Part 37 - Candlestick Patterns: Types, Psychology Trading
Part 37 - Candlestick Patterns: Types, Psychology and Trading
Candlestick Patterns: A Comprehensive Guide
Candlestick patterns are visual representations of price action in financial markets (stocks, forex, crypto, etc.), originating from 18th-century Japanese rice traders like Munehisa Homma.
Each pattern forms over one or more time periods (e.g., daily candles) and reveals the battle between buyers (bulls) and sellers (bears).
The body shows open-to-close range (green/red for up/down), while wicks/shadows indicate highs/lows. Patterns signal potential reversals (trend changes), continuations (trend persistence), or indecision.
There are over 40 recognized candlestick patterns in technical analysis, though the exact count varies
They fall into three main categories by candle count:
single (1 candle, quick signals),
double (2 candles, moderate strength),
and triple/multi (3+ candles, strongest for confirmation).
Most are reversal patterns (bullish at downtrend bottoms, bearish at uptrend tops), with fewer continuations or indecision signals.
Patterns gain reliability with volume (high = stronger), context (trends/support/resistance), and confirmation (next candle or indicator like RSI).
Success rates hover 50-70%, per backtests
Candlestick patterns are visual footprints of market psychology—each one compresses buyer-seller emotion into a teachable signal.
Candlestick patterns are visual representations of price action, offering insights into market psychology and potential trend reversals/continuations.
How Many Patterns Exist?
Commonly used: ~35–40 core patterns
Advanced traders: Up to 75+ documented patterns with backtests
Here's a comprehensive breakdown of their types, structure, and strategic use:
What Are Candlestick Patterns?
Candlestick patterns are chart formations made by one or more candles that reflect price movement over a specific time frame.
They help traders decode:
Reversal or continuation signals
Entry/exit zones
Each candlestick shows:
Open, High, Low, Close (OHLC)
Body: Difference between open and close
Wicks (Shadows): High and low beyond the body
Single-Candle Patterns (12 Core Patterns)
These are simplest, often spotting exhaustion via wicks. Ideal for intraday trading.
Dragonfly Doji
Doji Classic
Long Legged Doji
Bullish Marubozu
Bearish Marubozu
Bullish Spinning Top
Bearish Spinning Top
Double Candle Patterns - 12 Core Patterns
Bullish Engulfing
Bearish Engulfing
Bullish Harami
Bearish Harami
Piercing Line
Dark Cloud Cover
Tweezer Bottom
Tweezer Top
Bullish Kicker
Bullish Counterattack
Bearish Counterattack
Triple / Multi Candel Patterns - 15 + core patterns
Morning star
Evening Star
Three White Soldiers
Three Black crows
Bullish Abandoned baby
Bearish abandoned baby
three inside up
Three outside up
three outside down
Rising three
Falling Three
Morning Doji star
Evening doji star
Bullish tristar
Indecision/Neutral Patterns -
Doji
Long Legged Doji
Gravestone Doji
Dragonfly Doji
Key Considerations for Trading -
Confirmation:
Always wait for the next candle(s) to confirm the pattern.
Example:
A Hammer needs a green candle closing higher to validate reversal.
Trend Context:
Reversal patterns work best at support/resistance levels.
Continuation patterns align with the prevailing trend.
Volume: Higher volume during pattern formation increases reliability.
Timeframe: Daily/weekly charts offer stronger signals than intraday
Trading Strategies -
Entry: Buy at the close of a confirmed bullish pattern (e.g., Hammer + green candle).
Stop-Loss: Place below the pattern’s low (bullish) or above its high (bearish).
Take-Profit: Target previous swing highs/lows or use a 2:1 risk-reward ratio.
Tip -
Combine candlestick patterns with indicators like RSI, MACD, or moving averages for higher accuracy
In the upcoming articles, I’ll be diving deep into each candlestick pattern—explaining its structure, psychology, and strategic use with clarity-grade overlays.
Candlestick patterns -
Suggested Reading -
