CANDLESTICK PATTERNS

IN
TECHNICAL ANALYSIS
History of Candlestick
Patterns
• • Originated in Japan in the 18th century.
• • Created by Munehisa Homma, a rice trader.
• • Adapted into modern technical analysis for analyzing
stock and stock prices.
 What are Candles?

Candles are used in technical analysis to represent price movements

A candlestick has four main components:

1. Open: The price at the start of the trading period.
2. Close: The price at the end of the trading period.
3. High: The highest price during the period.
4. Low: The lowest price during the period.
Body: The area between the open and close.
 Green : Price closed higher than it opened (bullish).
 Red : Price closed lower than it opened (bearish).
Wicks (Shadows): Thin lines above and below the body
representing the high and low prices.
 Key Single Candlestick Patterns

Bullish Patterns

1. Hammer:
The Hammer is another popular bullish reversal candlestick pattern. It
appears after a downtrend and signals that the market may reverse
upward.
Key Characteristics
[Link]:
1. Small real body near the upper end of the candlestick.
2. Long lower shadow (at least twice the size of the real body).
3. Little to no upper shadow.
[Link]:
1. Forms at the bottom of a downtrend, indicating potential
bullish momentum.
[Link]:
1. Can be green (bullish) or red (bearish). A green Hammer is
stronger but even a red Hammer can signal reversal when
confirmed.
Interpretation
•The long lower shadow reflects that sellers pushed the price down
significantly during the session.
•However, buyers regained control, driving the price back near or above
the opening level by the close.
•This shows rejection of lower prices and hints at a possible reversal in the
trend.

Trading Strategy
[Link] is Key:
Always wait for confirmation with the next candle, preferably a bullish
one that closes above the Hammer's high.
[Link]:
Higher volume on the Hammer candle strengthens its significance.
[Link]-Loss:
Place a stop-loss below the Hammer's low.
[Link]:
Identify resistance levels or use Fibonacci retracements to set profit
targets.
2. Inverted Hammer:
The Inverted Hammer is a bullish reversal candlestick pattern
that typically forms at the bottom of a downtrend.

Key Characteristics
[Link]:
Small real body near the lower end of the candlestick.
Long upper shadow (at least twice the size of the real
body).
Little to no lower shadow.
[Link]:
Appears after a downtrend.
Suggests that buyers attempted to push the price higher
during the session but were unable to sustain it fully.
[Link]:
Can be either green (bullish) or red (bearish), though a
green body is generally considered stronger.
Interpretation
•The long upper shadow shows that buyers tried to push the price
higher but faced resistance.
•The small body indicates that, despite the initial bullish effort, the
closing price didn't move far from the open.
•It signals a potential reversal if followed by a strong bullish candle in
subsequent sessions.

Trading Strategy
[Link] is Key:
Wait for the next candle to confirm the reversal (e.g., a bullish candle
closing above the Inverted Hammer).
[Link]:
Higher volume during the Inverted Hammer strengthens its reliability.
[Link]-Loss:
Place a stop-loss below the low of the Inverted Hammer to manage risk.
[Link]:
Set targets based on nearby resistance levels or use Fibonacci
retracement levels for guidance.
3. Bullish Marubozu
The Bullish Marubozu is a strong candlestick pattern that signifies
dominant buying pressure in the market. It's a single candlestick
pattern often used by traders to confirm a bullish trend or
continuation.

Key Characteristics
[Link]:
• A large bullish (green) candlestick with no shadows (or very
minimal ones).
• The opening price is equal to the low, and the closing price is
equal to the high.
[Link]:
• Typically appears at the beginning of an uptrend or within an
ongoing bullish trend.
• Indicates strong buying momentum, with no hesitation from
the bears.
[Link]:
• Higher trading volume during a Bullish Marubozu strengthens
its reliability.
Interpretation
•The absence of shadows demonstrates that buyers were in control
from the open to the close.
•If it appears after a downtrend, it could signal the start of a bullish
reversal.
•If it appears within an uptrend, it confirms the continuation of the
trend.

