Bullish candlestick patterns

Following a downward trend in the market, bullish patterns emerge, indicating a potential reversal in price direction. These patterns serve as signals for traders to contemplate initiating a long position, aiming to capitalize on upward movements in price.

Hammer

The hammer candlestick pattern consists of a compact body with a lengthy lower wick, typically observed at the conclusion of a downward market trend.

A hammer pattern indicates that despite initial selling pressure throughout the trading session, robust buying activity emerged, propelling the price upward. While the body color can differ, green hammers signify a more vigorous bullish market compared to red hammers.

Inverse hammer

Another bullish pattern akin to the hammer is the inverted hammer. The key disparity lies in its formation: it features a lengthy upper wick and a short lower wick.

The inverted hammer signals an initial buying pressure succeeded by a selling pressure that lacked sufficient force to push the market price downward. This pattern suggests an impending shift in market control toward buyers.

Bullish engulfing

The bullish engulfing pattern comprises two candlesticks. The initial candlestick is characterized by a small red body, entirely overshadowed by a larger green candlestick.

Despite the second day's opening lower than the first, the bullish sentiment prevails, propelling the price upwards. This outcome clearly favors buyers, indicating their dominance in the market.

Piercing line

The piercing line pattern consists of two candlesticks: first, a long red candle, followed by a long green candle. Typically, there's a noticeable gap down between the closing price of the first candlestick and the opening price of the green candlestick. This suggests robust buying pressure, pushing the price up to or even above the midpoint of the previous day's trading range.

Morning star

The morning star candlestick pattern is seen as a hopeful indicator during a downtrend in the market. It comprises three candles: a long red candle followed by a short-bodied candle, then a long green candle. Typically, the 'star' candle doesn't overlap with the longer bodies, as there are gaps both at the open and close. This pattern suggests that the selling pressure from the first day is easing, hinting at a forthcoming bullish market trend.

Three white soldiers

The three white soldiers pattern unfolds across three days, featuring successive long green (or white) candles with minimal wicks. Each candle opens and closes at progressively higher levels compared to the previous day. This formation serves as a potent bullish signal, particularly following a period of downward movement in the market. It signifies a robust and consistent surge in buying pressure, indicating a strong upward momentum.

Bearish candlestick patterns

Bearish candlestick patterns typically emerge following an uptrend and signify a potential point of resistance. Heightened pessimism regarding market prices often prompts traders to exit their long positions and initiate short positions to capitalize on the anticipated decline in

Hanging man

The hanging man candlestick pattern serves as the bearish counterpart to the hammer pattern, sharing a similar shape but appearing at the conclusion of an uptrend. This pattern suggests that although there was a notable sell-off during the trading day, buyers managed to drive the price back up. The substantial sell-off is often interpreted as a sign that the bulls are beginning to relinquish control of the market.

Shooting star

The shooting star candlestick pattern shares a resemblance with the inverted hammer but occurs within an uptrend. It features a small lower body and a long upper wick. Typically, the market will open with a slight upward gap and rally to reach an intraday high before closing just above the opening price, resembling a star descending to the ground.

Bearish engulfing

A bearish engulfing pattern emerges toward the end of an uptrend. It begins with a small green-bodied candle followed by a subsequent long red candle that completely engulfs the previous one.

This pattern indicates a potential peak or deceleration in price movement, serving as a warning sign of an impending market downturn. The greater the extent to which the second candle descends, the more significant the potential trend reversal is likely to be.

Evening star

The evening star pattern consists of three candlesticks, mirroring the bullish morning star pattern. It features a short candle sandwiched between a long green candle and a large red candlestick.

This pattern signals a potential reversal of an uptrend, and its significance increases when the third candlestick completely eliminates the gains made by the first candle.

Three black crows

The three black crows candlestick pattern consists of three consecutive long red candles with short or nonexistent wicks. Each session opens at a similar price to the previous day, but selling pressures drive the price lower and lower with each close.

This pattern is interpreted by traders as the beginning of a bearish downtrend, suggesting that sellers have dominated over buyers during three successive trading days.

Dark cloud cover

The dark cloud cover candlestick pattern denotes a bearish reversal, symbolizing a shadow cast over the optimism of the preceding day. This pattern consists of two candlesticks: a red candlestick opening above the previous day's green body and closing below its midpoint.

This signal indicates that the bears have seized control of the session, driving the price sharply lower. Short wicks on the candles suggest a particularly decisive downtrend.

Continuation candlestick patterns

If a candlestick pattern doesn’t indicate a change in market direction, it is what is known as a continuation pattern. These can help traders to identify a period of rest in the market, when there is market indecision or neutral price movement.

Doji

When a market's opening and closing prices are nearly identical, the resulting candlestick resembles a cross or plus sign, typically with a short to non-existent body and wicks of varying lengths.

This pattern, known as a doji, reflects a struggle between buyers and sellers, leading to no significant net gain for either side. While a doji alone signifies a neutral signal, it often appears within reversal patterns such as the bullish morning star and bearish evening star.

Spinning top

The spinning top candlestick pattern is characterized by a short body positioned between wicks of equal length. This pattern reflects market indecision, leading to little to no significant change in price: while the bulls initially push the price higher, the bears counter by pushing it back down. Spinning tops are commonly seen as a period of consolidation or rest following a notable uptrend or downtrend.

As a standalone signal, the spinning top is relatively benign. However, it can serve as an indication of future market direction, suggesting that the current market pressure is waning and control may be shifting.

Falling three methods

Three-method formation patterns are employed to forecast the continuation of an existing trend, whether it's bearish or bullish.

In the bearish scenario, this pattern is known as the 'falling three methods'. It comprises a long red body, succeeded by three small green bodies, and concludes with another red body. Importantly, the green candles are all encompassed within the range of the bearish bodies. This formation communicates to traders that the bulls lack sufficient strength to reverse the prevailing trend.

Rising three methods

Indeed, the bullish counterpart to the 'falling three methods' is the 'rising three methods' candlestick pattern. This pattern consists of three short red candles sandwiched within the range of two long green candles. The arrangement suggests to traders that, despite encountering some selling pressure, buyers maintain control of the market.