Traders commonly use candlestick patterns as a technical analysis tool. These patterns are often categorized into three groups: bullish, bearish, and continuation patterns.
A candlestick pattern cheat sheet can help traders quickly identify these patterns.
The following is a list of different candlestick patterns, their characteristics, formation, and implications.
Bullish candlestick patterns
Here are some common bullish candlestick patterns:
- Hammer pattern
The hammer is a single bullish reversal pattern that forms after a downtrend. It features a small body with a long lower wick, indicating that while sellers initially drove the price lower, buyers regained control and pushed the price back up by the close. This shift suggests a potential reversal of the downtrend, as the long wick represents the failure of sellers to maintain downward momentum, and the small body shows the closing near the opening price, signalling strength from buyers.
- Inverse hammer pattern
The inverse hammer appears at the bottom of a downtrend and is a bullish reversal signal. It has a small body and a long upper wick, reflecting that buyers pushed the price higher after opening, though they couldn't sustain it. However, it indicates that the bulls are testing resistance levels and could overpower the bears soon. This pattern suggests a potential trend reversal and is often seen as a precursor to rising prices if confirmed by further bullish price action.
- Bullish engulfing pattern
The bullish engulfing pattern involves two candlesticks where a small bearish candle is fully engulfed by a larger bullish candle. It signals a strong reversal as buyers overpower the previous bearish sentiment. The pattern often appears after a downtrend, indicating that demand is increasing. The fact that the bullish candle engulfs the entire body of the previous bearish candle signifies a shift in market sentiment, suggesting that bulls are taking control, and a potential uptrend may follow.
- Piercing line pattern
The piercing line pattern is a two-candlestick bullish reversal pattern where the first is a long bearish candle, followed by a bullish candle that closes above the midpoint of the previous candle. It shows a significant change in market sentiment, as buyers have stepped in after a period of selling pressure. This pattern suggests that the downtrend may be losing steam, and an upward reversal could be on the horizon, with the bullish candle reflecting buyers' growing strength.
- Morning star pattern
The morning star is a three-candlestick bullish reversal pattern that occurs after a downtrend. It consists of a long bearish candle, a small-bodied candle (indicating indecision), and a long bullish candle. The pattern suggests a transition from selling to buying pressure. The small middle candle (also called a star) shows that the market is undecided, but the subsequent bullish candle indicates that buyers are gaining control, signalling a possible reversal.
- Three white soldiers pattern
This bullish reversal pattern is made up of three consecutive long bullish candles that progressively close higher. The pattern forms after a downtrend, indicating that buyers are firmly in control. Each candle opens within the previous candle's body but closes higher, signalling increasing buying momentum. The steady rise suggests confidence in the market, and it often predicts a sustained uptrend, with each session building on the previous gains.
- Inverted hammer pattern
The Inverted Hammer pattern is a bullish reversal pattern that forms at the bottom of a downtrend. It consists of a long upper shadow, a small real body, and a short lower shadow. The long upper shadow suggests that buyers were strong enough to push the price higher, indicating a potential reversal of the downtrend.
- Piercing pattern
The Piercing Pattern is a bullish reversal pattern that forms at the bottom of a downtrend. It consists of two candlesticks: a long red candlestick followed by a long green candlestick that closes above the midpoint of the previous red candlestick. This pattern suggests that buyers have regained control and a potential upward trend may follow.
- Bullish spinning
Top Pattern The Bullish Spinning Top pattern is a neutral to bullish reversal pattern that forms at the bottom of a downtrend or during a sideways trend. It consists of a small real body with approximately equal-sized upper and lower shadows. This pattern indicates indecision among buyers and sellers, but the small body closer to the top suggests that buyers may have a slight advantage.
- Three inside up pattern
The Three Inside Up pattern is a bullish reversal pattern that forms at the bottom of a downtrend. It consists of three candlesticks: a large red candlestick, a small red candlestick inside it, and a large green candlestick that engulfs the previous two. This pattern indicates a strong bullish reversal, as buyers have overcome the selling pressure.