Trading Strategy
[Link] Point:
Enter a long position immediately after the Bullish Marubozu or
after the next candle confirms the upward movement.
[Link]-Loss:
Place a stop-loss below the low of the Marubozu candle to
manage risk.
[Link]:
Use resistance levels, Fibonacci retracements, or a risk-reward
ratio for setting your profit target.
 4. Bullish Engulfing

The Bullish Engulfing is a powerful candlestick pattern that signals a

potential reversal from a downtrend to an uptrend. It's one of the most
reliable bullish reversal patterns.

Key Characteristics
[Link]:
1. The first candle is small and bearish (red).
2. The second candle is large and bullish (green) and completely
"engulfs" the body of the first candle.
[Link]:
1. Appears after a downtrend, signaling that buying pressure is
overtaking selling pressure.
[Link]:
1. A rise in volume during the second candle increases the
reliability of the pattern.
Interpretation
•The first candle reflects continued bearish sentiment.
•The second candle shows that buyers have regained control, pushing the price higher and engulfing the previous candle's range.
•This shift in momentum suggests that a potential trend reversal is underway.

Trading Strategy
[Link]:
Wait for the next candle to confirm the reversal. Ideally, the price should close above the second candle's high.
[Link]-Loss:
Place a stop-loss below the low of the Bullish Engulfing pattern to minimize risk.
[Link] Point:
Enter a long position once the next candle confirms the pattern.
[Link]:
Use nearby resistance levels or Fibonacci retracements to set profit targets.
5. Morning Star
The Morning Star is a classic three-candlestick bullish reversal pattern
that often appears at the bottom of a downtrend. It signals a potential
reversal to an uptrend and is highly regarded in technical analysis.

Key Characteristics
[Link]:
1. First Candle: A large bearish candle (red), indicating strong
selling pressure.
2. Second Candle: A small-bodied candle (can be bullish, bearish,
or a Doji), showing indecision or hesitation in the market.
3. Third Candle: A large bullish candle (green) that closes well
into the body of the first candle, confirming the reversal.
[Link]:
1. Found at the bottom of a downtrend.
2. Often seen as a signal that sellers are losing control, and
buyers are stepping in.
[Link]:
1. Higher volume on the third candle strengthens the pattern's
reliability.
Interpretation
•The first candle confirms the downtrend with strong selling pressure.
•The second candle reflects indecision in the market, as neither buyers nor sellers dominate.
•The third candle shows strong buying pressure, signaling a shift in sentiment and a potential trend reversal.
Trading Strategy
[Link]:
Wait for the third candle to close above the midpoint of the first candle's body for confirmation.
[Link] Point:
Enter a long position after the close of the third candle.
[Link]-Loss:
Place a stop-loss below the low of the second candle to manage risk.
[Link]:
Set targets at resistance levels or using Fibonacci retracement levels.
5. Piercing Line
The Piercing Line is a two-candlestick bullish reversal pattern that
typically appears at the bottom of a downtrend. It suggests that buying
pressure may be building, potentially leading to a trend reversal.

Key Characteristics
[Link]:
1. First Candle: A long bearish candle (red), showing strong
selling pressure.
2. Second Candle: A long bullish candle (green) that opens below
the low of the first candle and closes above the midpoint of
the first candle's body.
[Link]:
1. Found at the end of a downtrend.
2. Indicates that buyers are starting to overpower sellers, hinting
at a potential reversal.
[Link]:
1. Higher volume on the second candle adds strength to the
pattern.
Interpretation
•The first candle confirms the continuation of bearish sentiment.
•The gap down opening of the second candle initially suggests more selling, but the bullish close above the midpoint of the first candle
indicates a shift in market sentiment.
Trading Strategy
[Link]:
Wait for the next candle to confirm the pattern by closing higher than the second candle's high.
[Link] Point:
Enter a long position after confirmation.
[Link]-Loss:
Place a stop-loss below the low of the second candle to minimize risk.
[Link]:
Use nearby resistance levels or Fibonacci retracements to set profit targets.
6. Three White Soldiers
The Three White Soldiers is a bullish continuation or reversal
candlestick pattern that signals strong buying pressure and the
potential for further upward movement. It usually forms after a
downtrend or a period of consolidation.

