Common candlestick patterns

Common candlestick patterns

Individual candles tell you something. Specific candle shapes and combinations tell you even more — they are pattern-recognition shortcuts that price action traders use to spot potential reversals quickly.

Doji — indecision

A doji has a tiny or non-existent body, with the open and close nearly equal, often surrounded by wicks on both sides. It signals indecision — neither buyers nor sellers won that period. A doji after a strong trend can be an early warning that momentum is fading.

Hammer — bullish reversal

A hammer has a small body near the top of its range, with a long lower wick (at least twice the body size) and little to no upper wick. It typically forms after a downtrend and signals that sellers pushed price down, but buyers stepped in hard and rejected the move, pushing price back up by the close.

Shooting star — bearish reversal

The mirror image of a hammer: a small body near the bottom of its range, with a long upper wick and little to no lower wick. It typically forms after an uptrend and signals buyers pushed price up, but sellers rejected the move and pushed it back down.

A hammer or shooting star is most meaningful when it forms at a key support or resistance level — the pattern alone is weaker evidence than the pattern combined with the location.

Engulfing pattern — strong reversal signal

An engulfing pattern is two candles: the second candle's body completely "engulfs" (covers) the first candle's body in the opposite direction. A bullish engulfing pattern is a red candle followed by a larger green candle that fully covers it — strong evidence that buyers have overwhelmed sellers. A bearish engulfing is the reverse.

Why patterns alone aren't enough

These shapes describe what just happened in the battle between buyers and sellers — they don't guarantee what happens next. A hammer at a random point in the middle of a range means far less than a hammer forming exactly at a strong support level you already identified using the concepts from earlier lessons. Patterns are most powerful when combined with the location (support/resistance, market structure) you've already learned to identify.

• A doji signals indecision — open and close are nearly equal
• A hammer (long lower wick, small body near top) signals bullish rejection after a downtrend
• A shooting star (long upper wick, small body near bottom) signals bearish rejection after an uptrend
• An engulfing candle that fully covers the prior candle's body is one of the strongest single reversal signals — especially at a key level