- Bullish harami pattern
The Bullish Harami pattern is a bullish reversal pattern that forms at the bottom of a downtrend. It consists of two candlesticks: a large red candlestick followed by a small green candlestick that is completely engulfed by the previous red candlestick. This pattern suggests a potential reversal of the downtrend, as buyers are starting to gain control.
- Tweezer bottom pattern
The Tweezer Bottom pattern is a bullish reversal pattern that forms at the bottom of a downtrend. It consists of two candlesticks with similar low points and opposite colors. The first candlestick is a red candlestick, and the second candlestick is a green candlestick. This pattern indicates a potential reversal of the downtrend, as buyers and sellers are battling for control.
- Bullish kicker pattern
The Bullish Kicker pattern is a bullish continuation pattern that forms after a bullish trend. It consists of two green candlesticks: a large green candlestick followed by a smaller green candlestick that has a gap up from the previous candlestick's high. This pattern suggests that the bullish trend is likely to continue.
- Bullish abandoned baby pattern
The Bullish Abandoned Baby pattern is a bullish reversal pattern that forms at the bottom of a downtrend. It consists of three candlesticks: a large red candlestick, a small green candlestick that is completely engulfed by the previous red candlestick, and a large green candlestick that gaps up from the previous green candlestick. This pattern indicates a strong bullish reversal, as buyers have regained control.
- Morning star doji pattern
The Morning Star Doji pattern is a bullish reversal pattern that forms at the bottom of a downtrend. It consists of three candlesticks: a large red candlestick, a small doji candlestick, and a large green candlestick that gaps up from the previous candlestick. This pattern indicates a potential reversal of the downtrend, as buyers have regained control.
- Dragonfly doji pattern
The Dragonfly Doji pattern is a bullish reversal pattern that forms at the bottom of a downtrend. It consists of a single candlestick with a long upper shadow, a small real body, and no lower shadow. This pattern indicates that buyers were strong enough to push the price higher, suggesting a potential reversal of the downtrend.
- Concealing baby swallow pattern
The Concealing Baby Swallow pattern is a bullish reversal pattern that forms at the bottom of a downtrend. It consists of two candlesticks: a large red candlestick followed by a small green candlestick that is completely engulfed by the previous red candlestick. However, the closing price of the green candlestick is higher than the opening price of the red candlestick. This pattern indicates a potential reversal of the downtrend, as buyers are starting to gain control.
- Unique three rivers pattern
The Unique Three Rivers pattern is a bullish reversal pattern that forms at the bottom of a downtrend. It consists of three small green candlesticks with small bodies and long upper shadows. This pattern indicates that buyers are gradually gaining control and a potential upward trend may follow.
- Bullish counterattack pattern
The Bullish Counterattack pattern is a bullish reversal pattern that forms at the bottom of a downtrend. It consists of two candlesticks: a large red candlestick followed by a large green candlestick that gaps up from the previous candlestick. This pattern indicates a strong bullish reversal, as buyers have overcome the selling pressure.
- Bullish tri-star pattern
The Bullish Tri-Star pattern is a bullish reversal pattern that forms at the bottom of a downtrend. It consists of three candlesticks: a small red candlestick, a small green candlestick, and a large green candlestick that gaps up from the previous candlestick. This pattern indicates a potential reversal of the downtrend, as buyers are starting to gain control.
- Bullish hikkake pattern
The Bullish Hikkake pattern is a bullish continuation pattern that forms after a bullish trend. It consists of two candlesticks: a large green candlestick followed by a smaller green candlestick that gaps up from the previous candlestick's high. However, the closing price of the second candlestick is lower than the opening price of the first candlestick. This pattern suggests that the bullish trend is likely to continue.
Bearish candlestick patterns
Bearish candlestick patterns are specific formations of one or more candlesticks that suggest a potential reversal from an uptrend to a downtrend or a continuation of a downtrend. These patterns indicate that selling pressure is outweighing buying pressure, which could lead to a price decline. Traders use these patterns to identify potential entry points for short positions.
