Despite the fact that almost all candlesticks allow for personal interpretation, they are nevertheless widely used. That being said, how many candlestick patterns exist? There are probably many patterns, of which only some of them have been given names or labels over the years. By arranging two or more candlesticks in specific groups, the candlestick patterns are created. One candlestick alone can occasionally send forth strong messages. In this article, I have compiled a list of the most popular candlestick patterns.
What Are Candlestick Patterns?
Candlesticks are graphical depictions of price changes over a specific time period. They are frequently made up of a financial instrument’s opening, high, low, and closing prices. If the opening price is higher than the closing price, a filled candlestick is produced, which is typically red or black.
When the closing price exceeds the opening price, a green or hollow candlestick (white with a black outline) is typically displayed. The body or actual body, which refers to the full or hollow area of the candle, can be long, normal, or short depending on how it stands in relation to the lines above or below it. The shadows, tails, or wicks, or lines above and below, show the high and low price ranges during a given period of time. But not every candlestick casts a shadow.
A candlestick pattern in technical analysis is a price movement represented graphically on a candlestick chart that some people think can forecast a certain market movement. Programs that are used for charting must rely on specified criteria to match the pattern because pattern recognition is subjective. It is possible to divide recognized patterns into simple patterns and complex patterns.
How Do You Read Candlestick Charts?
Over a century before the West created bar charts and point-and-figure charts, candlestick charts were invented in Japan. A Japanese man by the name of Homma realized in the 1700s that, in addition to a correlation between rice price and supply and demand, trader emotions had a significant impact on the markets.
The open, high, low, and close prices for the securities are displayed on a daily candlestick chart. The “true body” of the candlestick, which is its wide or rectangle-shaped portion, displays the relationship between opening and closing prices.
This actual body displays the price range between the trading day’s opening and closing prices.
A bearish candle is one that has a true body that is full, black, or red because it indicates that the closure was lower than the open. It demonstrates that the prices opened lower than the opening price before being driven lower by the bears.
If the genuine body of the candle is empty, white, or green, this denotes a bullish candle, in which the closing was higher than the open. It demonstrates that the prices opened, the bulls drove them higher, and they ended above the opening price.
The wicks or shadows, which are the thin vertical lines above and below the actual body, show the high and low prices of the trading session.
The bottom shadow displays the low prices attained during the trading session, while the higher shadow displays the maximum price.
Understanding Candlestick Charts
There are a few candlestick chart-specific presumptions that need to be kept in mind before we go into learning about various candlestick charts.
A bullish or green candle denotes strength, whereas a bearish or red candle denotes weakness. When buying, one should make sure the day is a green candle day, and when selling, one should make sure the day is a red candle day.
The definition of a pattern in a textbook lists specific requirements, although it should be noted that the pattern may vary slightly based on the status of the market.
One ought to search for a previous trend. If you are looking for a bearish reversal pattern, the prior trend should be bullish, and vice versa if you are looking for a bullish reversal pattern.
Candlestick Pattern Types
There are several categories of candlestick patterns:
- Transitional Patterns
- Patterns of Bullish Reversals
- Patterns of Bearish Reversals
Bullish Candlestick Patterns
Bullish Reversal candlestick patterns suggest that the current downward trend will change to an upward trend.
Therefore, when the bullish reversal candlestick chart patterns are produced, traders should use caution while taking short bets.
The various kinds of bullish reversal candlestick patterns are listed below:
1. Hammer:
At the end of a downtrend, the single candlestick pattern known as a hammer is formed, which denotes a bullish turn.
This candle’s genuine body, which is little and near the top, has a lower shadow that ought to be twice as large. There is minimal to no top shadow in this candlestick chart pattern.
The psychological explanation for this candle formation is that as soon as prices opened, sellers pushed them lower.
As soon as buyers entered the market, prices shot up and the trading session ended with prices higher than they had started.
This led to the formation of a bullish pattern, which indicates that buyers have returned to the market and the slump may be coming to an end.
If a bullish candle forms the next day, traders can open a long position and set a stop loss near the Hammer low.
