Candlestick patterns are the most popular way for traders to track stock prices. They tell a full story about who is winning the battle between buyers (“bulls“) and sellers (“bears“).
Here is a simple breakdown of the keywords and patterns you asked about.
1. The Anatomy of a Candle Light Candle stick
A single candlestick shows the price movement of a stock during a specific time period (e.g., 1 day, 1 hour). It is composed of two main parts: the Body and the Wick.
The Body (Real Body)
The thick, colored rectangular part of the candle.
- Green (or White) Body: The stock price closed higher than it opened. This is a Bullish candle (Buyers won).
- Red (or Black) Body: The stock price closed lower than it opened. This is a Bearish candle (Sellers won).
The Wick (Shadow)
- Upper Wick: Shows the Highest price reached during that period.
- Lower Wick: Shows the Lowest price reached during that period.
Key components:
- Body: Distance between Open and Close
- Wicks (Shadows): High and Low of the period
- Color:
- Green → Close > Open (Bullish)
- Red → Close < Open (Bearish)
2. Key Terms & Patterns Explained
1. Marubozu
- Meaning: “Marubozu” is Japanese for “bald” or “shaved head.”
- Appearance: A candle with no wicks (or very tiny ones). It is just a long, solid block of color.
- What it indicates: Pure momentum.
- Bullish Marubozu (Green): Buyers controlled the price from the very first second to the very last second. It often signals that the price will continue to rise.
- Bearish Marubozu (Red): Sellers controlled the price the entire time. It often signals that the price will continue to fall.
The image shows the characteristics of the Marubozu candlestick pattern. It indicates strong market momentum because it has no shadows or wicks.
- A bullish Marubozu (green/white) forms when the open price equals the low price. The close price equals the high price. This signifies strong buying pressure and a price rise.
- A bearish Marubozu (red/black) forms when the open price equals the high price. The close price equals the low price. This signifies strong selling pressure and a price fall.
- The absence of wicks means the price traded within the open and close price range. This was true for the entire period. This trading took place from the absolute low to the absolute high.
The image displays a series of candlestick patterns, commonly used in financial market technical analysis.
- Each pair consists of one green and one red candlestick.
- Green candlesticks show an upward price movement (bullish).
- Red candlesticks show a downward price movement (bearish).
- The patterns are often used by traders to predict future price direction.
The image highlights a bullish Marubozu candlestick pattern. This pattern provides strong indications of market sentiment and potential future price movements.
- A bullish Marubozu has a long green (or white) body with no upper or lower shadows (wicks).
- The open price is at the low of the candle. The close price is at the high. This indicates strong buying interest throughout the trading period.
- It signals that buyers were in total control from the open to the close. There was no selling pressure pushing the price back down.
- It often signals a potential trend reversal when it shows at the bottom of a downtrend. This is shown in the image. It can also show the beginning of an upward movement.
2. Harami Pattern (Two-Candle Reversal)
- Meaning: “Harami” is an old Japanese word for “pregnant.”
- Appearance: This is a two-candle pattern. It looks like a large “mother” candle. A small “baby” candle follows, fitting completely inside the body of the first one.
- What it indicates: A potential reversal (change in direction) or a pause in the trend.
- Bullish Harami: A large Red candle (downtrend) followed by a small Green candle. It suggests the selling pressure is stopping and price will go up.
- Bearish Harami: A large Green candle (uptrend) followed by a small Red candle. It suggests the buying pressure is stopping and price will go down.
The image illustrates the bullish harami candlestick pattern. It signals a potential trend reversal from a downtrend to an uptrend in financial markets. The pattern consists of two candles. The second candle is smaller and bullish (green). It is contained within the body of the earlier large bearish (red) candle.
- Pattern Name: Bullish Harami
- Prior Trend: Downtrend
- Signal: Potential reversal to an uptrend
- Visual Appearance: A small green candle “pregnant” within a large red candle
The image displays a financial chart illustrating a bullish harami candlestick pattern. This pattern signals a potential reversal from a downtrend to an uptrend.
- The pattern consists of a large red candle. It is followed by a smaller green candle. The body of the smaller candle is contained within the first candle’s body.
