Candlestick Patterns
Master Japanese candlesticks—the foundation of technical analysis. Learn powerful reversal and continuation patterns that reveal market psychology.
What Are Japanese Candlesticks?
Japanese candlesticks were developed by rice traders in 18th-century Japan and remain the most popular charting method today. Each candlestick represents price action for a specific time period (1 minute, 5 minutes, 1 hour, 1 day, etc.).
Anatomy of a Candlestick
Bullish Candle (Green/White)
- Top Wick: High of the period
- Top of Body: Close price
- Bottom of Body: Open price
- Bottom Wick: Low of the period
- Meaning: Buyers dominated, price closed higher than it opened
Bearish Candle (Red/Black)
- Top Wick: High of the period
- Top of Body: Open price
- Bottom of Body: Close price
- Bottom Wick: Low of the period
- Meaning: Sellers dominated, price closed lower than it opened
Single Candlestick Patterns
These patterns form with just one candle and signal potential reversals or continuation.
1. Doji
Standard Doji
Long-Legged Doji
Dragonfly Doji
Description: Open and close are virtually the same (tiny or no body). Shows indecision—neither buyers nor sellers won.
Meaning: Potential reversal signal, especially after a strong trend. Market is "taking a break" to decide direction.
Bullish Context:
Doji at support after downtrend = possible bottom. Buyers stepping in.
Bearish Context:
Doji at resistance after uptrend = possible top. Sellers arriving.
2. Hammer & Hanging Man
Hammer
Forms after downtrend at support
Hanging Man
Forms after uptrend at resistance
Description: Small body at the top, long lower wick (2-3x body size), little or no upper wick. Looks like a hammer or lollipop.
Psychology: Sellers pushed price down, but buyers rejected the low and drove price back up. Shows buying pressure at lower levels.
Hammer (Bullish Reversal)
- • Appears at the bottom of downtrend or support level
- • Long lower wick = sellers failed to keep price down
- • Confirmation: Next candle closes above hammer's high
- • Trade: Buy when confirmed, stop-loss below hammer's low
Hanging Man (Bearish Reversal)
- • Appears at the top of uptrend or resistance level
- • Same shape as hammer but bearish context
- • Long lower wick = buyers losing control
- • Confirmation: Next candle closes below hanging man's low
- • Trade: Sell when confirmed, stop-loss above hanging man's high
Remember: Same pattern, different context. Location matters! Hammer at support = bullish. Hanging man at resistance = bearish.
3. Shooting Star & Inverted Hammer
Shooting Star
After uptrend (bearish)
Inverted Hammer
After downtrend (bullish)
Description: Small body at the bottom, long upper wick (2-3x body size), little or no lower wick. Opposite of hammer/hanging man.
Psychology: Buyers pushed price up, but sellers rejected the high and drove price back down. Shows selling pressure at higher levels.
- • Shooting Star: Bearish reversal at resistance/top of trend. Buyers tried to rally but failed.
- • Inverted Hammer: Bullish reversal at support/bottom of trend. Early buying interest emerging.
- • Both need confirmation from next candle before trading
Multiple Candlestick Patterns
These powerful patterns form with 2-3 candles and provide stronger reversal signals than single candles.
4. Engulfing Patterns
Description: Two-candle pattern where the second candle's body completely "engulfs" (covers) the first candle's body. Shows dramatic shift in momentum.
Bullish Engulfing
Large green candle engulfs previous red candle
- • Forms after downtrend
- • First candle: Small red body
- • Second candle: Large green body that covers entire red candle
- • Shows buyers overwhelmed sellers
- Trade: Buy above engulfing candle high
Bearish Engulfing
Large red candle engulfs previous green candle
- • Forms after uptrend
- • First candle: Small green body
- • Second candle: Large red body that covers entire green candle
- • Shows sellers overwhelmed buyers
- Trade: Sell below engulfing candle low
5. Morning Star & Evening Star
Description: Three-candle pattern showing a clear trend reversal. Very reliable when found at major support/resistance.
Morning Star (Bullish Reversal)
- 1. First candle: Long red candle (downtrend continuation)
- 2. Second candle: Small body (any color) - the "star" showing indecision
- 3. Third candle: Long green candle closing above first candle's midpoint
Forms at support/bottom. Shows sellers exhausted, buyers taking control.
Evening Star (Bearish Reversal)
- 1. First candle: Long green candle (uptrend continuation)
- 2. Second candle: Small body (any color) - the "star" showing indecision
- 3. Third candle: Long red candle closing below first candle's midpoint
Forms at resistance/top. Shows buyers exhausted, sellers taking control.
How to Trade Candlestick Patterns
5-Step Trading Process
- 1
Identify the Pattern
Look for doji, hammer, engulfing, stars, etc. on your charts. Practice recognition on demo account.
- 2
Check Context
Is pattern at support/resistance? After a trend? Context determines if signal is valid.
- 3
Wait for Confirmation
Don't trade immediately! Wait for next candle to close in reversal direction. Reduces false signals by 50%+.
- 4
Set Stop-Loss
Place stop-loss beyond the pattern (below hammer low, above shooting star high). Non-negotiable!
- 5
Set Take-Profit Target
Use next support/resistance level or 2:1 risk-reward ratio minimum.
Common Mistakes to Avoid
Trading Without Confirmation
Jumping in immediately when you see a hammer or doji. Wait for next candle to confirm the reversal. Many patterns fail without confirmation.
Ignoring Context
Trading every pattern you see. A hammer in the middle of nowhere means nothing. Patterns at major support/resistance are 3x more reliable.
Using Only Candlesticks
Relying solely on candlestick patterns without support/resistance, trendlines, or indicators. Combine multiple tools for higher probability trades.
Key Takeaways
- Candlesticks show market psychology—each candle tells a story of the battle between buyers and sellers.
- Single-candle patterns: Doji (indecision), hammer (bullish reversal), shooting star (bearish reversal).
- Multi-candle patterns: Engulfing (strong reversal), morning/evening stars (3-candle reversal).
- Context is everything—patterns at support/resistance are far more reliable than those in the middle of trends.
- Always wait for confirmation—trade after the next candle closes, not immediately when pattern forms.
- Combine with other tools—use candlesticks alongside support/resistance, trends, and indicators for best results.