Candlestick patterns are the foundation of technical analysis. Developed in 18th-century Japan for rice trading, these patterns reveal the battle between buyers and sellers in a single visual format. This cheat sheet covers the 15 most reliable patterns with exact trading rules you can apply immediately.
Anatomy of a Candlestick
Every candlestick contains four data points: open, high, low, and close (OHLC). The thick part is the body, representing the range between open and close. The thin lines above and below are wicks (or shadows), showing the high and low of the period.
- Bullish candle (green/white): Close is higher than open — buyers won
- Bearish candle (red/black): Close is lower than open — sellers won
- Long body: Strong conviction in the direction
- Short body with long wicks: Indecision, potential reversal
Bullish Reversal Patterns
These patterns appear at the bottom of downtrends and signal potential trend reversal to the upside.
1. Hammer
Description: Small body at the top of the candle with a long lower wick (at least 2x the body length). Little to no upper wick. Appears after a downtrend.
Psychology: Sellers pushed price down aggressively, but buyers stepped in and recovered most of the losses before the close. This rejection of lower prices signals buyer strength.
- Entry: Buy when the next candle closes above the hammer’s high
- Stop loss: Below the hammer’s low
- Confirmation: Higher volume on the hammer increases reliability
2. Bullish Engulfing
Description: A small bearish candle followed by a larger bullish candle whose body completely “engulfs” the previous candle’s body.
Psychology: After selling pressure, buyers overwhelm sellers with a single strong move. The larger the engulfing candle relative to the previous, the stronger the signal.
- Entry: Buy at the close of the engulfing candle or on the next candle’s open
- Stop loss: Below the engulfing candle’s low
- Best when: Found at support levels with above-average volume
3. Morning Star
Description: Three-candle pattern: (1) large bearish candle, (2) small-bodied candle that gaps down (the “star”), (3) large bullish candle that closes above the midpoint of candle 1.
Psychology: The downtrend exhausts itself (candle 1), indecision follows (candle 2), then buyers take control decisively (candle 3).
- Entry: Buy at the close of the third candle
- Stop loss: Below the low of the star (candle 2)
- Reliability: One of the most reliable reversal patterns (70%+ success rate at support)
4. Three White Soldiers
Description: Three consecutive long bullish candles, each opening within the previous candle’s body and closing near its high.
Psychology: Sustained buying pressure over three periods. Each day opens with mild selling but closes with strong buying — a powerful shift in sentiment.
- Entry: Buy at the close of the third candle or on a pullback to the third candle’s midpoint
- Stop loss: Below the first soldier’s low
- Caution: If candles are very long, the move may be overextended; wait for a pullback
5. Piercing Line
Description: Two-candle pattern: (1) bearish candle, (2) bullish candle that opens below the low of candle 1 but closes above the midpoint of candle 1.
- Entry: Buy when next candle confirms by closing higher
- Stop loss: Below the low of the pattern
Bearish Reversal Patterns
These appear at the top of uptrends and signal potential reversal downward.
6. Shooting Star
Description: Small body at the bottom of the candle with a long upper wick (at least 2x body). Appears after an uptrend. The inverse of a hammer.
Psychology: Buyers pushed price up but sellers rejected the higher prices, forcing a close near the open. The long upper wick shows selling pressure.
- Entry: Sell/short when the next candle closes below the shooting star’s low
- Stop loss: Above the shooting star’s high
7. Bearish Engulfing
Description: A small bullish candle followed by a larger bearish candle that completely engulfs the previous body.
- Entry: Sell at the close of the engulfing candle
- Stop loss: Above the engulfing candle’s high
- Strongest when: Found at resistance levels or after extended uptrends
8. Evening Star
Description: Three-candle pattern: (1) large bullish candle, (2) small-bodied candle that gaps up, (3) large bearish candle closing below the midpoint of candle 1. The opposite of morning star.
- Entry: Sell at the close of the third candle
- Stop loss: Above the high of the star (candle 2)
9. Three Black Crows
Description: Three consecutive long bearish candles, each opening within the previous body and closing near its low.
- Entry: Sell at the close of the third candle
- Stop loss: Above the first crow’s high
10. Dark Cloud Cover
Description: Two-candle pattern: (1) bullish candle, (2) bearish candle that opens above candle 1’s high but closes below its midpoint.
- Entry: Sell when next candle confirms by closing lower
- Stop loss: Above the pattern’s high
Neutral / Indecision Patterns
11. Doji
Description: Open and close are virtually equal, creating a cross-shaped or plus-shaped candle. The body is just a thin line.
Psychology: Perfect equilibrium between buyers and sellers. The direction of the next candle often determines the trend. Dojis at the top of uptrends are bearish; at the bottom of downtrends, bullish.
- Types: Standard doji, long-legged doji (long wicks both sides), dragonfly doji (long lower wick), gravestone doji (long upper wick)
- Trading rule: Never trade a doji alone — wait for the next candle’s confirmation
12. Spinning Top
Description: Small body with upper and lower wicks that are longer than the body. Similar to a doji but with a visible body.
- In uptrend: Signals slowing momentum — potential reversal or consolidation
- In downtrend: Signals selling pressure may be exhausting
Confirming Patterns with Volume
Candlestick patterns are significantly more reliable when confirmed by volume:
| Scenario | Volume Signal | Interpretation |
|---|---|---|
| Bullish reversal + high volume | Volume 2x+ average | Strong signal — institutional participation |
| Bullish reversal + low volume | Volume below average | Weak signal — likely false reversal |
| Breakout candle + rising volume | Progressive volume increase | Trend continuation confirmed |
| Breakout candle + declining volume | Volume drops | Weak breakout — likely to fail |
Combining Patterns with Support & Resistance
The highest-probability trades occur when candlestick patterns form at key structural levels:
- Identify key support/resistance zones on higher timeframes (daily, weekly)
- Wait for a candlestick pattern to form at that level
- Confirm with volume — above-average volume validates the setup
- Enter the trade with a stop loss on the other side of the support/resistance level
- Target the next support/resistance zone for your take-profit
A hammer at a well-established support level with above-average volume is a much stronger signal than a hammer in the middle of nowhere. Context is everything.
Quick Reference Summary Table
| Pattern | Type | Candles | Signal | Reliability |
|---|---|---|---|---|
| Hammer | Bullish | 1 | Reversal | High |
| Bullish Engulfing | Bullish | 2 | Reversal | High |
| Morning Star | Bullish | 3 | Reversal | Very High |
| Three White Soldiers | Bullish | 3 | Reversal | High |
| Piercing Line | Bullish | 2 | Reversal | Moderate |
| Shooting Star | Bearish | 1 | Reversal | High |
| Bearish Engulfing | Bearish | 2 | Reversal | High |
| Evening Star | Bearish | 3 | Reversal | Very High |
| Three Black Crows | Bearish | 3 | Reversal | High |
| Dark Cloud Cover | Bearish | 2 | Reversal | Moderate |
| Doji | Neutral | 1 | Indecision | Context-dependent |
| Spinning Top | Neutral | 1 | Indecision | Low alone |
Final Tips for Using Candlestick Patterns
- Never trade patterns in isolation — always combine with support/resistance, volume, and trend direction
- Higher timeframes = higher reliability — a daily chart pattern is more significant than a 5-minute pattern
- Practice on historical charts first before risking real money
- Keep a trading journal — record every pattern-based trade and its outcome to identify which patterns work best for your markets