Table of Contents Expand. Table of Contents. Candlestick Pattern Reliability. Candlestick Performance. Three Line Strike. Two Black Gapping. Three Black Crows. Evening Star. Abandoned Baby. The Bottom Line. Trading Technical Analysis. Part of. Guide to Technical Analysis. Part Of. Key Technical Analysis Concepts.
Getting Started with Technical Analysis. Essential Technical Analysis Strategies. Technical Analysis Patterns. Technical Analysis Indicators. Key Takeaways Candlestick patterns, which are technical trading tools, have been used for centuries to predict price direction. There are various candlestick patterns used to determine price direction and momentum, including three line strike, two black gapping, three black crows, evening star, and abandoned baby.
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Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Articles. Technical Analysis Understanding a Candlestick Chart. Partner Links. Related Terms Stick Sandwich Definition A stick sandwich is a technical trading pattern in which three candlesticks form what appears to be a sandwich on a trader's screen.
White Candlestick Definition A white candlestick depicts a period where the security's price has closed at a higher level than where it had opened. Three White Soldiers Three white soldiers is a bullish candlestick pattern that is used to predict the reversal of a downtrend. What Is a Morning Star? A morning star is a bullish candlestick pattern in a price chart. It consists of three candles and is generally seen as a sign of a potential recovery following a downtrend.
They show current momentum is slowing and the price direction is changing. Shooting Star Definition and Applications A shooting star is a bearish candlestick with a long upper shadow, little or no lower shadow, and a small real body near the day's low. It comes after an uptrend and marks the potential exhaustion of the rise. Investopedia is part of the Dotdash Meredith publishing family.
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Note: While there is much we can see from the candlesticks, there is also much we cannot see. Candlesticks do not depict the sequence of events between the open and close, only the relationship between the open and close. We can easily see the high and low, but we cannot tell which came first. Candlesticks can offer valuable information on the relative positions of the open, high, low, and close, but the trading activity that forms a particular candlestick can vary.
Candlesticks are formed using the open, high, low and close of the bar. The principle difference between candlestick patterns and bar patterns lies in the emphasis on the open and close. Bar charts do not treat the open and close with any special weighting. If the market closed higher than it opened bullish , the real body is white or unfilled, with the opening price at the bottom of the real body and the closing price at the top.
If the market closed lower than it opened bearish , the real body is black, with the opening price at the top and the closing price at the bottom. The longer the body, the more trend strength, and the shorter the body, more indecision. A long shadow indicates failure for price to maintain its high or low and thus can signal trouble. Traders also prefer to trade in the direction of longer candlestick bodies.
Long bodies indicate strong buying or selling pressure. The longer the body, the stronger the buying or selling pressure. The buyers or sellers were stronger in mass and took control, forming the longer body. In contrast, short bodies suggest little buying or selling pressure and imply more indecision. Long white candlesticks represent bullish strength. When the close is a long way up from open, the long white candlestick is formed, indicating that bullish buyers have aggressively pushed the price up from open to close.
White candlesticks are generally bullish, but you have to consider them in relation to the big picture. If the market had declined, and is reaching a support level, a long white candlestick bouncing from support can mark a potential turning point. If the market had advanced, and is reaching a resistance level and traders are eager for a break, a long white candlestick breaking the resistance level is a potential message that the level has been clearly broken. Long black candlesticks represent bearish strength.
When the close is a long way down from open, the long black candlestick is formed, indicating that sellers aggressively pushed the price down from open to close. After a long advance to a critical resistance level, a long black candlestick can represent a turning point, where the sellers have launched a counter-attack.
Or, if the market had declined to a significant support, a long black candlestick breaking the support level signals that the Bears have breached this level. Sometimes a candlestick is all body and no shadow. It has no shadows extending from the top or bottom of the candle. The Japanese call them Marubozu, and they are difficult to find in a real market. A white marubozu candle has a long white body and is formed when the open equals the low and the close equals the high.
The white marubozu candle indicates that buyers controlled the price of the stock from the open to the close, and is considered very bullish. A black marubozu candle has a long black body and is formed when the open equals the high and the close equals the low. A black marubozu indicates that sellers controlled the price from the open to close, and is considered very bearish.
