Most frequently mentioned Candlestick patterns

Candlestick patterns are a fundamental part of technical analysis in trading, providing insights into market sentiment and potential price movements. Here are some of the most popular candlestick patterns that traders look for to make informed decisions:

1. Doji

  • Characteristics: A doji candlestick has a very small body, indicating that the opening and closing prices are almost equal, with varying lengths of wicks/shadows.
  • Significance: It signifies indecision in the market, where neither buyers nor sellers have control, and can signal a potential reversal or continuation, depending on the context.

2. Hammer and Inverted Hammer

  • Characteristics: A hammer has a small body at the top with a long lower wick and little to no upper wick. The inverted hammer looks the same but is found at the bottom of a downtrend.
  • Significance: These patterns indicate potential bullish reversals, with the hammer appearing during a downtrend and the inverted hammer signaling the end of a downtrend.

3. Shooting Star and Hanging Man

  • Characteristics: The shooting star has a small body at the bottom with a long upper wick. The hanging man is similar but appears at the end of an uptrend.
  • Significance: These indicate potential bearish reversals, with the shooting star signaling the end of an uptrend and the hanging man suggesting a reversal from an uptrend.

4. Bullish Engulfing and Bearish Engulfing

  • Characteristics: In a bullish engulfing pattern, a small bearish candle is followed by a larger bullish candle that completely engulfs the previous candle. The bearish engulfing is the opposite.
  • Significance: Bullish engulfing patterns signal a potential upside reversal, while bearish engulfing patterns indicate a possible downside reversal.

5. Morning Star and Evening Star

  • Characteristics: A morning star is a three-candle pattern with a small-bodied candle between a long bearish candle and a long bullish candle. The evening star is the inverse, indicating a bearish reversal.
  • Significance: The morning star suggests a bullish reversal after a downtrend, and the evening star indicates a bearish reversal following an uptrend.

6. Three White Soldiers and Three Black Crows

  • Characteristics: Three white soldiers consist of three consecutive long bullish candles after a downtrend, with short wicks. Three black crows are three long bearish candles in a row during an uptrend.
  • Significance: These patterns suggest strong momentum in the direction of the candles, with three white soldiers indicating a shift to a bullish trend and three black crows signaling a move to a bearish trend.

7. Harami

  • Characteristics: A harami is a two-candle pattern where a small candle is completely contained within the range of the previous large candle, resembling a pregnant woman (harami means pregnant in Japanese).
  • Significance: A bullish harami occurs after a downtrend, and a bearish harami appears after an uptrend, indicating potential reversals.

8. Piercing Line and Dark Cloud Cover

  • Characteristics: The piercing line is a two-candle bullish reversal pattern in a downtrend, with the second candle opening lower but closing within the body of the previous candle. Dark cloud cover is the bearish counterpart.
  • Significance: These patterns indicate potential reversals, with the piercing line suggesting a move higher and the dark cloud cover signaling a downturn.

These candlestick patterns are tools that traders use to gauge market sentiment and predict potential price movements. However, it’s important to use them in conjunction with other technical analysis tools and fundamental analysis to make more informed trading decisions.