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INTRODUCTION TO CANDLESTICK
 INTRODUCTION TO CANDLESTICK

What is a Candlestick?
A candlestick is a way of displaying information about an asset’s price movement.
Candlestick charts are one of the most popular components of technical analysis, enabling
traders to interpret price information quickly and from just a few price bars.
It has three basic features:

• The body, which represents the open-to-close range

• The wick, or shadow, that indicates the intra-day high and low
• The color, which reveals the direction of market movement-a green (or white) body
indicates a price increase, while a red (or black) body shows a price decrease

Over time, individual candlesticks form patterns that traders can use to recognize major
support and resistance levels.
INTRODUCTION TO CANDLESTICK
 INTRODUCTION TO CANDLESTICK

Morning Star Candle Stick Pattern

• The stock has to be in a downtrend.
• The first candle has to be red (bearish).
• The second candle has to have a small body and long wicks on both sides. The color of
the candle does not matter.
• The third candle has to be green (bullish). The body of the candle has to be around the
same size as the first candle or larger.
• If the third candle is backed by comparatively higher volume, then the ‘Morning Star’
pattern will be more effective.
 INTRODUCTION TO CANDLESTICK

Bullish Hammer Candlestick Pattern

A ‘Hammer’ candle has a short body with a long tail. When this candle appears during
a downtrend, it signals a potential turnaround from downtrend to uptrend. The color of the
candle does not matter. The ‘Hammer’ can either be red or green.

How traders use ‘Bullish Hammer’ Candle

Trend reversal is confirmed if the next candle after the ‘Bullish Hammer’ closes above
the closing price of the hammer. If the previous few candles are moving downwards and a
‘Hammer’ candle is formed, it’s usually considered to be a sign of bottoming out.
Hammers can be used in combination with trend lines and other technical indicators to
confirm the trend reversal.
 INTRODUCTION
INT TO CANDLESTICK

Inverted Hammer
er Candlestick
Can Pattern (Bullish
h Reversal)
Rev
Inverted Hammer is a single le candle
cand which appears when a stock is in a downtrowntrend. It’s an
important candle because it can ca potentially reverse the entire trend from downtrend
to uptrend. That is why it is calle
led a ‘bullish reversal’ candlestick pattern.

INVERTED HAMMER
• The ‘Inverted Hammer’
mer’ gets formed
when the price openss at a certain level
and then goes much higher.
higher

• The price hits a high h and then it falls

drastically to close near
ear its opening.

• The color of the candle

dle does
do not matter
it could be either red or green.
gre

• It’ll be a red candle if the closing

c price is lower than the opening price.
ce. It’l
It’ll be a green
candle if the closing price is higher than the opening price. Both are re call
called ‘Inverted
Hammer’
 INTRODUCTION TO CANDLESTICK

Bullish Engulfing Pattern: Candlestick Chart

The ‘Bullish Engulfing’ is a two-candle pattern. The first candle will be smaller and red
in color. The second candle will engulf (entirely cover) the previous candle. It’ll be green
and much larger in size.

Characteristics of Bullish Engulfing

• The first candle in the pattern is of less importance. It’s usually small and red in
color. A red candle means, the price has fallen.
• The formation of the second candle is of utmost importance and this decides whether
it’s a ‘Bullish Engulfing Pattern’.
• The price opens lower than the first candle. It could fall further down. This is when
smart buyers find value in the stock. The demand to buy increases and the price goes
up significantly.
• On the chart, it would look like the green candle has completely engulfed the
previous candle.

How traders use Bullish Engulfing Pattern

The ‘Bullish Engulfing’ pattern signals a trend reversal in the upward direction. However,
when the ‘Bullish Engulfing’ pattern occurs on the charts, some traders wait for
confirmation. If the next candle, after the ‘Bullish Engulfing’ opens in green, then the
stock is purchased and the stop loss is the low of the ‘Bullish Engulfing’ Candle. Some
traders take position at the closing price of the ‘Bullish Engulfing’ and keep the opening
price as the Stop Loss.
 INTRODUCTION TO CANDLESTICK

Piercing Line Candlestick Pattern

The Piercing Line Pattern is a two-candle pattern that forms after the price has fallen. If it
forms during a downtrend, it signals a possible turn towards an uptrend. For the pattern to be
called ‘Piercing Line’, the following has to happen:
1. The stock has to be in a downtrend.
2. The first candle has to be red (bearish).
3. The second candle has to be green (bullish).
4. The second green candle has to open lower than the first red candle.
5. The second candle has to rise and close below the top of the red candle.
 INTRODUCTION TO CANDLESTICK

