16 candlestick patterns: Japanese Candlestick Overview, How It Works, and Patterns


In general, the more individual candlesticks that make up a pattern, the higher the strength value. Recent price trends are considered and affect the polarity of the strength value. If a candlestick pattern doesn’t indicate a change in market direction, it is what is known as a continuation pattern. These can help traders to identify a period of rest in the market, when there is market indecision or neutral price movement. There is usually a significant gap down between the first candlestick’s closing price, and the green candlestick’s opening. Bullish patterns may form after a market downtrend, and signal a reversal of price movement.


Note the presence of doji/spinning top represents indecision in the market. Because now you realize that the price only closes marginally higher relative to range. You notice that the price has closed near the highs of the range. Memorizing patterns is not the way to trade the markets. What this means is that this is the opening price of the day and the closing price of the day.

What is a Japanese Candlestick

The morning star appears at the bottom end of a downtrend. In the chart below the morning, the star is encircled. Three-method formation patterns are used to predict the continuation of a current trend, be it bearish or bullish.

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It comprises of three short reds sandwiched within the range of two long greens. If the security being traded closed at a lower price than it opened for the time period, the body is usually filled up or black in color. The closing price is located at the bottom of the body and the opening price is located at the top. Modern candlesticks now replace the white and black colors of the body with more colors, such as red, green, and blue. Traders can choose among the colors when using electronic trading platforms. Three Black Crows Consists of three long black candlesticks with consecutively lower closes.

Six bearish candlestick patterns

The information provided by StockCharts.com, Inc. is not investment advice. Trading and investing in financial markets involves risk. You are responsible for your own investment decisions. The doji candlestick occurs when the open and closing price are equal. If the closing price is above the opening price, then normally a green or hollow candlestick is shown.

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A red-hanging man is usually taken as a stronger signal than a green – though both are considered bearish patterns. While a hammer appears after a bear market, a hanging man will do so after an uptrend. They’re taken as a sign that selling sentiment is growing against buyers, and therefore that a reversal may be coming soon. A long higher close body with few or no shadows shows buyers outnumbered sellers and were in control during the entire period covered by the candle, steadily pushing price higher.

Lesson 3: Candlestick Chart Patterns

You will realize that the candlestick pattern will look like the hammer over here. What a green candle means is that the price has closed higher for the period. Experienced traders will agree with me when I say that a stock chart is the best tool for investing in the stock market, whether you’re a beginner or experienced. The shadow is the portion of the trading range outside of the body. We often refer to a candlestick as having a tall shadow or a long tail. Long-Legged Doji Consists of a Doji with very long upper and lower shadows.

As a legendary rice trader of financial instruments, Homma dominated the rice markets and became popular for discovering the candlestick charting method. When the Japanese stock market began in the 1870s, local technical analysts incorporated Homma’s candlestick methodology into the trading process. Piercing Line Consists of a black candlestick followed by a white candlestick that opens lower than the low of the preceding but closes more than halfway into the black body candlestick. It is considered a reversal signal when it appears at the bottom.

These are some of the simplest patterns you can find, comprising just one trading period. Often, they form the building blocks of longer patterns. Additional candlestick reliability information can be found in Bulkowski’s book Encyclopedia of Candlestick Charts.

Nevertheless, as I have mentioned earlier, you need to have some amount of flexibility. Finding textbook definitions is not easy in real market situations. The stop loss for the trade will be the highest high of P1, P2, and P3.

Bearish 3-Method Formation (Also known as “Falling Three”) A long black body followed by three small bodies and a long black body. The three white bodies are contained within this jedi range of the first black body. Big White Candle Has an unusually long white body with a wide range between high and low of the day. The last daily candlestick pattern is highlighted on the large chart. To see other time frames click the tabs for weekly, monthly or quarterly charts.

An open and close in the middle of the candlestick signal indecision. Long-legged dojis, when they occur after small candlesticks, indicate a surge in volatility and warn of a potential trend change. 4 Price dojis, where the high and low are equal, are normally only seen on thinly traded stocks. Tweezer Tops Consists of two or more candlesticks with matching tops.

