Candlestick Patterns

Candlestick patterns are formations created by one or more candlesticks that signal potential price reversals or trend continuations.

Single Candlestick Anatomy:

Part	Meaning
Body	Opening to closing price
Upper wick	High of the period
Lower wick	Low of the period
Green/white	Close > Open (bullish)
Red/black	Close < Open (bearish)

Reversal Patterns:

Bullish Reversal (Bottom):

Pattern	Formation	Signal Strength
Hammer	Small body, long lower wick	Strong
Bullish Engulfing	Green candle engulfs prior red	Strong
Morning Star	3-candle: down, doji, up	Very Strong
Piercing Line	Green closes above midpoint of prior red	Moderate

Bearish Reversal (Top):

Pattern	Formation	Signal Strength
Shooting Star	Small body, long upper wick	Strong
Bearish Engulfing	Red candle engulfs prior green	Strong
Evening Star	3-candle: up, doji, down	Very Strong
Dark Cloud Cover	Red opens above, closes below midpoint	Moderate

Continuation Patterns:

Pattern	Formation	Trend
Rising Three	Long green, 3 small reds, long green	Bullish
Falling Three	Long red, 3 small greens, long red	Bearish

Indecision Patterns:

Pattern	Meaning
Doji	Open = Close, market undecided
Spinning Top	Small body, wicks both sides

Using Candlestick Patterns:

Confirmation Requirements:

1. Location matters (patterns at support/resistance are stronger)
2. Volume confirmation
3. Wait for next candle to confirm
4. Combine with other indicators

Best Practices:

• Higher timeframes are more reliable
• Context is crucial (trend direction)
• Don't trade patterns in isolation
• Use as part of complete trading plan