Essential Candlestick Patterns Every Trader Must Know
Candlestick patterns have been used for centuries to predict price movements. Originating from Japanese rice traders in the 1700s, these patterns remain incredibly relevant in modern trading.
Anatomy of a Candlestick
Before diving into patterns, understand the components:
Body: The thick part showing open-to-close range
Upper Wick/Shadow: The line above the body (high)
Lower Wick/Shadow: The line below the body (low)
Color: Green/white = bullish, Red/black = bearishSingle Candlestick Patterns
Doji
A candle where open and close are nearly equal, showing indecision:
Standard Doji: Uncertainty in the market
Dragonfly Doji: Bullish reversal signal (long lower wick)
Gravestone Doji: Bearish reversal signal (long upper wick)
Hammer and Hanging Man
Both have small bodies and long lower wicks:
Hammer: Appears in downtrend, signals bullish reversal
Hanging Man: Appears in uptrend, signals bearish reversalShooting Star and Inverted Hammer
Both have small bodies and long upper wicks:
Shooting Star: Bearish reversal at top of uptrend
Inverted Hammer: Bullish reversal at bottom of downtrendDouble Candlestick Patterns
Engulfing Patterns
When the second candle completely engulfs the first:
Bullish Engulfing: Large green candle engulfs small red candle
Bearish Engulfing: Large red candle engulfs small green candleTweezer Tops and Bottoms
Two candles with matching highs (top) or lows (bottom):
Tweezer Top: Two candles with same high, bearish signal
Tweezer Bottom: Two candles with same low, bullish signalTriple Candlestick Patterns
Morning Star and Evening Star
Three-candle reversal patterns:
Morning Star (Bullish):
Large bearish candle
Small-bodied candle (gap down)
Large bullish candle closing above midpoint of firstEvening Star (Bearish):
Large bullish candle
Small-bodied candle (gap up)
Large bearish candle closing below midpoint of firstThree White Soldiers / Three Black Crows
Three consecutive strong candles:
Three White Soldiers: Three bullish candles, each closing higher
Three Black Crows: Three bearish candles, each closing lowerTrading with Candlestick Patterns
Confirmation is Key
Never trade a pattern in isolation:
Wait for the pattern to complete
Confirm with volume
Check higher timeframe trend
Use additional indicatorsEntry and Exit Rules
Entry: After pattern confirmation, enter on next candle open
Stop-Loss: Below/above the pattern's extreme
Target: Use support/resistance or Fibonacci extensionsPattern Reliability Rankings
High Reliability:
Engulfing patterns
Morning/Evening Star
Three White Soldiers/Black CrowsMedium Reliability:
Hammer/Hanging Man
Doji (with context)Lower Reliability (need confirmation):
Single doji
Spinning topsConclusion
Candlestick patterns provide valuable insights into market psychology. Combine them with trend analysis, volume, and indicators like SimpleAlgo for the highest probability trades.