Bullish Harami Candle Stick Pattern

Bullish Harami is a 2-candle pattern, which can form on the chart after a short
term downtrend. The word ‘Harami’ might sound funny to us Indians, but in Japanese
‘Harami’ means pregnant. For the pattern to be called ‘Bullish Harami’, the following has to
happen:
1. The first candle has to be large and red (bearish).
2. The second candle should be green (bullish).
3. The second green candle has to be smaller in size and between the body of the previous
red candle.
The ‘Bullish Harami’ can be formed during a ‘trend reversal’ or ‘trend continuation’.
 INTRODUCTION TO CANDLESTICK

Three White Soldiers Candlestick Pattern

This normal candlestick pattern consists of 3 adjacent green candles satisfying 2 conditions as
follows:

• The opening and closing prices of the following candles must be higher than the
previous ones.
• The closing price of each candle must be close to the highest price (which means
that the shadow of each candle is very small).
• The pattern usually appears at the intersection between a downtrend and an
uptrend.
• Sometimes, this special signal may also appear when the price has already been in
an uptrend. This represents the continuation of the uptrend.
 INTRODUCTION
INT TO CANDLESTICK

The Pin Bar Pattern

tern (Reversal
( or Continuation)
A pin bar pattern consists off one price
p bar, typically a candlestick price bar,, which
whic represents
a sharp reversal and rejectionion of price. The pin bar reversal as it is sometimeetimes called, is
defined by a long tail, the tail
il is also
al referred to as a “shadow” or “wick”.
INTRODUCTION TO CANDLESTICK
 INTRODUCTION TO CANDLESTICK

Spinning Top Candle Stick Pattern

A ‘Spinning Top’ is a single candle stick pattern, which forms when there is indecision. Both
the buyers and sellers were active in the stock, but both could not take control.

Spinning Top Trading Strategy

On its own, the ‘Spinning Top’ candle is indecisive. Both the bulls and bears tried to take
control, but failed. However, the ‘Spinning Top’ has significance if it appears during a trend.
If the Spinning Top appears during a downtrend, it could suggest a potential reversal in trend.
If the ‘Spinning Top’ appears during an uptrend, it could again mean a change in trend.
 INTRODUCTION TO CANDLESTICK

Hanging Man Candle Pattern

‘Hanging Man’ candle is similar to the ‘Hammer’ in shape, but when it appears during
an uptrend it’s called ‘Hanging Man’. The ‘Hanging Man’ candle can be either green or red.
Ideally, the tail or wick of the candle should be twice the size of the body.

How traders use ‘Hanging Man’ Candle

If the previous few candles were moving upwards and a ‘Hanging Man’ candle is formed, it’s
considered to be a sign of topping out. Traders wait for the next candle to confirm a possible
change in trend. If the next candle after the ‘Hanging Man’ closes below the closing price,
then the trend reversal is partially confirmed. By itself, the ‘Hanging Man’ does not confirm a
trend reversal. When it’s used in combination with trend lines and other technical indicators,
a trend reversal can be confirmed with more certainty.
 INTRODUCTION TO CANDLESTICK

Shooting Star Candlestick

A Shooting Star is a (1- candle) bearish reversal pattern that forms after advancement in
price.

How traders use Shooting Star Candle

Just because traders spot a Shooting Star candlestick pattern doesn’t mean they go short
immediately. They must consider the context of the market (like the trend, the area of
values, etc.).
 INTRODUCTION
INT TO CANDLESTICK

Bearish Engulfingg Candle

Can Stick Pattern
The ‘Bearish Engulfing’ is a twotwo-candle pattern. The first candle will be smaller
aller aand green in
color. The second candle will ill engulf
en (entirely cover) the previous candle. e. It’ll be red and
much larger in size. If a stockk is in an uptrend and the ‘Bearish Engulfing’ candles
andlestick pattern
appears on the chart it is an indication
indica that the stock price might reverse.
• The first candle in the pattern
attern is of less importance. It’s usually small andd gree
green in color.
• The second candle is of more importance and this decides whether it’s a ‘Bear ‘Bearish
Engulfing Pattern’ or not.
• The price opens higher than the th first candle and then falls. This creates fear of a further
downfall, leading to more re selling
sell and the price falling further.
• This creates a large red candle on the chart, which completely engulfs the he prev
previous
candle. This pattern is called
alled ‘Bearish
‘ Engulfing’

Bearish Engulfing Trading

ing Strategy
St
The main condition for ‘Bearish
rish Engulfing’
E candlestick pattern to work is for
or a st
stock to be in
an uptrend. The last few candles
candle have to be moving upwards. After this, tthe ‘Bearish
Engulfing’ pattern signals a trend reversal in the downward direction. Howeve owever, when the
pattern occurs on the charts,, some
som traders wait for further confirmation. Iff the nnext candle,
after the ‘Bearish Engulfing’’ opens
open in red, this is confirmation of reversal.
 INTRODUCTION TO CANDLESTICK

Evening Star Candle Stick Pattern

The Evening Star pattern is a technical analysis tool that signals an upward price
momentum’s reversal to bearish momentum. The pattern rarely appears, but it is considered a
reliable bearish indicator. An Evening Star pattern consists of a long bullish candle, a “star”
with a short body or nobody, and a bearish confirmation candle.