Here are some common bearish candlestick patterns:
- Hanging man pattern:
The hanging man is a bearish reversal pattern that forms at the top of an uptrend. It has a small body and a long lower wick, indicating that while sellers managed to push the price down during the session, buyers attempted to regain control. However, the inability of buyers to maintain the price at higher levels signals a potential reversal. The long lower wick shows that sellers are starting to take over, and a decline may follow.
- Shooting star pattern:
The shooting star is a bearish reversal pattern that forms at the top of an uptrend. It has a small body near the lower end of the price range and a long upper wick, showing that the price was pushed higher but sellers stepped in to bring it back down by the close. The long upper wick represents the failure of the bulls to hold their gains, and the small body suggests that sellers may soon take control, leading to a potential downtrend.
- Bearish engulfing pattern:
The bearish engulfing pattern consists of two candlesticks: a small bullish candle followed by a larger bearish candle that completely engulfs the previous one. It signals a reversal at the top of an uptrend, with sellers overwhelming buyers. The engulfing of the bullish candle shows a strong shift in market sentiment, indicating that selling pressure is increasing and that the price could fall further as the bears take control.
- Evening star pattern:
The evening star is a bearish reversal pattern formed by three candles: a large bullish candle, a small-bodied indecisive candle, and a long bearish candle. This pattern appears after an uptrend, and it indicates that bullish momentum is waning. The indecision signalled by the small candle shows that the market is losing confidence, while the strong bearish candle following it suggests that sellers have taken control, predicting a potential downtrend.
- Three black crows pattern:
The three black crows is a strong bearish reversal pattern that consists of three consecutive long bearish candles. Each candle opens within the previous candle's body but closes lower. This pattern forms after an uptrend and signals the start of selling pressure. The consistently lower closes suggest that the bears are gaining strength, and a prolonged downtrend could follow as buyers lose confidence in maintaining higher prices.
- Dark Cloud Cover Pattern
This pattern consists of two candlesticks. The first is a long green candlestick, followed by a long red candlestick that opens above the previous green candlestick's high and closes below its low. This pattern signals a potential reversal of the uptrend.
- Three Inside Down Pattern
This pattern consists of three candlesticks. The first is a large green candlestick, followed by three smaller red candlesticks, each smaller than the previous one. This pattern indicates a potential reversal of the uptrend.
- Bearish Harami Pattern
This pattern consists of two candlesticks. The first is a large green candlestick, followed by a small red candlestick that is completely engulfed by the previous green candlestick. This pattern suggests a potential reversal of the uptrend.
- Tweezer Top Pattern
This pattern consists of two candlesticks with similar high points and opposite colors. The first candlestick is a green candlestick, and the second candlestick is a red candlestick. This pattern indicates a potential reversal of the uptrend.
- Bearish Spinning Top Pattern
This pattern is a neutral to bearish reversal pattern that forms at the top of an uptrend or during a sideways trend. It consists of a small real body with approximately equal-sized upper and lower shadows. This pattern indicates indecision among buyers and sellers, but the small body closer to the bottom suggests that sellers may have a slight advantage.
- Bearish Kicker Pattern
This pattern is a bearish continuation pattern that forms after a downtrend. It consists of two red candlesticks: a large red candlestick followed by a smaller red candlestick that has a gap down from the previous candlestick's low. This pattern suggests that the downtrend is likely to continue.
- Evening Star Doji Pattern
This pattern is a bearish reversal pattern that forms at the top of an uptrend. It consists of three candlesticks: a large green candlestick, a small doji candlestick, and a large red candlestick that gaps down. This pattern indicates a potential reversal of the uptrend.
- Bearish Abandoned Baby Pattern
This pattern is a bearish reversal pattern that forms at the top of an uptrend. It consists of three candlesticks: a large green candlestick, a small red candlestick that is completely engulfed by the previous green candlestick, and a large red candlestick that gaps down from the previous red candlestick. This pattern indicates a strong bearish reversal.
