Candlestick patterns are single- or multi-candle sets that show the open, high, low, and close of a stock and how it changed during a specific time period. Traders use them to evaluate price action, momentum, indecision, potential reversals, and continuation setups. Candlestick patterns are most useful when read in context with trends, support and resistance, volume, and confirmation rather than traded alone.
How to Read Candlestick Patterns
- Find the candlestick and pattern
- What prior trends do you see?
- Where did the trend start?
- What do the candlestick bodies and wicks show?
- What do volume, support, and resistance show?
- Wait for confirmation
- Define your risk before placing a trade
How Does a Candlestick Work?
A single candlestick can actually show you a lot right off the bat. You can see the open, close, high, and low of the timeframe you’re watching. A candle forms a real body and an upper and lower wick.
Candles can be either bullish or bearish. As a result, you can see how traders felt about a particular stock that day. A bullish candlestick opens lower but closes higher. So you can see that the start of the candle was lower than when the candle closed. Wicks show where the price hit but didn’t stay.
Similarly, a bearish candle opens higher but closes lower. Sentiment may have started high, but it fell, and price went with it. On most charts, bullish candles are green while bearish candles are red.
You can see from one candle how traders felt in that moment. But when you group multiple candlesticks together, you get candlestick patterns. And those patterns can be bullish or bearish and give you an idea of what traders are thinking.
Magic Eye (Pattern Recognition)
Stock patterns are the first line of defense in trading. Technical analysis, such as moving average lines, RSI, and MACD trading, wouldn’t mean anything without them. Therefore, you must learn how to read candlesticks charts first!
Thanks to a 17th-century rice trader named Homma, we have candlestick charts. He saw that there was a correlation between emotion and supply and demand. As a result, he wanted to come up with a way to track it, and that’s how we got candlesticks.
Reading candle charts becomes much like those Magic Eye pictures back in the day, where you would have to adjust your eyes to see the picture within the picture. It took a while to see the big picture. But the reward was worth it when you did. It’s the same with candlestick charts.
You wouldn’t bring your car to a mechanic who didn’t study and learn how to work on cars properly. That would cost you a lot of money and cause you to buy a new car. You trust that your mechanic, doctor, repairman, or woman has had the proper training. In this case, trading demands the same level of respect and study. Think about it. You’re taking the money you worked hard to earn and trying to grow it into something bigger. As a result, you can’t just “wing it.”
The more you stare at this stuff and let it sink in, the more familiar it will become. Stock trading is a tug-of-war between the bulls and the bears. Some days, the Bulls win; some days, the Bears win. That being said, this battle is the foundation and essence of stock training.
Types of Candlestick Patterns
Candlestick patterns and charts form key support and resistance levels. Furthermore, these levels are important to know to manage profit and loss, and entries and exits in trading. How can you buy low and sell high without knowing where the highs and lows are and where the support and resistance are?
Most new traders don’t know where to buy or sell, or when to buy or sell. If this is you, then it’s time to stop this cycle! What’s used to form support and resistance? The real bodies and wicks of candlesticks, as well as patterns. As a result, with our eBook, you can learn how to read candlestick charts, pattern meanings, and entries and exits, including stop areas.
Being able to read charts is critical. Patterns are always forming. When looking at a chart, it isn’t a bunch of candlesticks with no rhyme or reason. Flags, head and shoulders, cups and handles, triangles, and wedges form. They can overlap or be separate. You can always see patterns, but you have to study. They’re not going to be perfectly noticeable every single time.
Bullish Candlestick Patterns
- Hammer Candlestick
- Bullish Engulfing Pattern
- Morning Star Pattern
- Bullish Harami Pattern
- Piercing Pattern
View All Bullish Candlestick Patterns →
Bearish Candlestick Patterns
- Shooting Star Candlestick
- Bearish Engulfing Pattern
- Evening Star Pattern
- Bearish Harami Pattern
- Hanging Man Candlestick
View All Bearish Candlestick Patterns →
Doji Candlestick Patterns
| Pattern | Type | Typical Context | What It Suggests | Confirmation |
|---|---|---|---|---|
| Hammer | Bullish reversal | After a drop | Sellers rejected lower prices | Break above hammer/high |
| Bullish Engulfing | Bullish reversal | After a drop | Buyers overtook sellers | Follow-through higher |
| Morning Star | Bullish reversal | After a drop | Momentum shift | Third candle/continued strength |
| Shooting Star | Bearish reversal | After a move up | Higher prices rejected | Weakness afterward |
| Bearish Engulfing | Bearish reversal | After a move up | Sellers overtook buyers | Follow-through lower |
| Doji | Indecision | Depends on surrounding context | Buyer/seller balance | Next candle gives context |
Candlestick Patterns Take Time
The market trades in cycles. This means stocks are also going to trade in cycles. What goes down is going to go back up. What’s up is going to go down. So they can give us a signal of the impending reversal. You can also pair reversal chart patterns with moving averages for confirmation.