2. Piercing Pattern:
A candlestick chart pattern called a “piercing pattern” is created after a decline and signals a bullish reversal.
It consists of two candles, the first of which is a bearish candle that signals the uptrend will keep going down.
A bullish reversal is about to occur because the second candle, which is bullish, closes more than 50% of the real body of the preceding candle while opening the gap down. This action indicates that bulls have returned to the market.
If a bullish candle forms the next day, traders can open a long position and set a stop loss at the second candle’s low.
3. Bullish Engulfing
After a decline, the multiple candlestick chart pattern known as “Bullish Engulfing” forms, signaling a bullish turnaround.
Two candlesticks are used to make it, with the second candlestick enveloping the first. The decline is expected to continue as the first candle is negative.
The first candle is entirely engulfed by the second candlestick, which indicates that the bulls have returned to the market.
If a bullish candle forms the next day, traders can open a long position and set a stop loss at the second candle’s low.
4. The Morning Star
After a slump, the Morning Star multiple candlestick chart pattern forms, signaling a bullish reversal.
It consists of three candlesticks: a bearish candle in the first, a Doji in the second, and a bullish candle in the third.
The first candle indicates that the downward trend is still in effect. A doji on the second candle suggests market uncertainty. The market’s bulls are back, and a reversal will occur, according to the third bullish candle.
The true bodies of the first and third candles should be entirely clear of the second candle.
If a bullish candle forms the next day, traders can open a long position and set a stop loss at the second candle’s low.
5. Three White Soldiers:
A decline is followed by the formation of the Three White Soldiers, a multiple candlestick pattern that denotes a bullish reversal.
These candlestick charts are formed of three long bullish bodies that are open within the previous candle’s true body and do not have extended shadows.
6. White Marubozu:
After a slump, the White Marubozu is a single candlestick pattern that denotes a bullish reversal.
The markets may turn bullish since this candlestick has a long bullish body and no upper or lower shadows, which indicates that the bulls are applying purchasing pressure.
The sellers should exercise prudence and close their short positions when this candle forms.
7. Three Inside Up
A multiple candlestick pattern called the Three Inside Up is formed after a decline and indicates a bullish reversal.
Three candlesticks make up the formation; the first is a lengthy bearish candle, and the second is a modest bullish candle that should fall within the first candlestick’s range.
The third candlestick, which will confirm the bullish reversal, should be a long bullish candlestick.
The first and second candlesticks should have a bullish harami candlestick pattern relationship.
After this candlestick pattern is finished, traders can open a long position.
8. Bullish Harami
The multiple candlestick pattern known as the Bullish Harami is formed after a decline and indicates a bullish reversal.
Two candlestick charts make up the structure; the first candlestick is a large bearish candle and the second is a little bullish candle that should be within the first candlestick’s range.
The first negative candle indicates that the bearish trend will continue, while the second candle indicates that the bulls have returned to the market.
After this candlestick pattern is finished, traders can open a long position.
9. Tweezer Bottom:
The bullish reversal candlestick pattern known as the Tweezer Bottom forms near the bottom of a downtrend.
It is made up of two candlesticks, the first of which is bearish and the second of which is bullish.
When the Tweezer Bottom candlestick pattern is formed, the past trend is a downtrend. Both candles make lows that are nearly or exactly the same.
A bearish tweezer candlestick appears to be forming, suggesting that the current decline will continue. The low of the bullish candle from the second day on the following day serves as a support level.
The bottom-most candles that nearly share the same low point out the strength of the support as well as the possibility that the downward trend may turn upward. As a result, the bulls take over and drive the price up.
The formation of the bullish candle the next day confirms this bullish turnaround.
10. Inverted Hammer:
At the bottom of the downtrend, an Inverted Hammer forms, signaling a bullish turnaround.
The actual body of this candlestick is at the very end, and its upper shadow is quite long. The Hammer Candlestick pattern is the opposite of this motif.
When the starting and closing prices are close to one another and the upper shadow is greater than double the true body, this pattern is generated.
11. Three Outside Up:
A decline is followed by the formation of the multiple candlestick pattern known as the Three Outside Up, which denotes a bullish reversal.
