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Candlestick Patterns

Reading price action through single, double, and triple candle patterns

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Candlestick Patterns — Strategy Guide

Candlestick Basics

Each candlestick contains four price points: Open, High, Low, Close (OHLC). The body shows the range between open and close, while wicks show price rejection.

Bullish Candle
Close higher than open. Buyers in control.
Bearish Candle
Close lower than open. Sellers in control.
Body — Rectangle between open and close—shows price change magnitude
Upper Wick — Line from body to high—shows rejection of higher prices
Lower Wick — Line from body to low—shows rejection of lower prices
Body-to-Wick Ratio — Large bodies = conviction; large wicks = indecision/rejection

Single Candle Patterns

Open and close are virtually identical—represents pure indecision between buyers and sellers.

Standard Doji — Equal wicks, pure indecision
Long-Legged Doji — Very long wicks, extreme volatility but no resolution
Dragonfly Doji — Long lower wick, bullish at support
Gravestone Doji — Long upper wick, bearish at resistance

Small body at top, long lower wick (2×+ body length). Sellers pushed price down but buyers recovered it.

Best at: Bottom of downtrend or support levels

Confirmation: Wait for next candle to close higher

Small body at bottom, long upper wick (2×+ body length). Buyers pushed price up but sellers recovered it.

Best at: Top of uptrend or resistance levels

Confirmation: Wait for next candle to close lower

Large body with little/no wicks—extreme conviction in one direction.

Bullish Marubozu: Opened at low, closed at high

Bearish Marubozu: Opened at high, closed at low

Small body with long equal wicks—indecision, similar to doji but with small visible body.

After strong trends: possible exhaustion signal

Two-Candle Patterns

Formation: Small bearish candle followed by large bullish candle that completely engulfs the first.

Context: After downtrend or at support

Interpretation: Buyers completely overwhelmed sellers—strong reversal signal

Formation: Small bullish candle followed by large bearish candle that completely engulfs the first.

Context: After uptrend or at resistance

Interpretation: Sellers completely overwhelmed buyers—strong reversal signal

Opposite of engulfing—second candle is contained within the first candle's body.

Bullish Harami: Large bearish, then small candle inside = sellers losing control

Bearish Harami: Large bullish, then small candle inside = buyers losing control

Less aggressive than engulfing—requires confirmation

Piercing Line (Bullish): Bearish candle, then bullish candle gaps down but closes above midpoint of first candle.

Dark Cloud Cover (Bearish): Bullish candle, then bearish candle gaps up but closes below midpoint of first candle.

Three-Candle Patterns

Formation:

  1. Large bearish candle (downtrend continues)
  2. Small-bodied candle/doji (indecision, "the star")
  3. Large bullish candle (buyers take control)

One of the most reliable bullish reversal patterns.

Formation:

  1. Large bullish candle (uptrend continues)
  2. Small-bodied candle/doji (indecision, "the star")
  3. Large bearish candle (sellers take control)

Highly reliable bearish reversal pattern.

Three White Soldiers: Three consecutive bullish candles, each opening within prior body and closing progressively higher. Strong bullish continuation.

Three Black Crows: Three consecutive bearish candles, each opening within prior body and closing progressively lower. Strong bearish continuation.

Context and Confirmation

A pattern at a random price level is just a candle. A pattern at a key support/resistance level is a trading signal.

  • Location: Patterns at S/R carry more weight
  • Trend: Reversal patterns need prior trend to reverse
  • Volume: High volume confirms conviction
  • Next Candle: Wait for follow-through in expected direction
  • S/R Confluence: Pattern at PDH/PDL, POC, round numbers
  • Volume: Higher than average confirms legitimacy
  • Multiple Timeframe: Check higher timeframes for alignment
  • Indicators: RSI oversold/overbought, CVD divergence
Important
Common mistakes: Trading patterns without context, ignoring volume, cherry-picking patterns that confirm your bias, and not using stop losses. Remember: Even the best patterns fail sometimes.
Pro Tip
Master the patterns, but respect the context. A perfect doji in the middle of nowhere is meaningless. The same doji at a major support level with volume confirmation is a high-probability setup.
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Strategy Guide
Candlestick Patterns
A hammer has a long lower wick and small body near the top. Buyers rejected lower prices.
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