Candlestick patterns

Candlestick patterns

There are a lot of different candlestick patterns. Here we explain the most popular ones. The most reliable signals appear on daily. On H4 and H1 the reliability falls. On Weekly and Monthly the reliability of the general trend forecast increases, but the possibility of strong temporary deviations from the trend gets higher as well, for example, candles may have very long shadows.    

Reversal Patterns

Reversal patterns indicate the high odds that a trend will change direction. These patterns are helpful in identifying a possible entry points at the beginning of the new trend.

Note that for reversal patterns:

  • The longer the trend is, the stronger the signal is.
  • The steeper the trend is, the stronger the signal is.
  • The signal is stronger if it appears near strong resistance/support level.  
  • The signal is stronger if there have been tweezers patterns formed in the recent trading sessions

Bearish patterns

Bearish reversal patterns appear at the end of an uptrend.

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Shooting star. A 1-candle pattern. The candle’s body is small. The upper shadow is long and exceeds the body at least in 2 times. The long upper shadow implies that the market tried to find where resistance and supply were located, but the upside was rejected by bears. The candle may be any color, though if it’s bearish, the signal is stronger.  

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Evening star. A 3-candle pattern. After a long bullish candle, there’s a bullish gap up. The bulls are in control, but they don’t achieve much. The second candle is quite small and its color is not important. The third bearish candle opens with a gap down and fills the previous bullish gap. This candle is often longer than the first one.

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Evening doji star. A 3-candle pattern. The pattern is similar to the Evening star, but is considered to be a stronger signal as the middle candle is doji.

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Hanging man. A 1-candle pattern. Can signal an end of the bullish trend, a top or a support level. The candle has a long lower shadow, which should be at least twice the length of the real body. The candle may be any color, though if it’s bearish, the signal is stronger. Requires further bearish confirmation. The sell signal is confirmed when a bearish candlestick closes below the open of the candlestick on the left side of this pattern.  

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Dark cloud cover. A 2-candle pattern. The first candle is bullish and has a long body. The second candle should open significantly above the first one’s close and close below the 50% of first candle’s body. Its body should also be rather long.

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Bearish engulfing pattern. A 3-candle pattern. The first candle is bullish. The second candle is bearish and should open higher than first candle’s high and should close above the first one’s low (completely engulf it). Moderately strong signal.

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Bearish harami. A 2-candle pattern. The body of the second candle is completely contained within the body of the first one and has the opposite color.

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Bearish harami cross. A 2-candle pattern similar to the Harami. The difference is that the last day is a Doji.

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Three black crows. A 3-candle pattern. There’s a series of 3 bearish candles with long bodies. Each candle opens within the body of the previous one, better below its middle. Each candle closes at a new low, near its minimum. The reliability of this pattern is very high, but still, a confirmation in the form of a bearish candlestick with a lower close or a gap-down is suggested.

Bullish patterns

Bullish reversal patterns appear at the end of an uptrend.

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Hammer. A 1-candle pattern. Can signal an end of the bearish trend, a bottom or a support level. The candle has a long lower shadow, which should be at least twice the length of the real body. The color of the hammer doesn’t matter, though if it’s bullish, the signal is stronger. Requires further bullish confirmation. The buy signal is confirmed when a candlestick closes above the opening price of the candlestick on the left side of the hammer.

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Morning star. A 3-candle pattern. After a long bearish candle, there’s a bearish gap down. The bears are in control, but they don’t achieve much. The second candle is quite small and its color is not important. The third bullish candle opens with a gap up and fills the previous bearish gap. This candle is often longer than the first one.

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Morning doji star. A 3-candle pattern. Almost the same as previous, but some traders consider it a stronger signal.

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Inverted hammer. A 1-candle pattern. The candle has a small body and a long upper shadow, which is at least in 2 times longer than the real body. The color of the hammer doesn’t matter, though if it’s bullish, the signal is stronger. Requires further bullish confirmation.    