It comprises of three candlesticks, the first of which is a brief bearish candle and the second of which is a sizable bullish candle that ought to engulf the first.
The third candlestick, which will confirm the bullish reversal, should be a long bullish candlestick.
The Bullish Engulfing candlestick pattern should be present in the interaction between the first and second candlestick charts.
After this candlestick pattern is finished, traders can open a long position.
12. On-Neck Pattern:
A lengthy real bodied bearish candle is followed by a shorter real bodied bullish candle that gaps down on the open but closes close to the prior candle’s close to form the on neck pattern following a downtrend.
The pattern is known as a neckline because it forms a horizontal neckline when the two closing prices are equal or nearly equal throughout the two candles.
13. Bullish Counterattack
A bullish reversal pattern called the bullish counterattack pattern foretells an impending reversal of the market’s current downward trend. This candlestick pattern is a two-bar pattern that shows up when the market is in a decline. The following criteria must be satisfied for a pattern to qualify as a bullish counterattack pattern.
The market must be in a significant decline for the bullish counterattack pattern to occur.
The first candle must be a lengthy, real-body, black candle.
The second candle needs to be lengthy as well (ideally, it should be the same size as the first candle), but it must be white and have a real body. Near the first candle’s end, the second candle must also burn out.
Bearish Candlestick Patterns
Candlestick patterns with a bearish reversal signal the current upswing is about to change to a downturn.
In light of this, traders should exercise caution when taking on long positions when bearish reversal candlestick patterns appear.
The several bearish reversal candlestick chart patterns are listed below:
14. Hanging Man:
A single candlestick pattern called a “Hanging Man” forms at the peak of an uptrend and indicates a negative turn.
This candle’s actual body is little and near the top, with a lower shadow that should be twice as large as the actual body. There is little to no upper shadow in this candlestick pattern.
The psychological explanation for this candle formation is that as soon as prices opened, sellers pushed them lower.
When buyers suddenly entered the market, they attempted to drive up prices, but they were unsuccessful because the prices closed below the starting price.
This led to the formation of a bearish pattern, which indicates that sellers have returned to the market and the upswing may be coming to an end.
If a bearish candle forms the following day, traders can open a short position and set a stop loss at the Hanging Man high.
15. Dark Cloud Cover
Multiple candlestick patterns called “Dark Cloud Cover” are produced following an advance and indicate a bearish reversal.
It is made up of two candles, the first of which is a bullish candle that signifies the upswing will continue.
The second candle, which is bearish, has an opening gap up but closes with more than 50% of the preceding candle’s genuine body, indicating that the bears have returned to the market and that a bearish reversal is about to occur.
If a bearish candle forms the next day, traders can open a short position and set a stop-loss order at the second candle’s high.
16. Bearish Engulfing
A candlestick pattern called a “bearish engulfing” forms after an uptrend and denotes a bearish reversal.
Two candlesticks are used to make it, with the second candlestick enveloping the first. The fact that the first candle is bullish suggests that the uptrend will continue.
The lengthy bearish candle on the second candlestick chart totally engulfs the first candle, signaling the return of the bears to the market.
multi-candle bearish engulfing pattern
If a bearish candle forms the next day, traders can open a short position and set a stop-loss order at the second candle’s high.
17. Evening Star:
The candlestick pattern known as the Evening Star is formed after an uptrend and indicates a negative reversal.
It consists of three candlesticks: a bullish candle, a doji candle, and a bearish candle.
The first candle represents the uptrend continuing, the second candle is a doji and represents market uncertainty, and the third bearish candle represents the return of the bears and the impending reversal.
The true bodies of the first and third candles should be entirely clear of the second candle.
If a bearish candle forms the next day, traders can open a long position and set a stop loss at the second candle’s high.
18. Three Black Crows
After an ascent, a multiple candlestick pattern called The Three Black Crows is produced, signaling a bearish reversal.
These candlesticks are composed of three long bearish bodies that open inside the true body of the preceding candle in the pattern and do not have extended shadows.
a multiple-candlestick pattern of three black crows
19. Black Marubozu:
After an uptrend, the Black Marubozu is a single candlestick pattern that denotes a bearish reversal.
