Candlestick Patterns: Complete Guide to 15+ Essential Patterns
Candlestick patterns are one of the oldest and most effective tools for reading price action. Developed in 18th-century Japan, these patterns reveal market psychology and can signal potential reversals or continuations. Master these essential patterns to improve your trading timing and decision-making.
Table of Contents
Understanding Candlestick Basics
Each candlestick shows four prices: open, high, low, and close. The body (thick part) represents the range between open and close. If close > open, the candle is bullish (typically green/white). If close < open, it's bearish (typically red/black). The wicks (thin lines) show the high and low extremes.
Candlestick patterns work best when combined with other technical analysis tools like support/resistance levels, trend lines, and volume confirmation. Never trade patterns in isolation—always confirm with context.
Reversal Patterns
1. Hammer and Hanging Man
Hammer (bullish reversal): Small body at top, long lower wick, little/no upper wick. Appears at support after downtrend. Signals potential reversal upward. Hanging Man (bearish reversal): Same shape but appears at resistance after uptrend. Signals potential reversal downward.
2. Engulfing Patterns
Bullish Engulfing: Large bullish candle completely engulfs previous bearish candle. Appears after downtrend. Signals strong buying pressure. Bearish Engulfing: Large bearish candle completely engulfs previous bullish candle. Appears after uptrend. Signals strong selling pressure.
3. Doji Patterns
Doji: Open and close are nearly equal, creating a cross. Signals indecision and potential reversal. Most powerful at support/resistance levels or after strong trends. Dragonfly Doji (bullish): Long lower wick, no upper wick. Gravestone Doji (bearish): Long upper wick, no lower wick.
Continuation Patterns
1. Rising Three Methods
Strong bullish candle, followed by three small bearish candles (all within range of first candle), then another strong bullish candle. Signals uptrend continuation. Opposite pattern (Falling Three Methods) signals downtrend continuation.
2. Marubozu
Candle with no wicks—body extends from high to low. White Marubozu (bullish): Strong buying pressure, no sellers. Black Marubozu (bearish): Strong selling pressure, no buyers. Often signals continuation of current trend.
Trading with Candlestick Patterns
Candlestick patterns provide entry and exit signals, but they're most effective when used with other analysis tools. Here are key tips for trading with candlesticks:
- Always confirm patterns with volume—higher volume increases pattern reliability
- Look for patterns at key support/resistance levels for higher probability setups
- Combine multiple patterns for stronger signals—two or more patterns confirming the same direction
- Use patterns on higher timeframes (daily, weekly) for more reliable signals than 1-minute charts
Frequently Asked Questions
How reliable are candlestick patterns?
Pattern reliability varies. Engulfing patterns at support/resistance have 60-70% success rates. Doji patterns are less reliable (40-50%) but useful for identifying indecision. Always combine patterns with other technical analysis and never trade patterns in isolation.
Which timeframe is best for candlestick patterns?
Higher timeframes (daily, weekly) provide more reliable signals than lower timeframes. Patterns on 1-minute charts have lower success rates due to noise. For day trading, use 5-15 minute charts. For swing trading, use daily charts.
Do candlestick patterns work in all markets?
Candlestick patterns work in all liquid markets (stocks, forex, crypto, commodities). However, they're most effective in trending markets with clear support/resistance levels. In choppy, range-bound markets, patterns may be less reliable.
Take Your Trading to the Next Level
Master candlestick patterns with our free Pattern Recognition Guide. Join thousands of traders who use price action to improve their entries and exits.