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Candlestick Patterns Guide — How to Read Candles Like a Pro

Japanese candlesticks are the universal language of price action. Every professional trader reads candles. Here is how to master them.

Answer Capsule: Japanese candlesticks show Open, High, Low, Close for each time period. Master 6 patterns first: Hammer, Shooting Star, Bullish Engulfing, Bearish Engulfing, Morning Star, Evening Star. These cover 90% of high-probability setups.

Candlestick Anatomy 101

Each candle shows four prices for a given time period: Open, High, Low, Close. The rectangular part is the "real body" — the range between open and close. The lines above and below are "wicks" (or shadows) — showing the high and low.

• Green/white candle: Close > Open (bullish — buyers won this period)
• Red/black candle: Close < Open (bearish — sellers won this period)
• Long body = strong conviction. Small body = indecision.
• Long wick = price rejection at that level.

Top 6 Reversal Patterns

1. Hammer (Bullish Reversal) — Small body at top, long lower wick (2x+ body). Appears after a downtrend. Buyers rejected lower prices and pushed back up. Most reliable when confirmed by the next candle closing green.

2. Shooting Star (Bearish Reversal) — Small body at bottom, long upper wick. Appears after an uptrend. Sellers rejected higher prices. The mirror image of a Hammer but at a top.

3. Bullish Engulfing — A large green candle that completely engulfs the previous red candle. Strong momentum shift. Most reliable near support levels.

4. Bearish Engulfing — A large red candle completely swallowing the previous green candle. Distribution signal. Strong near resistance.

5. Morning Star (3-candle bottom) — Long red → small body (gaps down) → long green (gaps up). The small middle candle shows selling exhaustion.

6. Evening Star (3-candle top) — Long green → small body (gaps up) → long red (gaps down). The small middle candle shows buying exhaustion.

Indecision Patterns — When to Stay Out

Doji: Open = Close (or nearly). Complete indecision. Neither side won the period. A Doji at the top of an uptrend signals buying exhaustion. At the bottom, selling exhaustion. Wait for the next candle to confirm direction.

Spinning Top: Small body with wicks on both sides. Can't decide. Common in consolidation. If you see multiple spinning tops in a row, the market is coiling for a breakout.

Harami (Inside Bar): A small candle entirely within the previous candle's range. The larger "mother" candle is followed by a smaller "baby" candle. Indicates momentum pause. Bullish at bottom, bearish at top.

How to Trade Candlestick Patterns (The 3-Confirmations Rule)

Never enter on a candlestick pattern alone. Wait for 3 confirmations:

1. Level confirmation: Is the pattern at a known support or resistance?
2. Momentum confirmation: Is RSI/MACD confirming or diverging?
3. Volume confirmation: Did volume spike on the pattern candle?

A Hammer at a major support level with RSI divergence and volume spike = high probability. A Hammer in no-man's-land with no confirmation = coin flip.

References: Candlestick Chart (Wikipedia) · Investopedia Candlestick Guide