With no upper or lower shadows and a long bearish body, this candlestick pattern indicates that the bears are applying selling pressure and that the markets may become negative.
The purchasers should exercise cautious and close their positions when this candle forms.
20. Three Inside Down:
Multiple candlestick patterns, such as the Three Inside Down, are produced following an uptrend and indicate a bearish reversal.
Three candlesticks make up the formation; the first is a lengthy bullish candle, and the second is a little bearish candle that should fall within the first candlestick’s range.
A lengthy bearish candlestick should appear on the third candlestick chart, indicating a bearish reversal.
The first and second candlesticks’ relationship should follow the bearish Harami candlestick pattern.
After this candlestick pattern is complete, traders can enter a short position.
21. Bearish Harami:
The candlestick pattern known as the “Bearish Harami” is developed after an uptrend and indicates a bearish reversal.
It comprises of two candlesticks, the first of which is a large bullish candle and the second of which is a little bearish candle. Both of these candles should fall within the first candlestick chart’s range.
The first bullish candle indicates that the bullish trend will continue, and the second candle indicates that the bears have returned to the market.
After this candlestick pattern is complete, traders can enter a short position.
22. Shooting Star:
At the peak of an upswing, a shooting star forms, signaling a negative reversal.
The real body and extended upper shadow are at the conclusion of this candlestick chart. It is the opposite of the Candlestick pattern for the Hanging Man.
When the opening and closing prices are close to one another and the upper shadow is greater than double the size of the real body, this pattern is generated.
23. Tweezer Top
A bearish reversal candlestick pattern known as the Tweezer Top forms at the peak of an upswing.
It is made up of two candlesticks, the first of which is bullish and the second of which is bearish. Both tweezer candlesticks reach a nearly identical high.
The prior trend was an uptrend at the time the Tweezer Top candlestick pattern was established. A bullish candlestick appears, suggesting that the current upswing will continue.
The high of the bearish candle from the second day serves as a resistance level the following day. Bulls appear to drive up the price, but they are currently unwilling to purchase at greater costs.
The top-most candles with nearly identical highs show the intensity of the resistance and warn that the upward trend may be about to turn downward. The following day, when the bearish candle forms, this bearish reversal is verified.
24. Three Outside Down:
A multiple candlestick pattern called the Three Outside Down is formed after an uptrend and indicates a negative reversal.
It comprises of three candlesticks, the first of which is a brief bullish candle and the second of which is a sizable bearish candle that ought to engulf the first.
The third candlestick, which will confirm the bearish reversal, should be a lengthy bearish candlestick.
The first and second candles should be related in a way that forms the Bearish Engulfing candlestick pattern.
After this candlestick pattern is complete, traders can enter a short position.
25. Bearish Counterattack
A negative reversal pattern that happens during an uptrend in the market is the bearish counterattack candlestick pattern. It asserts that the market’s rise will eventually expire and be replaced by a new slump.
Continuation Candlestick Patterns
Continuation Patterns are candlestick patterns that tend to resolve in the same direction as the prevailing trend. Strong candlestick patterns are at least 3 times as likely to resolve in the indicated direction. Reliable patterns at least 2 times as likely.
26. Doji:
When the opening and closing prices are nearly equal, the Doji pattern, which represents hesitation, forms on the candlestick.
It develops when bulls and bears are battling for price control, but nobody is able to fully take control of the market.
The candlestick design resembles a cross because of its tiny true body and extensive shadows.
27. Spinning Top:
The spinning top candlestick pattern has the same meaning as the Doji, which stands for market uncertainty.
The true body of a spinning top is larger than a doji, which is the only structural distinction between the two.
28. Falling Three Pattern:
The “falling three pattern” is a five-candle bearish continuation pattern that denotes a break in the current downward trend but not a turn around.
The candlestick pattern consists of three shorter counter-trend candlesticks in the center and two longer downtrend candlestick charts at the beginning and finish of the pattern.
Chart using candles
The candlestick pattern is crucial because it informs traders that the bulls do not yet possess the strength to reverse the trend.
