A candlestick holds four numbers: the open, the high, the low and the close. The shape it draws states where price traded during the period and where it failed to hold.
Two limits are worth knowing before the patterns. StockCharts' candlestick reversal pages state that these patterns are short-term and usually effective for only one or two weeks, and that confirmation should arrive within one to three days of the pattern. A pattern with no confirmation behind it marks a possible support or resistance level, nothing more.
Understanding candlestick anatomy
Candlestick components
The body covers the open to close range. A hollow or green body means the close finished above the open. A filled or red body means the close finished below it.
The shadows, also called wicks, are the lines above and below the body. The upper shadow runs from the body to the high, the lower shadow from the body to the low.
What candles tell you
- Long body: the close finished far from the open, which shows buying or selling pressure through the session
- Short body with long shadows on both sides: a spinning top, which shows indecision
- Long upper shadow: sellers pushed price back down from the high
- Long lower shadow: buyers pushed price back up from the low
A long body is not bullish or bearish on its own. StockCharts notes that much depends on where the candle sits in the trend, and that aggressive buying after a long advance points to excess rather than strength.
Single candlestick patterns
The hammer (bullish)
Appearance: a small body near the top of the range, a lower shadow at least twice the length of the body, and little or no upper shadow. The high to low range should be large compared with the range of the last 10 to 20 days.
Meaning: sellers drove price down during the session and buyers took it back to close near the high.
Where to find it: after a decline, at support. A hammer needs an existing downtrend to reverse.
How to trade it:
- Find the hammer at support or at the end of a decline
- Wait for confirmation within one to three days, which can be a gap up, a long green candle, or an advance on high volume
- Enter with the stop below the hammer low
The shooting star (bearish)
Appearance: a small body near the bottom of the range, an upper shadow at least twice the length of the body, and little or no lower shadow, again with a large range relative to the last 10 to 20 days.
Meaning: buyers drove price up during the session and sellers took it back to close near the low.
Where to find it: after an advance, at resistance. Greg Morris requires the shooting star to gap up from the previous candle; Steve Nison gives an example that forms below the previous close. StockCharts treats the gap as a strengthening feature rather than a requirement.
How to trade it:
- Find the shooting star at resistance or at the end of an advance
- Wait for confirmation within one to three days, which can be a gap down, a long red candle, or a decline on high volume
- Close the long, or open the short, on that confirmation
The doji (indecision)
Appearance: the open and close are close to equal, which leaves a thin line for a body and a cross-shaped candle.
Three forms:
- Long-legged doji: upper and lower shadows of about equal length
- Gravestone doji: open, low and close equal, with a long upper shadow
- Dragonfly doji: open, high and close equal, with a long lower shadow
Meaning: neither side finished the session in control. On its own a doji is neutral, and any bias comes from the price action before it plus the confirmation after it.
How to trade it: wait for the next candle to give the direction. Size matters here in a specific way. Steve Nison notes that a doji among other small-bodied candles carries no weight, while a doji among long-bodied candles does.
The marubozu (strong momentum)
Appearance: a long body with no shadows, or nearly none. A white marubozu opens at the low and closes at the high. A black marubozu opens at the high and closes at the low.
Meaning: one side controlled the price action from the first trade to the last.
How to trade it: read it as continuation inside an established trend and as a warning at the end of an extended one. A marubozu is a description of the session, not an instruction, and it carries no confirmation of its own.
Two-candlestick patterns
Bullish engulfing
Appearance: a red candle, then a larger green candle whose body covers the red body.
Requirements:
- The first candle is bearish and is not a doji, which would be too small to engulf
- The second candle opens below the first close
- The second candle closes above the first open
- The green body covers the red body, though it need not cover the shadows
Meaning: sellers opened the session lower, buyers took it back and finished above the previous open.
How to trade it:
- Find it at support or at the end of a decline, not at new highs
- Enter on the close of the engulfing candle or the next open
- Place the stop below the pattern low
- Set the first target at the next resistance level
Bearish engulfing
Appearance: a green candle, then a larger red candle whose body covers the green body. The reading is the mirror image: buyers opened the session higher and sellers finished it below the previous open.
How to trade it: find it at resistance or at the end of an advance, close the long or open the short on confirmation, and place the stop above the pattern high.
Piercing pattern (bullish)
Appearance: a red candle, then a green candle that opens below the previous close and closes above the midpoint of the red body. A close below that midpoint may still be a reversal, but it is not this pattern.
Meaning: buyers stepped in after a weak open and recovered more than half the previous session's loss.
How to trade it: the same sequence as the bullish engulfing, and the same requirement for confirmation.
Dark cloud cover (bearish)
Appearance: a green candle, then a red candle that opens above the previous close and closes below the midpoint of the green body. A close above that midpoint does not qualify.
Meaning: buying pressure carried the open higher, sellers took over and drove price through the middle of the previous body.