Key Characteristics
[Link]:
1. Three Consecutive Bullish Candles:
• Each candle opens within the body of the previous
candle (near its close).
• Each candle closes progressively higher than the last.
2. Candles should have long bodies and little to no shadows,
indicating strong momentum.
[Link]:
1. Found at the bottom of a downtrend (reversal signal) or
during an uptrend (continuation signal).
[Link]:
1. Higher volume during the pattern increases its reliability.
Interpretation
•First Candle: Indicates the beginning of buying pressure.
•Second Candle: Confirms the strength of the bulls, as prices continue to rise with a strong close.
•Third Candle: Reinforces the bullish momentum and suggests that the trend is likely to continue.
Trading Strategy
[Link]:
The third candle serves as confirmation of the pattern. Additional confirmation can come from breaking a nearby resistance level.
[Link] Point:
Enter a long position after the third candle closes, or during its formation if confident.
[Link]-Loss:
Place a stop-loss below the low of the first candle for safety.
[Link]:
Set profit targets at resistance levels, round numbers, or based on Fibonacci extensions.
 Bearish Patterns

[Link] Star
The Shooting Star is a bearish reversal candlestick pattern that typically
appears at the top of an uptrend. It signals that the market may be
preparing to reverse downward due to selling pressure.

Key Characteristics
[Link]:
1. Small Real Body: Near the lower end of the candle.
2. Long Upper Shadow: At least twice the length of the real
body.
3. Little or No Lower Shadow.
[Link]:
1. Forms after an uptrend, indicating potential exhaustion of
buying pressure.
2. Often signals a shift in sentiment from bullish to bearish.
[Link]:
1. Can be either green (bullish) or red (bearish). A red Shooting
Star is slightly more bearish.
Interpretation
•The long upper shadow shows that buyers pushed the price significantly higher during the session.
•However, sellers regained control, driving the price back near the opening level by the close.
•This indicates rejection of higher prices and hints at a potential reversal.

Trading Strategy
[Link]:
Always wait for the next candle to confirm the reversal (e.g., a bearish candle closing below the Shooting Star’s body).
[Link] Point/Stop Loss
Sell if second candle close below the shooting star closing.
 Difference Between Shooting Star and Inverted Hammer

•Both patterns look similar, but their context is different:

• Shooting Star: Appears at the top of an uptrend
(bearish reversal).
• Inverted Hammer: Appears at the bottom of a
downtrend (bullish reversal).
2. Hanging Man

The Hanging Man is a bearish reversal candlestick pattern that typically

appears at the top of an uptrend. It indicates potential exhaustion of
buying momentum and the likelihood of a trend reversal.

Key Characteristics
[Link]:
1. Small Real Body: Near the upper end of the candlestick.
2. Long Lower Shadow: At least twice the length of the real
body.
3. Little or No Upper Shadow.
[Link]:
1. Forms after an uptrend, suggesting that sellers are starting to
gain control.
[Link]:
1. Can be either green (bullish) or red (bearish). A red Hanging
Man is considered more bearish.
Interpretation
•The long lower shadow shows that sellers tried to push the price significantly lower during the session.
•Although buyers managed to push the price back near the opening level, the presence of selling pressure indicates potential weakness
in the uptrend.
•Confirmation from the next candle is crucial to validate the reversal.

Trading Strategy
[Link]:
Wait for the next candle to close below the Hanging Man's body to
confirm the bearish signal.
[Link] Point/ Stop-Loss
Sell if second candle close below wick of hanging man candle.
Difference Between Hanging Man and Hammer

•Both patterns look similar, but their context is different:

• Hanging Man: Appears at the top of an uptrend
(bearish reversal).
• Hammer: Appears at the bottom of a downtrend
(bullish reversal).
 3. Evening Star
The Evening Star is a bearish reversal candlestick pattern that typically
forms after an uptrend. It signals that buying pressure may be waning
and that a potential downtrend or correction is coming. It is the
opposite of the Morning Star pattern, which is a bullish reversal signal.