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Piercing line. A 2-candle pattern. The first candle is long and bearish. The second candle opens with a gap down, below the close of the first one. It’s a big bullish candle, which closes above the 50% of first candle’s body. Both bodies should be long enough. Moderately strong signal.

Bullish harami. A 2-candle pattern. The body of the second candle is completely contained within the body of the first one and has the opposite color.

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Bullish harami cross. A 2-candle pattern similar to the Harami. The difference is that the last day is a Doji.

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Bullish engulfing pattern. A 2-candle pattern appears at the end of the downtrend. The second (bullish) candle should open lower than first candle’s low and should close above first one’s high (completely engulf it). Moderately strong signal.

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Three white soldiers. A 3-candle pattern. There’s a series of 3 bullish candles with long bodies. Each candle should open within the previous body, better above its middle. Each candle closes at a new high, near its maximum. The reliability of this pattern is very high, but still, a confirmation in the form of a white candlestick with a higher close or a gap-up is suggested.  

Continuation patterns

Most candlestick patterns are reversal ones, but there are certain trends that represent times of rest. Continuation patterns suggest that the market will maintain an existing trend after a pause. These patterns are helpful in identifying possible entry points, providing evidence for holding the already opened positions or adding to them.

Continuation of an uptrend

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Upside Tasuki Gap. A bullish candle forms after a gap up from the previous white candle. The next candle opens lower and closes lower than the previous one. If the gap is not filled, the bulls have maintained control and one may open long. If the gap was filled, the bullish momentum has come to an end.

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Rising three methods. After a long while candle, there’s a series of small bearish candles. The optimal number of pull-back candles should be 3, though 2, 4 or 5 pull-back candles can also be observed. It’s important that these bearish candles do not close below the open of the big bullish candle. Their shadows also shouldn’t go below the bullish candle’s open. The final candle of the formation should open up in the body of the last pull-back candle and close above the first big white candle.

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Separating lines. There’s a long bearish candle followed by a bullish candle which opened at the same level when the bearish candle had opened.

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Mat hold. After a large white candle, there’s a gap up followed by a series of small bearish candles. The second or the third one of them dips into the body of the large bullish candle. The final candle of this pattern gaps to the upside and it continues its upward movement to close above the trading range of any of the previous days. This is a good point to add to positions. The Mat hold candlestick pattern is a stronger continuation pattern than the Rising three methods. During the days of the correction unlike the Rising three methods, the price stays close to the top of the white (or green) candle’s upper range.

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Three Line Strike (The fooling three soldiers). After the 3 bullish candles (3 white soldiers), which indicate that the uptrend continues, there is a candle which opens higher, but then pulls back to close below the open of the first bullish candle. The short-term pullback sentiment is out of the way and the uptrend continues on from this point.

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Upside Gap Three Method. Similar to the Upside Tasuki Gap. The pattern occurs in a strong trending market. In an uptrend, a gap occurs between 2 bullish candles. The final day opens within the top bullish body and closes in the lower bullish body, filling the gap between them.

Continuation of a downtrend

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Downside Tasuki Gap. A black candle forms after a gap down from the previous black candle. The next candle opens higher and closes higher than the previous one. If the gap is not filled, the Bears have maintained control and one may open short. If the gap was filled, then the bearish momentum has come to an end. 

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On neckline. The first bearish candle opens with a gap down and has a long body. The second candle is bullish and reaches only the low of the previous day, not its close level.

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In neckline. The pattern is similar to the On neckline pattern except that it closes at the close or just slightly above the close of the previous day. The In Neck Line indicates some short covering, but not a change in trend direction. 

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Thrusting. This pattern resembles On neckline and In neckline patterns, except the bullish candle closes near, but slightly below the midpoint of the previous day’s black body.

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Falling Three Method. After a long bearish candle, there’s a series of 2-5 small bullish candles. It’s important that these bullish candles do not close above the open of the big bearish candle. Their shadows also shouldn’t exceed the bearish candle’s open. The final candle of the formation should open in the body of the last bullish candle and close below the first big black candle’s close.

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