When a bullish reversal pattern like a tweezer bottom occurs, that’s a signal that you can place a trade. However, make sure you get confirmation beforehand. That way, you’re not stuck in a bear trap.
Just like when a bearish reversal happens. If you’ve been in a trade and bearish reversal chart patterns appear, you may want to consider closing out the trade.
Especially if you have profit. You never go broke taking your profits. Trying to hit it out of the park every trade is a mistake traders make. Which, in turn, causes them to lose instead of win.
You must know how to trade candlestick chart reversal patterns to protect yourself. As a result, you’ll be able to find good entries and exits. We teach how to trade candlesticks each day in our trade rooms.
Wouldn’t it be nice if learning how to read candlestick charts were quick and easy? Well, unfortunately, it isn’t. However, we’ve made it as easy as possible to learn. Regardless, it’s not an exaggeration to say you must study for many hours!
Therefore, our candlestick charts eBook is a tool for that purpose. It’s written in a way that’s simple and easy to understand. Reading our candlestick charts eBook helps equip you as a trader. Did you know that 90% of traders give up and quit? Why is that? They didn’t take the time to study. They didn’t learn to crawl before they walked or ran.
We recommend that you use our ebook in conjunction with our courses. Our ebook and wallpapers will help bring to life what you learn in our courses. We do our best to make the process of reading candle charts as easy as possible.
Common Candlestick Pattern Mistakes
When it comes to trading candlestick patterns, make sure you know what to avoid. You don’t just want to trade the shape of a candle. For example, you might see a hammer and think a bullish reversal is coming next.
What you first need to look at is where that hammer candle is forming on the chart. These signal candles can sometimes form in a spot that isn’t showing anything. And if you place a trade just based on the shape of a candle, you can lose money.
A reversal candle doesn’t necessarily mean a reversal is 100% happening. You need to look at the trend the stock is in. Where is support and resistance? Are there larger patterns the reversal candle is in?
Also, look at the chart timeframe. Are you trading a 1-minute or a 5-minute chart? Candlestick pattern formations can mean something different based on the timeframe of the chart.
Another thing you don’t want to ignore is how liquid the stock is and how much volume is coming into trades. Have you ever traded a penny stock that had a big volume move, only for that to disappear and the stock not to move for days?
When that happens, patterns and candles don’t really matter. You need liquidity and volume to make stocks move. That’s what forms patterns.
Sometimes smaller candlestick patterns form in larger chart patterns. Large chart patterns tend to have more of a long-term impact on a stock’s direction than small patterns. So make sure you’re confident in the length of your trade.
And remember, picture-perfect patterns aren’t going to show up on messy charts. You don’t always get that textbook pattern that’s easy to see. So make sure to practice trading patterns so you get comfortable with what the charts show you.
Take Candlestick Patterns Seriously
Treat trading seriously and not as a hobby if you want to succeed long-term. It’s important to immerse yourself in the trading world to make it as a trader. Treat it like you would a job or start a new career. Go easy on yourself, and don’t get frustrated if learning to read candle charts takes a while. That’s a normal process.
It takes looking at hundreds of charts over several months to understand candlestick charts. After enough studying and looking at many charts, the patterns will start to make sense.
That’s why it’s important to download our wallpapers so that the patterns will be in your subconscious, and after enough time, they will eventually enter your brain consciously and make sense. Reading candlestick charts begins to make more sense the more that you look at the charts.
It’s like anything in life, or starting a new career or profession. It takes time to learn a new skill. It often takes a year or so to get the hang of things when starting a new education or career.
We’ve invested much time in creating useful candlestick resources to help the patterns become easier to understand. We suggest swapping out our wallpapers every few months to keep the patterns fresh in your mind, so you’ll also learn other ones.
Candlestick Books We Recommend
- The Candlestick Course by Steve Nison
- Japanese Candlestick Charting Techniques by Steve Nison
- Technical Analysis From A-Z by Steven Achelis
You can view a list of the top stock market books here.
Frequently Asked Questions
The best way to learn candle patterns is to study them by taking a candlesticks course or reading an eBook. Price action is the most important indicator when trading because it’s the real-time culmination of buying and selling between the bulls and the bears. Candlestick charts and patterns take time to learn.
Candlestick patterns work, but they are not 100% foolproof. Patterns sometimes fail, but they are still the most accurate indicator when trading. Price action is an immediate indicator that is formed by candlesticks. All of the other indicators in trading are lagging and revolve around price action. Candlestick charts are the way traders determine support and resistance levels and show when to enter and exit a trade.
No single candlestick pattern is the most reliable. Candlestick patterns like hammers, engulfing candles, or star patterns become meaningful when they're forming support and resistance from price action and volume.
The two major pattern categories are known as reversals and continuations. Reversal patterns signal that the trend is about to reverse after the pattern has completed itself. Continuation patterns signify that the trend will continue once the pattern is complete. Traders use chart patterns for any trading strategy.