Key Characteristics
[Link]:
1. First Candle: A large bullish (green) candle, showing strong
buying pressure.
2. Second Candle: A small-bodied candle (can be bullish,
bearish, or a Doji), indicating indecision in the market. The
open and close of the second candle should be within the
body of the first candle.
3. Third Candle: A large bearish (red) candle that closes well
into the body of the first candle, confirming the reversal.
[Link]:
1. Appears after a strong uptrend, signaling that the bulls may
be losing control and the bears are starting to take over.
[Link]:
1. Higher volume on the third candle strengthens the validity
of the pattern.
Interpretation
•The first candle confirms the strength of the uptrend with strong buying.
•The second candle, being small, reflects indecision or market pause, indicating that the buyers are losing momentum.
•The third candle strongly confirms the bearish reversal, as it closes deeply into the body of the first candle, indicating that sellers
have gained control.
Trading Strategy
[Link]:
Wait for the third candle to close below the midpoint of the first candle to confirm the reversal.
[Link] Point/ Stop-Loss:
Sell if third or fourth candle closes below the first candle.
 4. Bearish Engulfing
The Bearish Engulfing is a two-candlestick pattern that signals a
potential reversal from an uptrend to a downtrend. It is considered a
strong bearish reversal pattern when confirmed by following price
action.

Key Characteristics
[Link]:
1. First Candle: A small bullish (green) candle, indicating the
continuation of the uptrend.
2. Second Candle: A large bearish (red) candle that completely
engulfs the body of the first candle. This suggests that the
sellers have overpowered the buyers, signaling a shift in
momentum.
[Link]:
1. Found at the top of an uptrend, making it a potential sign of
trend reversal.
2. The second candle (the bearish one) must close below the first
candle’s open to confirm the pattern.
[Link]:
1. A higher volume on the second candle increases the reliability
of the pattern. Higher volume suggests strong selling pressure
and a greater likelihood of a trend change.
Interpretation
•The first candle shows that the buyers have controlled the market, but the second candle, by engulfing the first, indicates that the bears
have taken over.
•The larger size of the second candle confirms that the selling pressure is significant enough to reverse the uptrend.
•The pattern is stronger when the second candle closes lower than the low of the first candle.
Trading Strategy
[Link]:
Wait for the price to continue moving downward after the bearish engulfing pattern to confirm the trend reversal.
[Link] Point/ Stop-Loss :
Sell if price goes below the bearish engulfing candle.
 5. Bearish Marubozu
The Bearish Marubozu is a strong single-candlestick pattern that signals
a continuation or reversal to the downside. It reflects strong selling
pressure and is often considered a reliable bearish indicator.

Key Characteristics
[Link]:
1. Large Bearish Candle: A long red candlestick with no or minimal shadows.
2. Opening Price: The price opens at or near the high of the session.
3. Closing Price: The price closes at or near the low of the session.
4. The lack of shadows (or very small shadows) indicates that the bears were in
control throughout the entire session, with no significant buying pressure at any
point.
[Link]:
1. The Bearish Marubozu typically forms at the top of an uptrend or after a period
of consolidation. This suggests that the market sentiment is shifting to the
downside, and the trend could be reversing or continuing downward.
[Link]:
1. A high volume during the formation of the Bearish Marubozu increases the
strength of the signal, as it shows that strong selling pressure is behind the price
move.
Interpretation
•The absence of upper and lower shadows indicates that the sellers were in control throughout the entire session, pushing the price down
from the open to the close.
•If this pattern appears after an uptrend, it suggests that the bulls are losing control, and a bearish reversal could be imminent.
•If it appears during a downtrend, it confirms the continuation of the bearish trend.
Trading Strategy
[Link]:
For a more reliable signal, wait for the next candlestick to confirm the bearish trend. A continuation of downward movement can
further validate the signal.
[Link] Point/ Stop-Loss :
Sell if price break below the low of the Marubozu.
 6. Dark Cloud Cover
The Dark Cloud Cover is a two-candlestick bearish reversal pattern that
typically forms after an uptrend. It signals that a potential downtrend
may be starting as the buyers lose control and sellers begin to
dominate.

