40 Powerful Candlestick Patterns: Trading Guide for Beginners

The bearish candle opens higher than the preceding candles but closes lower, suggesting the momentum could shift from buyers to sellers. Candlestick charts are frequently used in technical analysis to provide traders with a visual representation of price movements and help them identify future price directions. Reversal candlestick patterns are a common tool traders look for to empower their trading strategies.

Gravestone Doji

1. A bullish Belt Hold consists of a single bullish candle that opens at or near the previous bearish candle’s close and closes much higher.
2. Traders use this pattern to set up stop losses below the doji or the bullish candle.
3. In the above example of trading Bitcoin with candlesticks, green candlesticks show days when the closing price is higher than the opening price, while red candlesticks indicate the opposite.
4. Reversal patterns suggest that the current trend, whether upward or downward, may be losing momentum, providing an opportunity for traders to enter or exit the market before the trend reverses.
5. After a decline, the second white candlestick begins to form when selling pressure causes the security to open below the previous close.
6. It shows how strong the buying or selling pressure was when the price attempted to move in either direction.

The black candlestick confirms that the decline remains in force and selling dominates. When the second candlestick gaps down, it provides further evidence of selling pressure. However, the decline ceases or slows significantly after the gap, and a small candlestick forms.

Then a long white candle that opens above the body of the second candle. Tall white candle where the open gaps down from the previous close and is the low for the day. This pattern is usually observed after a period of downtrend or in price consolidation.

Morning Star Doji

Even though there was a setback after confirmation, the stock remained above support and advanced above $70. The Evening Star reversal pattern is essentially the counterpart to the Morning Star reversal for sellers. The resistance level adds weight to the bearish argument by allowing the bears to take control and drive the price down away from the resistance. In the third candle, the victors are declared, as the bulls seize control of the market and drive the price above both the previous candles.

1. These patterns provide visual insights into market sentiment and can be used to identify potential trading opportunities.
2. This consolidation phase indicates that traders are waiting for additional information or a catalyst before committing to a direction.
3. Traders look for a sequence of 3 candles where the first candle moves in one direction, the second candle reverses, and the third candle confirms the reversal.
4. It consists of a single long bearish candle that opens at or near the previous close and then closes lower.
5. The third candle is a strong bearish candle which marks the trend change from bullish to bearish.
6. This suggests that the bears have been unable to maintain their dominance, and the bulls are now taking control of the market.
7. The fifth candle is tall and white and closes above the highs (shadows) of the preceding three candles.

Morning star

The bigger the difference in the size of the two candlesticks, the stronger the sell signal. In this part of the lesson, we will have a closer look at the bearish reversal candlestick patterns. Besides the bullish reversal candlestick patterns, they signal the reversal to the downside. Candlestick patterns are formed by marking the open, close, low & high of a stock for a specific time period. The wicks, or shadows, extend from the body to the high and low prices, showing the range of price movement during that period, which can help identify potential Chart Patterns.

Three Black Crows vs Three White Soldiers

For example, a long body indicates strong buying or selling pressure, while long wicks suggest market indecision or a potential reversal. Reading candlestick patterns involves recognizing these elements and understanding how their variations combine to form patterns that suggest potential future price movements. The dragonfly doji pattern is formed when the market experiences a strong bearish momentum followed by a sudden rejection of the lower prices. This pattern signals a potential shift in market sentiment from bearish to bullish.

However, while these timeframes are popular for their fast-paced nature, they can also introduce more market noise and less reliable signals compared to longer timeframes. Gravestone doji candlestick pattern indicates a potential bearish trend reversal. Traders interpret this pattern as a sign to take a bearish trade in the underlying stock.

The signal of this pattern is considered stronger than a signal from a simple “morning star” pattern. The chart for Pacific DataVision, Inc. (PDVW) shows the Three White Soldiers pattern. Note how the reversal in the downtrend is confirmed by the sharp increase in the trading volume.

However, traders should also be cautious of potential overbought conditions if the pattern is accompanied by an exceptionally sharp price bullish reversal candlestick patterns increase. This is one of the most noticeable reversal candlestick patterns during an uptrend. The long upper shadow shows us that the price is no longer accepted by market participants.

Additionally, candlestick analysis is subjective – different traders interpret the same pattern differently. Furthermore, false breaks and failed reversals occur if there is inadequate momentum to sustain the expected move. Finally, most candlestick patterns require subsequent price confirmation rather than simply acting on the pattern itself. Candlestick charts assist futures and options traders in recognising reversal patterns, momentum, and trends in the underlying assets. Forex traders utilise candlestick charts to observe price fluctuations and recognise patterns in currency pairs.

Other aspects of technical analysis can and should be incorporated to increase reversal robustness. Below are three ideas on combining traditional technical analysis with candlestick analysis. As with other reversal patterns, this pattern typically occurs when price approaches a specific area of value.