- The chart indicates an suggested entry level for a trade after the pattern formation, around the 90.900 price point.
- A specific stop loss level is marked below the pattern, near the 90.500 price point, to manage risk.
- Following the pattern, the price action shows a sustained upward movement, confirming the bullish reversal signal.
Disclaimer: Financial trading involves significant risk, and candlestick patterns are not a guarantee of future performance. This information is for educational purposes only and not financial advice.
3. Doji (Indecision Candle)
Definition: Small body on top + long lower wick
Meaning: Sellers pushed price down, but buyers strongly rejected lows.
Use: Effective at bottom of downtrend.
Definition: Open ≈ Close
Meaning: Market is undecided; neither buyers nor sellers won.
Types of Doji:
- Standard Doji – complete indecision
- Long-Legged Doji – heavy uncertainty
- Dragonfly Doji – bullish reversal potential
- Gravestone Doji – bearish reversal potential
Use: Strong reversal signals when appearing at trend extremes.
The image displays various types of Doji candlestick patterns used in financial technical analysis, which are characterized by an opening and closing price that are virtually equal, indicating market indecision.
- A Standard Doji has a small trading range and represents market indecision when it forms during a clear trend.
- A Dragonfly Doji forms when the open, high, and close prices are the same, with a long lower shadow suggesting buyers pushed prices up after an initial fall.
- A Gravestone Doji is the inverse, with the open, low, and close prices being the same, and a long upper shadow indicating sellers regained control after buyers attempted to push prices higher.
- A Long-legged Doji has long upper and lower shadows, signaling significant indecision and high volatility, often appearing at the end of prolonged trends.
4. Hammer (Bullish Reversal at Bottom)
The image illustrates and compares four single candlestick patterns used in technical analysis: the hammer, inverted hammer, hanging man, and shooting star. These patterns signal potential price reversals in financial markets.
- Hammer: A bullish reversal pattern found at the bottom of a downtrend, indicating buyers are regaining control.
- Inverted Hammer: A bullish reversal pattern that also appears in a downtrend, suggesting a potential shift from bearish to bullish momentum.
- Hanging Man: A bearish reversal pattern found at the top of an uptrend, indicating selling pressure is increasing.
- Shooting Star: A bearish reversal pattern that appears after an uptrend, signaling that buyers are losing control and prices may fall.
5. Inverted Hammer (Bullish Reversal)
The image provides a definition and visual examples of the Inverted Hammer and Hammer Candlestick patterns, which are significant in financial trading for indicating potential market reversals.
- The Inverted Hammer is a bullish reversal signal that appears after a downtrend.
- It is characterized by a small body near the bottom of the candlestick and a long upper wick.
- The Hammer Candle is also a bullish pattern, featuring a small body near the top and a long lower wick.
- Both patterns suggest that buyers are starting to gain control from sellers.
6. Shooting Star (Bearish Reversal at Top)
Definition: Same shape as inverted hammer but appears at top of uptrend.
Meaning: Buyers tried to push price higher but were rejected strongly.
Use: Signals trend weakening.
The image illustrates the “Shooting Star” candlestick pattern, a key indicator used in technical analysis to suggest a potential reversal from an uptrend to a downtrend.
- The pattern appears after an existing uptrend.
- It has a small body near the bottom of the candle and a long upper wick.
- It is considered a strong bearish reversal pattern, meaning the price is likely to decline.
The image displays a shooting star candlestick pattern, which is a bearish reversal signal that appears after an uptrend.
- It is characterized by a small real body (green or red) near the bottom of the candle, a long upper shadow (or wick) that is at least twice the length of the real body, and little or no lower shadow.
- The pattern indicates that while buyers initially pushed prices higher, sellers took control by the end of the period, driving the price back down near the open.
- This suggests that bullish momentum is losing steam and a potential downtrend may follow, as indicated by the blue arrow in the image.
- Traders often look for confirmation from following price action or other indicators before making decisions based on this pattern.
7. Engulfing Pattern (Two-Candle Strong Reversal)
Definition: Second candle fully engulfs body of previous candle.