• The first candlestick has a strong bullish body.

• The second candlestick has a small body. It can be bullish or bearish. It is also
possible for the second candlestick to have no body (a doji).
• The third candlestick has a strong bearish body and closes within the body of the first
candlestick, preferably beyond the halfway point of the first candlestick in the pattern.
 INTRODUCTION TO CANDLESTICK

Three Black Crows Candle Stick Pattern

The three black crows pattern is a bearish reversal pattern consisting of three consecutive
bearish long candlesticks that trend downward like a staircase. This pattern forms at the peak
of an uptrend and indicates a strong reversal in the stock price. Here is a list of the conditions
that must be met for the pattern to form:

• There must be three negative candlesticks

• All three should close in the lower fourth of the range.

• The upper wicks should not be very tall

 INTRODUCTION TO CANDLESTICK

Dark Cloud Cover Candle Stick Pattern

The ‘Dark Cloud Cover’ is a two-candle pattern that forms after the price has risen. If it
forms during an uptrend, it signals a possible turn towards a downtrend. For the pattern to be
called ‘Dark Cloud Cover’, the following has to happen:

1. The stock has to be in uptrend.

2. The first candle has to be green (bullish).
3. The second candle has to be red (bearish).
4. The second red candle has to open higher than the first green candle.
5. The second candle has to fall and close above the bottom of the first green candle.
 INTRODUCTION TO CANDLESTICK

Tweezer Tops and Bottoms candlestick patterns

Tweezer is a reversal candlestick pattern that usually appears at the top or bottom of an
upward or downward trend.

Tweezer Tops candlestick patterns usually appear in an uptrend. It signals a reversal from
bullish to bearish with high probability. This is a signal used by experienced traders to predict
price reversals. It has very high accuracy.
Tweezer Bottoms candlestick pattern appears in a downtrend. When it appears, it brings a
strong reversal message from decreasing to rising to investors.
It is used by successful traders as a tool to predict the reversal from decreasing to rising. And
it yields positive results in many decisive transactions.

Characteristics
Tweezer Tops pattern consists of 2 candlesticks:
– First candlestick: is a bullish candlestick with a long body
– Second candlestick: is a bearish candlestick with the equivalent length to the first one.
They usually appear at the top of an uptrend, warning an upcoming reversal.

Tweezer Bottoms pattern consists of 2 candlesticks:

– First candlestick: is a bearish candlestick with a long body.
– Second candlestick: is a bullish candlestick with the equivalent length to the first one.
If appearing at the bottom of a downtrend, the accuracy of the Tweezer Bottoms candlestick
pattern is very high. It predicts a reversal from bearish to bullish will occur soon.
 INTRODUCTION TO CANDLESTICK

Squeeze Alert
This pattern is a three candlestick reversal pattern that can be bullish or bearish. Usually after
this pattern there are sudden jerks of the upward or downward prices.

In the bullish version:

• It develops in a bearish trend
• The first candle is relatively large compared to the next two, which have decreasing
maximums and increasing minimum
• The width of the body of the three candles is not very important

This pattern signals us that the trend is stalled; if the following sessions (one or two after the
pattern) register a downward movement then the prices should break to the downside.

In the bearish version:

• It develops in an uptrend
• The first candle is relatively large compared to the next two, which have decreasing
maximums and increasing minimums
• The width of the body of the three candles is not very important

This pattern tells us that the trend is stalled, if the following sessions (one or two after the
pattern) break up, then the prices break up. Morris says this pattern was developed as a red
flag.
 INTRODUCTION TO CANDLESTICK

Ladder Top Candlestick Pattern

The Ladder Top candlestick pattern is a 5-bar bearish reversal pattern that appears at the
end of a bullish trend.

• The first three candles are always white with long real bodies opening and closing
above the open and close levels of the previous candle.
• The fourth candle must have a white short body with a long lower wick.
• The fifth candle must be a long black candle opening below the real body of the
fourth candle.

Ladder Bottom Candlestick Pattern

The ladder bottom candlestick pattern is a 5-bar bullish reversal pattern.

• The first three long black candlesticks, resembling three black crows formation,
with successive lower opens and close
• The fourth is also a black candlestick but with a short body and an upper wick
• The fifth white candlestick opening above the body of the fourth candlestick
 INTRODUCTION TO CANDLESTICK

Stick Sandwich Candlestick Pattern

• A stick sandwich is a 3-bar pattern.
• The closing prices of the two candlesticks that surround the opposite colored
candlestick have to be the same.