- Gravestone Doji Pattern
This pattern is a bearish reversal pattern that forms at the top of an uptrend. It consists of a single candlestick with a long upper shadow, a small real body, and no lower shadow. This pattern indicates that sellers were strong enough to push the price lower, suggesting a potential reversal of the uptrend.
- Bearish Tri-Star
This pattern is a bearish reversal pattern that forms at the top of an uptrend. It consists of three candlesticks: a small green candlestick, a small red candlestick, and a large red candlestick that gaps down from the previous candlestick. This pattern indicates a potential reversal of the uptrend.
- Deliberation Pattern
This pattern is a neutral pattern that can precede either a bullish or bearish trend. It consists of two candlesticks: a large green candlestick followed by a small red candlestick that is completely engulfed by the previous green candlestick. The closing price of the red candlestick is closer to the low of the green candlestick.
- Upside Gap Two Crows Pattern
This pattern is a bearish reversal pattern that forms at the top of an uptrend. It consists of three candlesticks: a large green candlestick with a gap up, followed by two red candlesticks that gap down from the previous red candlestick. This pattern indicates a strong bearish reversal.
- Advance Block Pattern
This pattern is a bearish reversal pattern that forms at the top of an uptrend. It consists of three candlesticks: a large green candlestick, a smaller green candlestick, and a large red candlestick that gaps down from the previous red candlestick. This pattern indicates a potential reversal of the uptrend.
- Bearish Counterattack Pattern
This pattern is a bearish reversal pattern that forms at the top of an uptrend. It consists of two candlesticks: a large green candlestick followed by a large red candlestick that gaps down from the previous candlestick. This pattern indicates a strong bearish reversal.
Continuation of more candlestick patterns
If a candlestick pattern doesn't indicate a change in market direction, it's known as a continuation pattern. These patterns can help traders identify periods of market indecision or neutral price movement.
- Doji
A Doji pattern is a candlestick with a very small real body, often appearing as a cross. It signifies indecision in the market, with buyers and sellers evenly matched. Doji patterns can signal a potential reversal or a period of consolidation.
- Bullish spinning top pattern
The Bullish Spinning Top pattern is a bullish reversal pattern. It has a small real body with approximately equal-sized upper and lower shadows. This pattern indicates indecision, but the small body closer to the top suggests a potential bullish bias.
- Falling three methods
The Falling Three Methods pattern is a bearish reversal pattern. It consists of three consecutive red candlesticks, each with a lower low than the previous one. This pattern signals a strong bearish trend.
- Rising three methods
The Rising Three Methods pattern is a bullish reversal pattern. It consists of three consecutive green candlesticks, each with a higher high than the previous one. This pattern signals a strong bullish trend.
- Three outside up
The Three Outside Up pattern is a bullish reversal pattern. It consists of three candlesticks: a large red candlestick, a small red candlestick inside it, and a large green candlestick that engulfs the previous two. This pattern indicates a strong bullish reversal.
- Three outside down
The Three Outside Down pattern is a bearish reversal pattern. It consists of three candlesticks: a large green candlestick, a small green candlestick inside it, and a large red candlestick that engulfs the previous two. This pattern indicates a strong bearish reversal.
- Tasuki gap
A Tasuki Gap is a continuation pattern characterized by a gap between two candlesticks. It can be bullish or bearish, depending on the direction of the gap and the subsequent price action.
- Mat-hold pattern
The Mat-Hold pattern is a neutral pattern that often precedes a trend reversal. It consists of a series of small-bodied candlesticks with long upper and lower shadows, indicating indecision in the market.
- Inside bars
Inside Bars are two candlesticks where the range of the second candlestick is completely within the range of the first candlestick. They can signal a period of consolidation or indecision, and can be followed by a strong trend move.