Meaning: Major power shift between buyers and sellers.
- Bullish Engulfing: Buyers overwhelm sellers
- Bearish Engulfing: Sellers take control from buyers
The image illustrates two variations of the bullish engulfing candlestick pattern used in technical analysis to signal a potential market reversal from a downtrend to an uptrend.
- Strong engulfing: The green (bullish) candle completely covers the body of the previous red (bearish) candle, indicating significant buying pressure has overcome selling pressure.
- Weak engulfing: The green candle covers the red candle’s body, but the relative size difference is less pronounced, suggesting a less decisive shift in momentum compared to the strong pattern.
- Formation: Both patterns form over two trading sessions where a small red candle is followed by a larger green candle that opens lower but closes significantly higher.
- Interpretation: The larger the green candle in comparison to the red one, the stronger the bullish signal for an upcoming upward price movement.
The image illustrates two types of engulfing patterns used in technical analysis of financial markets, which are indicators of potential trend reversals.
- Bullish Engulfing: A bullish (green) candle completely covers the previous bearish (red) candle, suggesting that buyers are overpowering sellers and a potential uptrend may follow.
- Bearish Engulfing: A bearish (red) candle completely covers the previous bullish (green) candle, suggesting that sellers are overpowering buyers and a potential downtrend may follow.
8. Spinning Top (Indecision with Smaller Body)
Definition: Small body + long wicks
Meaning: Fight between buyers and sellers; no winner.
Use: Often appears before major moves.
The image illustrates the characteristics and interpretation of a spinning top candlestick pattern used in financial technical analysis.
- A spinning top indicates market indecision, where buyers and sellers are in a state of equilibrium, with neither side gaining a clear advantage.
- It is characterized by a small real body and long upper and lower shadows (wicks).
- The small body shows that the opening and closing prices were very close to each other, despite the market attempting to push the price both higher and lower during the trading period.
- The color (green/bullish or red/bearish) is less important than the pattern itself, as both signify a balance of power between bulls and bears.
The image displays two types of candlestick patterns used in financial technical analysis: Spinning Top and Doji.
- Spinning Top: Characterized by a small real body and long upper and lower shadows, this pattern indicates market indecision, where buyers and sellers are evenly matched and neither gains a clear advantage during the trading session.
- Doji: A Doji occurs when a security’s opening and closing prices are virtually the same, resulting in a very thin or non-existent real body.
- Both patterns signal a period of uncertainty in the market and can appear during any trend (bullish, bearish, or sideways), often preceding a potential trend reversal or continuation depending on the context.
- The color of the body (green or red) for a spinning top is less important than the shape itself, as both signify a balance between supply and demand.
9. Morning Star (Bullish Three-Candle Reversal)
Definition: 3-candle bullish reversal pattern.
Meaning: Downtrend is ending; buyers returning.
The image illustrates the “Morning Star” pattern, which is a bullish three-candle reversal pattern used in technical analysis to signal a potential shift from a downtrend to an uptrend.
- It forms at the bottom of a downtrend, indicating that selling pressure is fading.
- The pattern consists of a large bearish candle, followed by a small-bodied candle (the “star”), and then a large bullish candle that confirms the reversal.
- The appearance of this pattern suggests that buyers may be starting to take control of the market.
10. Evening Star (Bearish Three-Candle Reversal)
Definition: Opposite of Morning Star.
Meaning: Uptrend weakening; sellers taking over.
The image displays an evening star pattern, which is a bearish candlestick formation used in technical analysis to signal a potential trend reversal from an uptrend to a downtrend.
- It is a three-candle pattern that typically forms at the peak of an upward price trend.
- The first candle is a large bullish (green) candle, showing strong buying pressure.
- The second is a smaller-bodied candle (often a doji or spinning top), indicating market indecision.
- The third candle is a large bearish (red) candle, confirming that sellers have taken control and prices are likely to fall.
Candlestick Patterns from Wikipedia
Read Timeframe-Based Strategy Guide RSI vs MACD
Disclaimer: This information is for educational purposes only and not financial advice. Trading involves risk, and independent research is recommended.
