10 Powerful Candlestick Patterns

In this guide you will learn to identify the most powerful candlestick patterns for trading stocks, forex and crypto.

Doji

The main characteristic of Doji is the opening price being equal to the closing price. In general, we can have three scenarios for this candlestick:

( A ) DOJI: It represents the balance between buyers and sellers.

( B ) BULLISH DOJI: It is a strong sign of buyers. The remarkable characteristic is the long bottom shadow. It is also known as Dragonfly Doji.

( C ) BEARISH DOJI: It is a strong sign of sellers. The remarkable characteristic is the long top shadow. It is also known as Gravestone Doji.

In the following example we have a Doji:

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After a bearish move, the Doji candlestick pattern alerted us to the beginning of the balance between buyers and sellers - signaling a possible reversal.

Hanging Man

• Hanging Man is one of the most expected candlestick patterns by traders; it signals buyers' lack of strength in sustaining the current bullish rally.

• It is formed by a small body in the upper part combined with a long bottom shadow ( it must be at least twice the size of the body ).

• There must be an uptrend for this candlestick pattern to be configured.

• As shown in the illustration above, the body color can be green or red.

In the image below we have an example of Hanging Man: :

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Engulfing Pattern

• Engulfing is one of the strongest candlestick patterns in Technical Analysis.

• This pattern consists of two candles, and the second must completely wrap the body of the first candle. It is important to have an established trend.

• The Engulfing pattern will be more effective if it occurs on a support or resistance.

In the example below we have a bullish engulfing candlestick:

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Shooting Star

• Shooting Star is a candlestick reversal pattern formed by two candles:
  • The first with a long candlestick body
  • The second with a small body and a long upper shadow (at least twice the size of the body)

• The body color of the second candle has no importance, it can be green or red.

• This candlestick pattern needs to be preceded by an uptrend.

In the figure below we have an example of the Shooting Star:

Morning Star

The Morning Star candlestick pattern is formed by 3 candles:

1. Long bearish candle
2. Small body candle
3. Long bullish candle

The characteristic of this pattern is the gradual transition. The second candlestick with small-body reveals a gradual shift in strength between sellers and buyers. Here's an example:

Evening Star

The Evening Star candlestick pattern consists of 3 candles:

1. Long bullish candle
2. Small body candle
3. Long bearish candle

Note an example of this candlestick pattern in a real trading environment:

Harami Pattern

• Harami is a candlestick pattern composed of two candles. The body of the second candle must be immersed within the body of the first.

• Be careful not to confuse it with the Engulfing pattern ( the second candle will be a large-body candle that surrounds the first smaller-body candle ).

• The reversal effect of this pattern will be more significant if it occurs close to support or resistance.

Here is an example of the Harami candelstick pattern:

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Harami Cross

Harami Cross is a stronger variation of Harami. The difference is that in this candlestick pattern the second candle is a doji:

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Hammer Pattern

• This candlestick pattern is characterized by the formation of a small body with a long shadow at the bottom. This indicates that sellers tried to bring prices down but buyers had more power.

• In order to be considered a Hammer candlestick pattern, the shadow must be twice the size of the body. It doesn't matter if the body color is green or red (as shown in the figure above.)

Below is an example of a Hammer pattern:

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Inverted Hammer

• The Inverted Hammer is a candlestick pattern that signals a possible bottom reversal.

• It appears after a bearish rally and has a small body with a long shadow at the top. This shadow should be at least twice the size of the body.

• It is important to note that the color of the body is not important, and can be green or red (as shown in the figure above).

• The efficacy of this candlestick pattern is not as high as the regular hammer, so it is important to wait for a confirmation signal to open a trade.

Here is an example of an inverted hammer:

Marubozu Candlestick

• The hallmark of Marubozu is the absence of shadows.

• The bullish Marubozu opens at low and closes at high. The bearish Marubozu opens at high and closes at low.

• This candlestick pattern reflects the dominant strength of buyers or sellers.

In the example below, the candlestick pattern revealed buyers' interest in this action:

Now let's see an example of bearish Marubozu:

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Notice how this candlestick pattern caused discomfort for investors who had bought this stock (the next day it opened with a bearish gap ).