Candlestick Patterns
Read price action through reversal and continuation candlestick formations.
What are Candlestick Patterns?
Candlestick charts display four data points per period: open, high, low, and close. The body shows the range between open and close (green/white if close > open, red/black if close < open), while the wicks show the high and low extremes. Specific combinations of one or more candles form patterns that traders use to anticipate potential price movements.
Key Reversal Patterns
Hammer / Hanging Man: small body at the top with a long lower wick, signaling rejection of lower prices. Engulfing: a candle that completely engulfs the prior candle's body — bullish engulfing at support suggests reversal up, bearish engulfing at resistance suggests reversal down. Doji: open and close are nearly equal, showing indecision. Morning/Evening Star: three-candle patterns marking major trend reversals. These patterns are most reliable when they form at key support or resistance levels.
Key Continuation Patterns
Rising/Falling Three Methods: a long candle followed by three small counter-trend candles, then another strong candle in the original direction. Marubozu: a candle with no or very small wicks, showing strong conviction in one direction. Windows (gaps): price gaps between candles suggest strong momentum. Continuation patterns are most useful when they confirm the existing trend direction indicated by other indicators like moving averages and MACD.
Key Takeaways
- ✓Candlesticks show open, high, low, close in a visual format
- ✓Long wicks indicate rejection of a price level
- ✓Engulfing patterns at key levels are among the most reliable reversal signals
- ✓Patterns are most meaningful at support/resistance levels with volume confirmation
- ✓Use candlestick patterns alongside trend indicators, not in isolation
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Important Disclosure
Educational content is for informational purposes only and does not constitute financial advice. Past performance does not guarantee future results. Always do your own research and consult a qualified financial advisor before making investment decisions.