Key Characteristics
[Link]:
1. First Candle: A long bullish (green) candle, showing strong
buying pressure.
2. Second Candle: A large bearish (red) candle that opens above
the high of the first candle (a gap up) and closes below the
midpoint of the first candle’s body.
[Link]:
1. Appears after a strong uptrend, suggesting that buying
pressure is fading and that a bearish reversal could be
underway.
2. The second candle's close below the midpoint of the first
candle indicates that the market sentiment is shifting from
bullish to bearish.
[Link]:
1. Higher volume on the second candle adds strength to the
pattern, as it indicates that the selling pressure is significant.
Interpretation
•The first candle reflects the continuation of an uptrend with strong buying activity.
•The second candle opens with a gap above the first candle's close, but then the bears take control, pushing the price lower and closing
below the first candle’s midpoint. This suggests that the bulls are losing power, and the bears are starting to take over.

Trading Strategy
[Link]:
Wait for the price to continue moving downward in the next few candles to confirm the bearish trend.
[Link] Point/Stop-loss:
Sell if price break below the low of the second candle.
 7. Three Black Crows
The Three Black Crows is a strong bearish reversal pattern that typically
appears after an uptrend. It signals that the price is likely to continue
downward, indicating that the bulls have lost control and the bears
have taken over.

Key Characteristics
[Link]:
1. Three Consecutive Bearish Candles:
1. Each candle is a long bearish (red) candle.
2. Each candle opens within the body of the previous candle (near its close)
and closes lower than the previous candle.
3. The candles should have little to no upper shadows, indicating strong
selling pressure throughout the session.
[Link]:
1. Forms after an uptrend, signaling that the previous upward momentum is
fading and a downtrend is likely to follow.
2. The successive bearish candles indicate that the sellers are in control, pushing
the price lower with each session.
[Link]:
1. Higher volume on the third candle increases the strength of the pattern, as it
reflects strong selling pressure. Higher volume during each of the three
candles is a sign of market conviction.
Interpretation
•The first candle signals the beginning of the bears taking control, with a strong move downward.
•The second candle confirms that the downtrend is continuing, with little recovery or retracement.
•The third candle reinforces the bearish sentiment, closing at a significantly lower level and usually signaling the continuation of the
downtrend.

Trading Strategy
[Link]:
After the third candle, look for continued bearish momentum in the following sessions to confirm the downtrend.
[Link] Point/ Stop-Loss:
Sell after the third candle closes or wait for the price to break below the low of the third candle.
 Neutral patterns

Doji

A Doji is a candlestick pattern that represents indecision in the market, showing that neither buyers nor sellers are in
control. It is characterized by a very small real body, with the open and close prices being very close or identical. The long
wicks (upper and lower shadows) reflect that both buyers and sellers attempted to push the price in opposite directions
during the session, but neither was able to establish control.

Key Characteristics
[Link]:
1. Small Real Body: The open and close prices are nearly the
same, resulting in a small or non-existent body.
2. Long Shadows: The upper and lower shadows (wicks) can vary
in length but are often long, indicating that there was
significant price movement during the session but no clear
direction.
3. Indecision: The Doji pattern suggests market indecision, as
neither buyers nor sellers managed to dominate.
 Types of Doji
There are different types of Doji candlesticks, which can signal different market conditions:

•Standard Doji: A small real body with long upper and lower shadows.
•Long-legged Doji: A Doji with long upper and lower shadows, indicating extreme indecision and potential for a reversal.
•Dragonfly Doji: A Doji with a long lower shadow and a small body near the top of the candle. It suggests potential bullish reversal.
•Gravestone Doji: A Doji with a long upper shadow and a small body near the bottom of the candle. It suggests potential bearish reversal.
 • The Institutional Candle, also known as a Smart Money Candle, refers to a
candlestick pattern that signifies significant buying or selling pressure, often driven by
Introduction to institutional investors or large market players. These candles are typically larger than
regular candlesticks, and they indicate that a powerful force (such as a large institution
Institutional Candle or hedge fund) has entered the market and is likely to move the price in a strong
direction.
Practical Tips for traders

USE PATTERNS WITH VOLUME AND • AVOID TRADING SOLELY ON • TEST STRATEGIES ON DEMO
CONTEXT. PATTERNS. ACCOUNTS/PAPER TRADING FIRST.