shadow that is at least twice the length of the body. This pattern indicates that, although sellers initially pushed the price lower, buyers stepped in later in the session to drive the price up. This shift from selling to buying pressure signals a potential reversal, where the downward momentum may be weakening, and an upward trend could emerge.

Bullish engulfing candlestick pattern

Bullish Engulfing

A Bullish Engulfing candlestick pattern is a two-candlestick formation that signals a potential reversal from a downtrend to an uptrend. It occurs when a small bearish candle is followed by a larger bullish candle, which “engulfs” the body of the previous candle. This pattern suggests that buyers have taken control, indicating a possible shift in market sentiment from bearish to bullish.

Bearish engulfing candlestick pattern

Bearish Engulfing

The Bearish Engulfing candlestick pattern is a two-candle reversal pattern that typically signals a bearish trend following an upward movement. It forms when a smaller bullish (upward) candle is immediately followed by a larger bearish (downward) candle, which “engulfs” the previous candle’s body. This pattern suggests that selling pressure has overwhelmed buying pressure, indicating potential further downside. It’s commonly used by traders to anticipate reversals in uptrending markets, and it’s seen as a strong signal when it occurs at the top of an uptrend or resistance level.

Links to Articles About Other Candlestick Patterns

Explore more candlestick patterns and enhance your trading strategy! Visit our Ultimate Candlestick Pattern Guide or explore individual patterns below:

  • Doji
  • Hammer
  • Inverted Hammer
  • Bullish Engulfing
  • Bearish Engulfing
  • Morning Star
  • Evening Star
  • Shooting Star
  • Hanging Man
  • Piercing Pattern
  • Dark Cloud Cover
  • Three White Soldiers
  • Three Black Crows
  • Dragonfly Doji
  • Gravestone Doji
  • Spinning Top
  • Marubozu
  • Tweezer Top
  • Tweezer Bottom
  • Bullish Harami
  • Bearish Harami
  • Rising Three Methods
  • Falling Three Methods
  • Bullish Abandoned Baby
  • Bearish Abandoned Baby
  • Bullish Kicker
  • Bearish Kicker
  • Three Inside Up
  • Three Inside Down
  • Upside Gap Two Crows
  • Mat Hold
  • Upside Tasuki Gap
  • Downside Tasuki Gap
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Adrian Reid Founder and CEO
Adrian is a full-time private trader based in Australia and also the Founder and Trading Coach at Enlightened Stock Trading, which focuses on educating and supporting traders on their journey to profitable systems trading. Following his successful adoption of systematic trading which generated him hundreds of thousands of dollars a year using just 30 minutes a day to manage his system trading workflow, Adrian made the easy decision to leave his professional work in the corporate world in 2012. Adrian trades long/short across US, Australian and international stock markets and the cryptocurrency markets. His trading systems are now fully automated and have consistently outperformed international share markets with dramatically reduced risk over the past 20+ years. Adrian focuses on building portfolios of profitable, stable and robust long term trading systems to beat market returns with high risk adjusted returns. Adrian teaches traders from all over the world how to get profitable, confident and consistent by trading systematically and backtesting their own trading systems. He helps profitable traders grow and smooth returns by implementing a portfolio of trading systems to make money from different markets and market conditions.