- Long legged doji
A Long Legged Doji is a type of Doji pattern with long upper and lower shadows. It indicates strong indecision in the market, with both buyers and sellers exerting significant influence.
- Long wicks
Long wicks on a candlestick indicate strong buying or selling pressure. Long upper wicks suggest strong selling pressure, while long lower wicks suggest strong buying pressure.
- Downside tasuki gap pattern
A Downside Tasuki Gap Pattern is a bearish continuation pattern characterized by a gap down between two red candlesticks. It signals a continuation of the downtrend.
- Rising Window Pattern
A Rising Window Pattern is a bullish continuation pattern characterized by a gap up between two green candlesticks. It signals a continuation of the uptrend.
- Falling window pattern
A Falling Window Pattern is a bearish continuation pattern characterized by a gap down between two red candlesticks. It signals a continuation of the downtrend.
- Black marubozu pattern
A Black Marubozu pattern is a bearish candlestick with a long black real body and no upper or lower shadow. It indicates strong selling pressure and a potential continuation of the downtrend.
- On-neck-pattern pattern
An On-Neck-Pattern is a neutral pattern that often precedes a trend reversal. It consists of two candlesticks: a large green candlestick followed by a small red candlestick that is completely engulfed by the previous green candlestick. The closing price of the red candlestick is closer to the low of the green candlestick.
- White marubozu pattern
A White Marubozu pattern is a bullish candlestick with a long white real body and no upper or lower shadow. It indicates strong buying pressure and a potential continuation of the uptrend.
- Bearish tri-star pattern
The Bearish Tri-Star pattern is a bearish reversal pattern. It consists of three candlesticks: a small green candlestick, a small red candlestick, and a large red candlestick that gaps down from the previous candlestick. This pattern indicates a potential reversal of the uptrend.
- Upside tasuki gap pattern
An Upside Tasuki Gap Pattern is a bullish continuation pattern characterized by a gap up between two green candlesticks. It signals a continuation of the uptrend.
Key features of different patterns
Below are key features of some common candlestick patterns:
Pattern
|
Appearance
|
Market implication
|
Reliability
|
Doji
|
Thin body with long shadows
|
Indecision
|
Moderate
|
Spinning top
|
Small body with long shadows
|
Uncertainty
|
Moderate
|
Bullish engulfing
|
A large body engulfing a smaller previous candle
|
Potential uptrend
|
High
|
Bearish engulfing
|
A large body engulfing a smaller previous candle
|
Potential downtrend
|
High
|
Hammer
|
Small body at the top with a long lower shadow
|
Possible reversal
|
High
|
Hanging man
|
Small body at the top with a long lower shadow
|
Potential downtrend
|
Moderate
|
Abandoned baby top/bottom
|
Gap before and after the candle
|
Reversal signal
|
High
|
By familiarising yourself with these patterns, you can better anticipate market movements and make informed trading decisions, effectively leveraging candlestick chart patterns and trading candle patterns.
Why Foreign Exchange (FX) candles are different from regular markets’ candles
The foreign exchange (FX) market, with its round-the-clock trading, presents unique candlestick formations. Unlike stock markets that close daily, the continuous operation of the FX market means that its candle patterns reflect a more global perspective, incorporating price actions from various time zones. This aspect is crucial for traders using candlestick chart patterns and share market candle charts to understand the nuances of currency market movements.
Investing based on candlestick patterns
Investing based on candlestick patterns can be insightful yet challenging:
- It offers immediate visual cues about market sentiment, providing a basis for quick decisions.
- However, reliance solely on candlestick patterns without considering broader market indicators or news can be risky.
Candlestick analysis, especially when combined with other forms of technical and fundamental analysis, can significantly enhance investment strategies, making trading candle patterns a valuable skill for investors.
Conclusion
Candlestick patterns are a vital component of market analysis, offering insights into future market movements. By learning to interpret these patterns, investors, and traders can enhance their decision-making process, leveraging the visual cues provided by candlestick, bullish candlestick patterns, and candlestick chart patterns for more strategic investments.
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