How to trade it: treat it as the bearish engulfing case, with the stop above the pattern high.
Three-candlestick patterns
Morning star (bullish reversal)
Appearance:
- A long red candle
- A small candle of either colour that gaps below the close of the first. A doji here makes it a morning doji star
- A long green candle
Meaning: the decline was in force, the gap down confirmed it, then the decline stalled and buyers took the third session.
How to trade it: find it after a decline, enter on the close of the third candle, and place the stop below the pattern low. StockCharts treats the morning star as complete on that third long candle, without waiting for further confirmation.
Evening star (bearish reversal)
Appearance: a long green candle, a small candle that gaps above the close of the first, then a long red candle. A doji in the middle makes it an evening doji star.
Meaning: the advance was in force, the gap up confirmed it, then the advance stalled and sellers took the third session.
How to trade it: find it after an advance and close the long on the third candle.
Three white soldiers (bullish reversal)
Appearance: three consecutive long green candles, each opening inside the previous body and closing near the high of its day.
Meaning: buying pressure held across three full sessions.
StockCharts classifies this as a reversal pattern, not a continuation pattern, which puts it at the end of a decline rather than in the middle of a rally.
Three black crows (bearish reversal)
Appearance: three consecutive long red candles, each opening inside the previous body and closing at or near the low of its day. It is the same reading in reverse, and StockCharts also classifies it as a reversal pattern.
Context matters more than the pattern
Where patterns appear
The same shape carries different information in different places, and the rule is not about probability. It is definitional: a bullish reversal pattern needs an existing downtrend to reverse.
A bullish engulfing candle at new highs is not a bullish reversal. StockCharts is direct about it: that formation shows continued buying pressure and reads as a continuation pattern instead. A hammer inside a range has nothing to reverse either.
Trend context
You need a trend definition before the pattern means anything. StockCharts lists three ways to set one, and says the choice depends on your trading style:
- Price trading above or below its 20-day exponential moving average
- Each reaction peak and trough higher, or lower, than the last
- Price trading above or below a trend line
Some traders shorten that to the 10-day EMA. Pick one and apply it the same way each time.
Volume confirmation
Volume is one of the three forms confirmation can take, alongside a gap and a long candle in the direction of the pattern. A pattern that gets its follow-through on heavy volume has more participation behind it than one that drifts.
Trading candlestick patterns
Entry rules
- Find the pattern at a support or resistance level, with a trend in place to reverse
- Wait for confirmation, within one to three days
- Check volume on the confirming session
- Enter with the stop already set
Stop loss placement
For reversal patterns, the stop goes beyond the extreme of the pattern:
- Hammer: below the hammer low
- Shooting star: above the shooting star high
- Engulfing: beyond the far end of the two-candle range
Position sizing
Size the position off the stop distance. A hammer with a long lower shadow puts the stop further from the entry than a tight engulfing pattern does, which means fewer shares for the same money at risk.
Common candlestick mistakes
Mistake 1: trading patterns in isolation
The pattern is one input. Location, the trend it sits in, and the volume behind the confirmation are the others, and StockCharts states plainly that candlesticks should not be used alone.
Mistake 2: not waiting for confirmation
Most of these patterns require it. Without follow-through inside one to three days, what you have is a level, not a signal.
Mistake 3: ignoring pattern size
A hammer needs a range that is large next to the last 10 to 20 days, and a doji needs long-bodied neighbours. Both requirements are about size, and both get skipped.
Mistake 4: hunting obscure patterns
There are dozens of named reversal patterns. The ones in this article cover the single, double and triple candle cases, and adding rarer names adds screening time rather than information.
Candlestick pattern quick reference
| Pattern | Candles | Signal | What confirms it |
|---|---|---|---|
| Hammer | 1 | Bullish reversal | Gap up, long green candle, or advance on high volume within 1 to 3 days |
| Shooting star | 1 | Bearish reversal | Gap down, long red candle, or decline on high volume within 1 to 3 days |
| Doji | 1 | Indecision | The next candle, read against the preceding trend |
| Bullish engulfing | 2 | Bullish reversal | Further upside follow-through |
| Bearish engulfing | 2 | Bearish reversal | Further downside follow-through |
| Morning star | 3 | Bullish reversal | The third long green candle completes it |
| Evening star | 3 | Bearish reversal | The third long red candle completes it |
From patterns to performance
Every pattern above states what it requires. None of them states how often it works on your instruments, on your timeframe, with your stop rules. That number comes out of your own record.
Set up each pattern you trade as its own strategy in Swingfolio, then assign it to the trades you take from it. The analytics page has a Setup Type Performance card that groups closed trades by the strategy on them and charts win rate and profit factor for each, so the patterns line up on one chart. The strategy screen adds win rate, average R-multiple and trade count for each one, side by side. Start the 30-day trial and log the next pattern you take.