Candlestick Patterns

Each candlestick encodes four data points into a visual shape.

The Body: The thick rectangle between the open and close prices. A tall body means strong directional conviction — buyers or sellers dominated the period. A small body means indecision.

The Wicks (Shadows): The thin lines extending above and below the body. The upper wick shows how high price reached before sellers pushed it back down. The lower wick shows how low price reached before buyers pushed it back up. Long wicks signal rejection — the market tested a level and reversed.

Color: Green (or white/hollow) means the close was above the open — bullish. Red (or black/filled) means the close was below the open — bearish.

Reading Volume with Candles: A large bullish candle on high volume confirms strong buying pressure. The same candle on low volume is less trustworthy — it might be a thin-market move that reverses easily.

Timeframe: Candlestick patterns on a daily chart are more significant than the same pattern on a 5-minute chart. Day traders typically use 5-minute or 15-minute candles; swing traders use daily or weekly candles.

Bullish Reversal Patterns (signal a potential bottom):

1. Hammer: Small body at the top of the candle with a long lower wick (at least 2x the body). Appears at the bottom of a downtrend. The long lower wick shows sellers pushed price down but buyers overwhelmed them by the close.

2. Bullish Engulfing: A large green candle that completely engulfs the prior red candle's body. Shows buyers overtaking sellers with conviction. Most reliable at support levels with increasing volume.

3. Morning Star: A three-candle pattern — large red candle, small-bodied candle (indecision), then a large green candle closing above the midpoint of the first candle. One of the most reliable reversal signals.

4. Doji: A candle where the open and close are nearly identical, creating a cross shape. It signals indecision and a potential turning point — neither buyers nor sellers won the session.

Bearish Reversal Patterns (signal a potential top):

5. Shooting Star: Opposite of a hammer — small body at the bottom with a long upper wick. Appears at the top of an uptrend. Buyers pushed price higher but were rejected.

6. Bearish Engulfing: A large red candle that completely engulfs the prior green candle's body. Shows sellers overwhelming buyers.

7. Evening Star: Opposite of morning star — large green candle, small-bodied candle, then large red candle closing below the midpoint of the first candle.

Continuation Patterns:

8. Three White Soldiers: Three consecutive large green candles, each opening within the prior candle's body and closing higher. Signals strong bullish momentum continuing.

9. Three Black Crows: Three consecutive large red candles, each opening within the prior candle's body and closing lower. Signals strong bearish momentum continuing.

10. Inside Bar: A candle whose entire range (high to low) fits inside the prior candle's range. Signals consolidation before a breakout — the direction of the breakout determines the trade.

Not all candlestick patterns work equally well on intraday timeframes. The most reliable patterns for day trading on 5-minute and 15-minute charts:

Hammer at VWAP: A hammer forming exactly at VWAP during a pullback in an uptrend is one of the highest-probability intraday setups. The combination of a reversal candle at a key institutional level provides both a pattern signal and a structural reason for the bounce.

Bullish Engulfing at the Opening Range Low: When the first 15-30 minutes establish a range and price pulls back to the low of that range, a bullish engulfing candle signals the opening range will hold. Enter long with a stop below the opening range low.

Doji at Support: A doji forming at a Fibonacci level, prior day's high/low, or round number signals indecision at a meaningful level. Wait for the next candle to confirm direction before entering.

Patterns to avoid intraday: Morning star and evening star (three-candle patterns) are too slow on 5-minute charts — by the time three candles form, the move may already be over. Single-candle patterns (hammer, shooting star, engulfing) work better for fast intraday decisions.

Volume filter: Ignore any intraday candlestick pattern that forms on below-average volume. Thin-volume candles produce unreliable patterns because a few large orders can artificially create the shape.

Mistake 1: Trading patterns in isolation. A hammer in the middle of a range means nothing. A hammer at a key support level with high volume after a 3-day pullback is meaningful. Context determines reliability.

Mistake 2: Ignoring the trend. Bullish reversal patterns work best at the end of a downtrend at support. Bearish reversal patterns work best at the end of an uptrend at resistance. A bullish engulfing candle in a strong downtrend with no support nearby is likely just a dead-cat bounce.

Mistake 3: Forgetting volume. Every candlestick pattern should be confirmed by volume. A bullish engulfing on 2x average volume is a strong signal. The same pattern on 0.5x average volume is suspect.

Mistake 4: Over-trading patterns. New traders often see patterns everywhere and trade every hammer and engulfing candle they find. Be selective — only trade patterns at key levels with multiple confluent signals.

Mistake 5: Expecting immediate follow-through. Some patterns (especially doji and inside bars) signal indecision, not guaranteed direction. Wait for confirmation — the candle after the pattern — before committing capital.