Bearish Stick Sandwich

The bearish stick sandwich is a rare candlestick pattern. The first candlestick in the
formation is a long white (green) candlestick that closes near its high. The second
candlestick is a black (red) candlestick that gaps down from the previous close and
closes below the previous day’s open. The third candlestick is a white (green)
candlestick that completely engulfs the second candlestick and has the same closing
price as the first candlestick. Traders should wait for the low of the third candlestick to
be broken prior to taking any short positions.

Bullish Stick Sandwich

The bullish stick sandwich is a rare candlestick pattern. The first candlestick in the
formation is a long black (red) candlestick that closes near its low. The second
candlestick is a white (green) candlestick that gaps up from the previous close and closes
 INTRODUCTION TO CANDLESTICK

above the previous day’s open. The third candlestick is a black (red) candlestick that
completely engulfs the second candlestick and has the same closing price as the first
candlestick. Traders should wait for the high of the third candlestick to be broken in the
bullish stick sandwich formation prior to taking any long positions.
 INTRODUCTION TO CANDLESTICK

Falling and Rising Three Methods Patterns

Falling three methods is a bearish continuation pattern. It comes up in an existing downtrend,

and indicates that the current bearish trend is persisting. The falling three methods
candlestick pattern is made up of five candles. The first candle, which is a tall bearish one, is
followed by three smaller positive candles that are found within the range of the first candle.
The last candle is a tall bearish one that goes through the low of the pattern.
Rising Three Methods is a 5-candles bullish continuation candlestick pattern. It has a big
green candle, 3 small red ones, and a big green one closing above the others. When this
occurs, it means that the bulls are dominating the bears. The first bar of the pattern is a
bullish candlestick with a large real body within an obvious uptrend. The next candlesticks
are usually three consecutive bearish small-bodied candles that trade above the low and
below the high of the first candle. The final bar is another bullish candle having a big real
body that surpasses the high and closes above the high and close of the first candlestick,
which suggests the bulls are back in control of the direction of the security.
 INTRODUCTION TO CANDLESTICK

Tri-Star Doji
This Doji pattern is formed with 3 consecutive dojis in 3 trading days. Because this pattern
formed with 3 dojis and each doji looks like a star without body , this pattern is called Tristar
Doji. This doji formation is very rare in chart pattern. However, result of this pattern is highly
significant. That means trading success from this pattern is very high.

How this chart pattern formed.

Day 1: this is the first day of the formation of this pattern. Normally we see after this doji,
trend is still intact.
Day 2: Day 2 also follows through day 1. However, because of second doji formation trader
already know trend is very week and trend reversal is highly likely. If we see this doji in
uptrend, it signals uptrend is very almost end and bull is week. Trader looks for trend
reversal.
Day 3: Day 3 is trend reversal day. We see normally 3rd doji gap up or gap down against the
prevailing trend and finish the day as doji or indecisive.
Bullish Tri-Star doji pattern:
Trader entered the trade after 3rd Doji formation. Ideal is entry is above the highest point of
the 3rd day doji candle for bullish formation.

Bearish Tri-star Doji pattern:

For bearish pattern, trader leaves the trade after price breaks the lowest point of day 1 candle.
 INTRODUCTION
INT TO CANDLESTICK

Advance Block patter

attern
The advance block candlestick
ick pattern
pa is a 3-bar bearish reversal pattern. Itt has tthree long
green candles with consecutively
tively higher closes than the previous candles. Each ccandle has
a shorter body than the previous
ious one.
on

What does the pattern tell traders

trad
• The advance block candlestick
candle pattern is a bearish reversal pattern that iindicates the
transition from bullish
sh enthusiasm
enth to a bearish warning.
• The advance block pattern
attern illustrates that the bullish candlesticks are get
getting shorter
even though the market
ket is making
m new highs.
• The upper wicks also so ind
indicate that the bulls are trying to push thee pric
prices high but
during the trading session
ession, bears eventually get success to decreasee priceprices down off
the highs.
• It also opens the doorr for sselling long positions but short positions are no
not yet traded.
However, the trading ng strstrategies are only successful after the confirm
onfirmation. The
confirmation is provided
ided byb the candle of the fourth day. If the fourth
rth day
day’s candle is
a black candle with a downtrend
down gap or a lower closing prices.
 INTRODUCTION TO CANDLESTICK

Three-Line Strike pattern

• The Three Line Strike candlestick pattern is a 5-bar continuation pattern.
• The bullish formation is composed of a big green candle, 3 up candles, and one down
candle erasing the advance made by the prior 3 candles.
• The bearish formation is composed of a big red candle, 3 down candles, and one up
candle erasing the decrease made by the prior 3 candles.