So, when the open value is greater than the close value, the rectangle appears filled with the color of the background. Forex intraday candlestick patterns are currently not tracked. HotCandlestick.com currently considers only the 14-day fast stochastic (%K) when displaying data tables. The reasoning behind this is that when using daily candlesticks as a trading guide, HotCandlestick.com finds the most value in the 14-day fast stochastic. Currently only the %K crossover with the HCS IMI is considered.

reversal japanese candlestick

16 candlestick patterns Consists of a large white body candlestick followed by a small body candlestick that gaps above the previous. The third is a black body candlestick that closes well within the large white body. It is considered a reversal signal when it appears at the top level. Dragonfly Doji Formed when the opening and the closing prices are at the highest of the day. If it has a longer lower shadow it signals a more bullish trend. When appearing at market bottoms it is considered to be a reversal signal.

To get the most out of this guide, it’s recommended to practice putting these candlestick chart patterns into action. The best risk-free way to test these strategies is with a demo account, which gives you access to our trading platform and $50,000 in virtual funds for you to practice with. So, let’s get to one of the cornerstones of technical analysis, which is reading a candlestick chart and spotting reversal candle chart patterns. The candlestick patterns above are often present in trend changes.

How to read a Japanese candlestick chart

During routine https://g-markets.net/, Homma discovered that the rice market was influenced by the emotions of traders, while still acknowledging the effect of demand and supply on the price of rice. The Intraday Momentum Index was developed by Tushar Chande. For those people familiar with candlestick charting, the IMI separates the red and white candlesticks and performs a RSI calculation on the candlestick bodies. The HCS IMI is based on the Chande IMI, however is slightly different. The morning star is a bullish candlestick pattern which evolves over a three day period. The pattern is formed by combining 3 consecutive candlesticks.

The expectation is that the bullishness on P3 is likely to continue over the next few trading sessions, and hence one should look at buying opportunities in the market. On the gap up opening itself, the bears would have been a bit jittery. Encouraged by the gap up opening buying persists through the day, so much so that it manages to recover all the losses of P1.

security being traded

In your email settings look for something like ‘Wait Listing’ or ‘White List’. You can usually add a domain or email address to your email white list so that important email does not go to your junk or spam folders. The Hanging Man Candlestick Pattern is a reversal pattern – it is usually an indication that a previously sustained upward movement comes to a halt and a downward trend is coming up. Another pattern indicating a bearish reversal is called The Three Black crows pattern.

  • The piercing line signals a reversal after a down-trend.
  • The bears are so eager to sell that they are willing to sell at a price lower than the previous day’s close.
  • As you progress, start developing trades based on the thought process behind the bulls’ actions and the bears.
  • The piercing line is also a two-stick pattern, made up of a long red candle, followed by a long green candle.
  • Before we understand the morning star pattern, we need to understand two common price behaviours –gap up opening and gap down opening.

It signals a more bearish trend than the evening star pattern because of the Doji that has appeared between the two bodies. The three black crows candlestick pattern comprises of three consecutive long red candles with short or non-existent wicks. Each session opens at a similar price to the previous day, but selling pressures push the price lower and lower with each close. Traders interpret this pattern as the start of a bearish downtrend, as the sellers have overtaken the buyers during three successive trading days. The hammer candlestick pattern is formed of a short body with a long lower wick, and is found at the bottom of a downward trend. A hammer shows that although there were selling pressures during the day, ultimately a strong buying pressure drove the price back up.

Candlesticks can show whether the buyer or seller has control of the market. The high and low are described as shadows and plotted as a single line. A candlestick is a type of price chart that displays the high, low, open, and closing prices of a security for a specific period and originated from Japan. The third white candle overlaps with the body of the black candle and shows renewed buyer pressure and a start of a bullish reversal, especially if confirmed by the higher volume.

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