Hammer
The hammer candlestick pattern is formed of a short
body with a long lower wick, and is found at the
bottom of a downward trend.
A hammer shows that although there were selling
pressures during the day, ultimately a strong buying
pressure drove the price back up. The colour of the
body can vary, but green hammers indicate a
stronger bull market than red hammers.
Inverse hammer
A similarly bullish pattern is the inverted hammer. The
only difference being that the upper wick is long,
while the lower wick is short.
It indicates a buying pressure, followed by a selling
pressure that was not strong enough to drive the
market price down. The inverse hammer suggests
that buyers will soon have control of the market.
Bullish engulng
The bullish engulng pattern is formed of two
candlesticks. The rst candle is a short red body that
is completely engulfed by a larger green candle.
Though the second day opens lower than the rst,
the bullish market pushes the price up, culminating in
an obvious win for buyers.
Piercing line
The piercing line is also a two-stick pattern, made up
of a long red candle, followed by a long green
candle.
There is usually a signicant gap down between the
rst candlestick’s closing price, and the green
candlestick’s opening. It indicates a strong buying
pressure, as the price is pushed up to or above the
mid-price of the previous day.
Morning star
The morning star candlestick pattern is considered a
sign of hope in a bleak market downtrend. It is a
three-stick pattern: one short-bodied candle
between a long red and a long green. Traditionally,
the ‘star’ will have no overlap with the longer bodies,
as the market gaps both on open and close.
It signals that the selling pressure of the rst day is
subsiding, and a bull market is on the horizon.
Three white soldiers
The three white soldiers pattern occurs over three
days. It consists of consecutive long green (or white)
candles with small wicks, which open and close
progressively higher than the previous day.
It is a very strong bullish signal that occurs after a
downtrend, and shows a steady advance of buying
pressure.
Hanging man
The hanging man is the bearish equivalent of a
hammer; it has the same shape but forms at the end
of an uptrend.
It indicates that there was a signicant sell-off during
the day, but that buyers were able to push the price
up again. The large sell-off is often seen as an
indication that the bulls are losing control of the
market.
Shooting star
The shooting star is the same shape as the inverted
hammer, but is formed in an uptrend: it has a small
lower body, and a long upper wick.
Usually, the market will gap slightly higher on
opening and rally to an intra-day high before closing
at a price just above the open – like a star falling to
the ground.
Bearish engulng
A bearish engulng pattern occurs at the end of an
uptrend. The rst candle has a small green body that
is engulfed by a subsequent long red candle.
It signies a peak or slowdown of price movement,
and is a sign of an impending market downturn. The
lower the second candle goes, the more signicant
the trend is likely to be.
Evening star
The evening star is a three-candlestick pattern that is
the equivalent of the bullish morning star. It is formed
of a short candle sandwiched between a long green
candle and a large red candlestick.
It indicates the reversal of an uptrend, and is
particularly strong when the third candlestick erases
the gains of the rst candle.
Three black crows
The three black crows candlestick pattern comprises
of three consecutive long red candles with short or
non-existent wicks. Each session opens at a similar
price to the previous day, but selling pressures push
the price lower and lower with each close.
Traders interpret this pattern as the start of a bearish
downtrend, as the sellers have overtaken the buyers
during three successive trading days.
Dark cloud cover
The dark cloud cover candlestick pattern indicates a
bearish reversal – a black cloud over the previous
day’s optimism. It comprises two candlesticks: a red
candlestick which opens above the previous green
body, and closes below its midpoint.
It signals that the bears have taken over the session,
pushing the price sharply lower. If the wicks of the
candles are short it suggests that the downtrend was
extremely decisive.
Doji
When a market’s open and close are almost at the
same price point, the candlestick resembles a cross
or plus sign – traders should look out for a short to
non-existent body, with wicks of varying length.
This doji’s pattern conveys a struggle between
buyers and sellers that results in no net gain for either
side. Alone a doji is neutral signal, but it can be
found in reversal patterns such as the bullish morning
star and bearish evening star.
Spinning top
The spinning top candlestick pattern has a short
body centred between wicks of equal length. The
pattern indicates indecision in the market, resulting in
no meaningful change in price: the bulls sent the
price higher, while the bears pushed it low again.
Spinning tops are often interpreted as a period of
consolidation, or rest, following a signicant uptrend
or downtrend.
On its own the spinning top is a relatively benign
signal, but they can be interpreted as a sign of things
to come as it signies that the current market
pressure is losing control.
Falling three methods
Three-method formation patterns are used to predict
the continuation of a current trend, be it bearish or
bullish.
The bearish pattern is called the ‘falling three
methods’. It is formed of a long red body, followed
by three small green bodies, and another red body –
the green candles are all contained within the range
of the bearish bodies. It shows traders that the bulls
do not have enough strength to reverse the trend.
Rising three methods
The opposite is true for the bullish pattern, called the
‘rising three methods’ candlestick pattern. It
comprises of three short reds sandwiched within the
range of two long greens. The pattern shows traders
that, despite some selling pressure, buyers are
retaining control of the market.
