Charts and indicatorsUpdated 2 min readBy the FXNOD team
Candlestick patterns: the ones worth knowing
Candlestick patterns are shapes made by one to three candles that describe a shift between buyers and sellers. The useful ones are few: doji, hammer, shooting star, engulfing, and the morning and evening star. A pattern means something only in context, at a level after a move. The same shape in the middle of a range means little.
Single-candle patterns
| Pattern | Shape | Suggests |
|---|---|---|
| Doji | Open and close nearly equal | Indecision |
| Hammer | Small body on top, long lower wick, after a fall | Selling rejected |
| Shooting star | Small body at the bottom, long upper wick, after a rise | Buying rejected |
| Marubozu | Long body, no wicks | One side in full control |
Two-candle patterns
| Pattern | Shape | Suggests |
|---|---|---|
| Bullish engulfing | An up candle whose body covers the previous down body | Buyers took over |
| Bearish engulfing | A down candle whose body covers the previous up body | Sellers took over |
| Piercing line | An up candle closing above the middle of the prior down candle | A possible turn up |
| Dark cloud cover | A down candle closing below the middle of the prior up candle | A possible turn down |
Three-candle patterns
| Pattern | Shape | Suggests |
|---|---|---|
| Morning star | Down candle, small candle, strong up candle | A turn up |
| Evening star | Up candle, small candle, strong down candle | A turn down |
| Three white soldiers | Three strong up candles in a row | Sustained buying |
| Three black crows | Three strong down candles in a row | Sustained selling |
Location is the pattern
- A hammer at a tested support level after a long fall is worth attention.
- The same hammer in the middle of a range is noise.
- A reversal pattern needs something to reverse: a preceding move.
- Higher timeframes produce fewer and more meaningful patterns.
How much to rely on them
Used alone, a candlestick pattern is a weak signal. It is best used as a trigger: you already have a level and a direction, and the pattern tells you the market is reacting there now. Wait for the candle to close before acting on it.
A cheat sheet is not a method
Memorising forty named patterns is less useful than reading any candle directly: who was in control, and where was the price rejected. Every pattern is a special case of those two questions.
Questions people ask
- Which candlestick pattern is most reliable?
- Engulfing patterns and hammers at significant levels are the most watched. None is reliable without context.
- How many candlestick patterns are there?
- Dozens have names. A handful cover almost everything a trader needs.
- Do candlestick patterns work on synthetic indices?
- They form there by chance and carry no information about the next move.
Put it on a chart
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