Candlestick patterns are among the most powerful tools traders use to analyze price movements and predict future trends. While there are 35–42 recognized patterns, this guide focuses on the 10 most effective ones for determining asset price variations.
Top 10 Candlestick Patterns Every Trader Should Know
1. Bullish and Bearish Engulfing Patterns
Bullish engulfing signals a potential upward reversal when a green candle completely engulfs the preceding red candle at the bottom of a downtrend. Conversely, bearish engulfing occurs when a red candle swallows a green one at the peak of an uptrend, indicating a likely downward reversal.
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2. Bullish and Bearish Harami
A bullish harami consists of a large red candle followed by a smaller green candle, suggesting a weakening downtrend. The bearish harami mirrors this with a large green candle followed by a small red one, hinting at a potential bearish reversal.
3. Evening Star and Morning Star
- Evening Star: A three-candle bearish reversal pattern appearing at market tops (bullish → indecision → bearish).
- Morning Star: The bullish counterpart found at market bottoms (bearish → indecision → bullish).
4. Shooting Star
This intraday bearish pattern features:
- A small body near the day's low
- A long upper shadow
- Almost no lower shadow
5. Inside Bars
A two-bar formation where:
- The "mother bar" establishes the high/low range
- The "inside bar" remains completely within the mother bar's range
- Signals continuation or reversal depending on breakout direction
6. Piercing Pattern
A bullish reversal where:
- Day 1: Opens high → closes low (strong bearish candle)
- Day 2: Opens low → closes above midpoint of Day 1's body
7. Hammer
Identified by:
- Small real body (bullish or bearish)
- Long lower shadow (2–3x body length)
- Forms after downtrends, signaling potential reversal
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8. Dark Cloud Cover
Bearish reversal characteristics:
- Occurs during uptrends
- Day 2 opens above Day 1's close
- Closes below Day 1's midpoint
9. Doji
The ultimate indecision pattern showing:
- Nearly identical open/close prices
- Long upper/lower wicks
- Appears at trend extremes or consolidation zones
10. Long Wicks
Key indicators of:
- Price rejection
- Potential trend reversals
- Strong support/resistance levels
Candlestick Pattern FAQ
Q1: How reliable are candlestick patterns?
A: When combined with other indicators (volume, trendlines), they provide high-probability signals—60–70% accuracy for major patterns.
Q2: What's the ideal timeframe for candlestick analysis?
A: Daily charts work best for swing traders. Intraday traders use 1-hour to 15-minute charts.
Q3: How many candles constitute a valid pattern?
A: Most patterns use 1–3 candles. Complex formations (like head-and-shoulders) may require 5+ candles.
Q4: Should I trade against the trend if I see a reversal pattern?
A: Never. Always wait for confirmation (e.g., break of trendline) before acting on reversal signals.
Q5: Which pattern has the highest success rate?
A: Engulfing patterns and morning/evening stars show the most consistent results across markets.
Q6: Do candlestick patterns work for crypto?
A: Yes—they're particularly effective in volatile crypto markets due to clear sentiment shifts.
Pro Trading Tip
For maximum effectiveness, always:
- Confirm patterns with volume spikes
- Wait for candle closes before acting
- Combine with Fibonacci levels or moving averages
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Note: Trading involves risk—thoroughly backtest strategies before live implementation.