Top Candlestick Patterns Used In Technical Analysis

Candlesticks are used to forecast the future price movements of an asset. That is why a candlestick represents an important tool to use if you want to make profitable decisions. 

How To Read A Candlestick Pattern?

A brief upper shadow on a red candle indicates the stock started close to its daily maximum. On the flip side, a brief upper shadow on a green candle indicates the stock ended close to its daily maximum. In essence, a candlestick chart displays the interaction among a stock's high, low, open, and close prices.

The basics about such basic candlestick patterns as:

• Hammer 
• Piercing pattern
• Bullish engulfing
• Hanging man
• Dark cloud cover
• Bearish engulfing

are available here. It is recommended to read it before you move on to more complex patterns that are discussed further. Additionally, delve into the understanding of technical analysis.

Strong Bullish Reversal Patterns Every Trader Should Know:

A bullish candlestick pattern indicates that the ongoing bearish trend is going to reverse soon, and the start of the bullish movement is expected.

Along with the Hammer Pattern, Piercing Pattern, and Bullish Engulfing Pattern, the following candlestick chart patterns belong to this category.

The Morning Star

The Morning Star is a multiple candlestick pattern. It signals the end of a bearish trend and the start of a bullish trend. 

The Morning Star is formed by three candlesticks:

• A bearish candle shows the trend continuation
• A Doji candlestick shows the time of hesitance, and indecision in the market. It shall be completely out of the bodies of the first and the third candles.
• A bullish candle shows that the bulls are back, and a reversal will happen soon.

Here is how the Morning Star candlestick pattern looks in a chart.

Three White Soldiers

This pattern signals the reversal in the bullish market. It is formed by three bullish candles. Each of them opens within the real body of a previous candle, and a close exceeds the height of the previous candle. Their shadows are short. 

Here is how this pattern may look in a chart.

Three White Soldiers signal a strong change in the market sentiment and a future reversal. 

Three Inside Up

This candlestick pattern signals that a downtrend is over and a reversal is coming. The Three Inside Up pattern is formed by three candlesticks:

• A long bearish candle
• A small bullish candle which is in the range of the first candlestick
• A long bullish candle that confirms the bullish reversal.

Here is how this bullish pattern may look in a chart.

Bullish Harami

Bullish Harami is a type of candlestick pattern formed by multiple candles. It consists of two candlesticks:

• A tall bearish candle (a red candlestick) shows the bearish trend
• A small bullish candle that is within the range of the previous candle - it signals that the bulls are taking control of the market.

For a Bullish Harami to appear, a smaller body of the subsequent candle shall close higher within the body of the previous candle. It signals that a bullish reversal is possible to happen. 

This is how Bullish Harami candlestick pattern looks in a chart.

Tweezer Bottom

Tweezer Bottom is another bullish reversal pattern that signals the end of a bearish trend. It is formed by two candlesticks: 

• A bearish candlestick
• A bullish candlestick

Both bullish and bearish candlesticks make the same low.

When the bearish candlestick patterns are formed, they look like the end of an uptrend or like the bearish trend is going to be sustained. But when a bullish trend is formed the next day, it indicates a support level.

The same low of both candles means that the support level is strong, and the bearish trend may reverse soon. 

This is an example of how the Tweezer Bottom may look in a chart.

The Inverted Hammer candlestick pattern

The Inverted Hammer consists of a single candlestick with a real body located at the end and a long upper shadow. The upper shadow is at least twice as long as the real body.

This pattern is formed when opening and closing prices are near to each other.

Three Outside Up

The Three Outside Up pattern signals an upcoming bullish reversal. It is formed by three candlesticks:

• A short bearish candle
• A large bullish candle that covers the first candle
• A long bullish candle that confirms the bullish reversal.

The second and the third candlestick resembles the Bullish Engulfing. This is how the Three Outside Up looks in a chart.

Bullish Counterattack

This is a bullish reversal pattern that signals the upcoming trend reversal. This is a two-bar pattern:

• A long bearish candle with a long real body
• A long bullish candle with a long real body

The second candle closes near the first candle’s close.

Here is how it may look in a chart.

This pattern is usually formed during a strong downtrend.

Essential Bearish Reversal Patterns Every Trader Must Recognize

Bearish patterns signal that the bullish trend is going to reverse. Along with the Hanging Man candlestick, Dark Cloud Cover, and the Bearish Engulfing pattern, the following candlesticks belong to this category.

The Evening Star

The Evening Star is a multiple candlestick pattern that indicates the end of a bullish trend. It is formed by 3 candlesticks:

• A bullish candle
• A Doji
• A bearish candle

The second candle is out of the first and second candles’ bodies. 

The first candle signals the continuation of a bullish trend. Doji indicates indecision in the market. The bullish candle signals that bears are back, and a reversal is going to happen.

Here is how the Evening Star looks in a chart.

Three Black Crows candlestick pattern

Three Black Crows is a pattern that signals the end of a bullish trend and a reversal to a bearish trend. This is a candlestick pattern that forms 3 long bearish candles without shadows or with very short shadows. Each subsequent candle opens within the previous candle’s body.

Here is how the Three Black Crows looks in a chart.

Black Marubozu

This is a Japanese candlestick pattern that indicates a reversal to a bearish trend after a bullish trend comes to an end. It is one of the specific patterns that are formed with a single candlestick that has a long bearish body without shadows. It means that bears are back, and the market may reverse.

Here is how the pattern looks in a chart.

Three Inside Down

This candlestick pattern is formed after an uptrend and indicates the start of a bearish trend. It is formed by three candlesticks:

• A bullish candle
• A small bearish candle which is in the range of the first candlestick
• A bearish candle that confirms the bearish reversal.

Here is how the Three Inside Down pattern looks in a chart.

Bearish Harami

The Bearish Harami pattern is formed after a bullish trend and indicates a bearish reversal. The pattern is formed by two candles:

• A tall bullish candle
• A small bearish candle within the range of the first candle

The smaller the second candle is, the higher the probability of a trend reversal. Here is how the Bearish Harami pattern looks in a chart.

Shooting Star

The Shooting Star pattern is formed at the end of a bullish trend and signals the trend reversal. It is formed by a single candle with a long upper shadow. It is the inverse of the Hanging Man pattern.

Here is how the Shooting Star looks in a chart.

Tweezer Top

The Tweezer Top pattern is formed at the end of a bullish trend and signals a possible trend reversal. It consists of 2 candlesticks:

• A bullish candle
• A bearish candle

Both candles are at the same or almost the same high. When the first candle is formed, it looks like the trend is going to continue. The bearish candle that is formed the next day indicates the resistance level, and a possible trend reversal.

Here is how the Tweezer Top looks in a chart.

Continuation patterns

Continuation patterns signal that a current trend is likely to remain. The most common continuation patterns are the following.

Doji

Doji is a single candlestick pattern. It is formed when bulls and bears are fighting to control the market but nobody wins. The opening and closing price of an asset is almost the same.

After this pattern appears, a trend reversal may happen soon.

The candle has a very small real body and very long shadows. 

Here is how Doji looks in a chart.

Spinning Top

This pattern indicates indecision in the market. It looks like the Doji pattern but in the Spinning Top, the candle body is bigger.

After this pattern is formed, a trend reversal is possible.

Here is how the Spinning Top looks in a chart.

Combine bullish and bearish candlestick patterns with other indicators

Candlestick patterns are powerful tools for forecasting market movement. However, like other tools, they shall always be used in combination with other methods. Otherwise, they can be interpreted incorrectly, or signals generated by them may be false.