29. Rising Three Pattern:
The “rising three pattern” is a bullish, five-candle continuation pattern that denotes a break in the current uptrend without a trend reversal.
Two lengthy candlesticks in the direction of the trend, in this example an uptrend, make up the candlestick pattern. three shorter counter-trend candlesticks in the middle, with two longer candlesticks at the start and end.
The candlestick pattern is crucial because it informs traders that the bears do not yet possess the strength to reverse the trend.
30. Upside Tasuki Gap:
Upside Tasuki Gap is a bullish continuation candlestick pattern that has developed during an uptrend that is still present.
Three candles make up this candlestick pattern, the first of which is a long-bodied bullish candlestick produced following a gap up, and the second of which is a bullish candlestick chart as well.
A bearish candle that closes the space left between the first two bullish candlesticks is the third candlestick.
31. Downside Tasuki Gap:
Downside Tasuki Gap is a continuous downtrend-related bearish continuation candlestick pattern.
Three candles make up this candlestick pattern, the first of which is a long-bodied bearish candlestick created following a gap down. The second candlestick is also a bearish candlestick.
A bullish candle that fills the space left open by the first two bearish candles is the third candlestick.
32. Mathold Pattern:
A candlestick shape known as a mathold pattern shows the persistence of an earlier trend.
Both bullish and bearish mat hold patterns are possible. A massive bullish candle, a gap higher, and three smaller candles that go lower make up a bullish pattern.
Chart using candles
These candles must continue to burn above the first candle’s low point. A big candle that again moves upside down is the fifth candle. Within a general uptrend, the pattern is present.
33. Rising Window:
A candlestick pattern called the rising window is made up of two bullish candlesticks with a space in between them. Due to significant trading volatility, a gap develops between the high and low of two candlesticks. It is a candlestick pattern that indicates a high presence of buyers in the market.
34. Falling Window:
Two bearish candlesticks with a gap between them make up the candlestick pattern known as the “falling window.” The gap is the distance between two candlesticks’ high and low. Due to the significant trading volatility, it happens. This candlestick pattern, which shows the tremendous strength of sellers in the market, is a trend continuation candlestick pattern.
35. High Wave
The high wave candlestick pattern is a sign of ambiguity, indicating neither bullish nor bearish market sentiment. It generally happens at levels of support and resistance. Here, bulls and bears compete with one another in an effort to move the price in a particular direction. Candlesticks show the pattern by having tall high wicks and lower shadows. They also have little bodies. The presence of lengthy wicks indicates that there was significant price change throughout the specified time frame. However, the final closing price was rather close to the initial price.
Do Candlestick Patterns Work?
Candlestick analysis has been used for decades and is effective because traders employ it, just as other types of technical analysis. Candlesticks are a stand-alone type of charting analysis, while they can be integrated with other technical analysis techniques like momentum indicators.
The best approach to observe a candlestick chart is using daily candlesticks because they show price movement and market data for the entire day. If you choose to employ shorter-term candles, keep in mind that their meaning only holds true for a small number of the time periods you select. For instance, a four-hour candle pattern is only reliable for a small number of four-hour time periods.
Individual candles, such as dojis, as well as multi-candle patterns, such as bullish/bearish engulfing lines, bullish/bearish abandoned infants, and bullish hammers/bearish hanging man patterns, can be used to identify candlestick signals. Although following candles are frequently required for confirmation in order to spot a specific pattern and place a trade based on it, candlesticks are excellent indicators that look ahead. Candlestick formations in particular commonly emit indications of hesitancy, warning traders of a probable change in direction.
Summary
Candlestick analysis is a popular tool used by traders all over the world, especially those based in Asia, to identify the general market trend rather than the direction in which prices will be in two to four hours. It’s important to keep in mind that the candlestick patterns we’ve described above should always be utilized in conjunction with other technical indicators since sometimes the signals these patterns produce aren’t accurate. If you follow the guidelines and watch for confirmation, which is typically in the candle of the next day, candlestick analysis can be beneficial. Daily candles operate better than temporary candlesticks because of this.
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.
