Candlestick Patterns: Read Market Psychology Like a Pro
Candlestick patterns are the language of price action. Learn to decode these visual signals to understand market sentiment and anticipate price movements.
What Are Candlesticks?
Candlestick charts originated in 18th century Japan, where rice traders used them to track market prices. Today, they're the most popular chart type among traders because they display four crucial data points: open, high, low, and close—all in a single visual element.
Unlike line charts that only show closing prices, candlesticks reveal the entire battle between buyers and sellers during each time period. This makes them invaluable for understanding market psychology.
Candlestick Anatomy
Every candlestick consists of two main parts:
Close > Open
Usually green/white. Shows buyers won this period.
Close < Open
Usually red/black. Shows sellers won this period.
Lines above/below show the high and low reached during the period.
💡 The Body Tells the Story
A long body shows strong conviction. A short body shows indecision. Long wicks show rejection of prices—the longer the wick, the stronger the rejection.
Single Candle Patterns
Doji
A doji forms when open and close are nearly equal, creating a cross or plus sign. It signals indecision and potential reversal, especially after a strong trend.
Types: Standard Doji, Dragonfly Doji (bullish), Gravestone Doji (bearish), Long-legged Doji.
Hammer & Hanging Man
Both have small bodies at the top with long lower wicks (at least 2x the body). The Hammer appears in downtrends (bullish reversal). The Hanging Man appears in uptrends (bearish warning).
Inverted Hammer & Shooting Star
Opposite of hammer/hanging man—small body at bottom with long upper wick. Inverted Hammer is bullish in downtrends. Shooting Star is bearish in uptrends.
Marubozu
A candle with no wicks—pure body. Shows extreme conviction. Bullish marubozu = strong buying. Bearish marubozu = strong selling.
Double Candle Patterns
Engulfing Patterns
The second candle's body completely "engulfs" the first candle's body.
- Bullish Engulfing: Small red candle followed by larger green candle. Strong reversal signal in downtrends.
- Bearish Engulfing: Small green candle followed by larger red candle. Strong reversal signal in uptrends.
Piercing Line & Dark Cloud Cover
Piercing Line (bullish): In a downtrend, a red candle is followed by a green candle that opens below the prior low but closes above the midpoint of the red candle.
Dark Cloud Cover (bearish): The opposite—in an uptrend, green candle followed by red candle that opens above prior high but closes below midpoint.
Tweezer Tops & Bottoms
Two candles with matching highs (tweezer top) or matching lows (tweezer bottom). Shows price rejection at a specific level.
Triple Candle Patterns
Morning Star & Evening Star
Three-candle reversal patterns considered highly reliable:
- Morning Star (bullish): Long red → Small body (gap down) → Long green that closes into first candle
- Evening Star (bearish): Long green → Small body (gap up) → Long red that closes into first candle
Three White Soldiers & Three Black Crows
Three White Soldiers: Three consecutive long green candles, each opening within the prior body and closing near its high. Strong bullish continuation.
Three Black Crows: Three consecutive long red candles. Strong bearish continuation.
⚠️ Context Matters
Candlestick patterns are most reliable at key support/resistance levels, after extended trends, and on higher timeframes. A doji in the middle of a ranging market means nothing.
Trading Strategies with Candlesticks
Strategy 1: Pattern + Support/Resistance
Wait for candlestick patterns to form at key price levels. A bullish engulfing at major support is much more significant than one in the middle of nowhere.
Strategy 2: Pattern + Volume
Confirm patterns with volume. A hammer with high volume shows genuine buying interest. Low volume patterns are less reliable.
Strategy 3: Wait for Confirmation
Don't trade the pattern candle itself. Wait for the next candle to confirm the reversal before entering.
Example: Trading a Bullish Engulfing
- Identify a downtrend approaching support
- Spot a bullish engulfing pattern at support
- Wait for the next candle to close green (confirmation)
- Enter long with stop below the engulfing pattern's low
- Target the next resistance level
Key Takeaways
Candlesticks show open, high, low, and close—revealing the battle between buyers and sellers
Single patterns (doji, hammer) show indecision; multi-candle patterns show reversals
Context is everything—patterns at support/resistance are more reliable
Always wait for confirmation before trading a pattern
Higher timeframes produce more reliable patterns than lower timeframes