The pattern indicates indecision between buyers and sellers. The small real body whether white or black shows little movement from open to close, while the shadows indicate that both the bulls and bears were very active during the session. The session might have opened and closed with little change, but prices moved significantly higher or lower during the same period. Neither buyers or sellers could gain the upper hand and the result is a deadlock.
The price distance between the open and high is called the upper shadow. The price distance between the open and the low is called the lower shadow. Candlesticks with long upper shadow and short lower shadow indicate that the buyers initially dominated the session, but then sellers later counterattacked and forced prices down from their highs, with the weak close creating the long upper shadow.
Conversely, candlesticks with long lower shadows and short upper shadows indicate that sellers initially dominated the bar session, but then buyers later counterattacked and forced prices higher by the end. Sometimes candlesticks lack a body, or retain only a very small one, and they are called doji. It is seen to lack a body because the opening and closing price are virtually equal.
The lengths of the upper and lower shadows can vary and the resulting candlestick looks like a cross, inverted cross, or plus sign. The doji represents indecision in the market. If the market is non-trending, the doji is not as significant, for non-trending or sideways markets are inherently indecisive. If the doji forms on a trend, it is more significant, as it is a signal that the buyers of upward trend or sellers of downward trend are becoming exhausted, weak and losing conviction.
The buyers or sellers have been tapped out. The Doji witnessed in such a context can signal a ripe opportunity to enter early on in a potential trend reversal or trend correction, taking a trade in the opposite direction of the prior trend. A candlestick enacts the battle between Bulls Buyers and Bears sellers during the time frame of the candlestick.
Each side is waging a mini tug-of-war within the candlestick to via for control, and the bodies and shadows of the candlestick give evidence of the struggle for power. The bottom intra-session low of the candlestick represents the Bears in control, and the top inter-session high represents the Bulls in control. The closer the close is to the high, the closer the Bulls are to winning the engagement, and the closer the close is to the low, the closer the Bears are to winning.
The above six formations are the generalized formations of candlesticks, and can help guide the trader along to easily spot the characteristics of Bullish and Bearish candlesticks. Below I will attempt to illustrate some of the more specific candlestick patterns, grouping them into the Bullish and Bearish Formations.
Explanation: We see the black body in a falling market suggesting that the bears are in command, then a small real body appears implying the incapacity of sellers to drive the market lower, and the strong white body of third day proves that bulls have taken over. Explanation: Black real body while market is falling down may suggest that the bears are in command.
Then a Doji appears showing the diminishing capacity of sellers to drive the market lower. All the above candlestick formations should act as confirmations of trend reversal, and you should be aware of the following three steps:. Step 1 — Wait for the above patterns to appear during an established downtrend. An established downtrend is when the price is below the MA of D1 or H4. Step1 Alternate -Better yet, wait for the above pattern to appear during an established uptrend that is currently experiencing a bearish correction.
In other words, the price is below the MA of D1 and H4, and thus in an established downtrend, but recently the price has been charging above the MA of smaller time frames, such as H1 or M Step 2 — Confirm the potential for a trend reversal if the price is nearing key support levels. These support levels would be defined by horizontal lines across swing highs, or pivot point resistance lines, or even Fibonacci retracement levels.
The strength of any bullish candlestick pattern is determined by the nearness to a support level. If the pattern appears in the middle of a trading range, it tends to have little significance. Step 3 — Confirm the reversal with any of the above Bullish Candlestick Patterns. Keep in mind that it is just as important to see the basic strong signs for Bears i. Exit Signal: Place stop loss x pips above the next lower support level swing low, pivot or fib.
Place take profit at next support level swing low, pivot or fib. Alternately, place a stop loss of pips, and a take profit of pips. Step 1 — Wait for the above patterns to appear during an established uptrend. An established uptrend is when price is above the MA of D1 or H4. Step1 Alternate — Better yet, wait for the above pattern to appear during an established downtrend that is currently experiencing a bullish correction.
In other words, the price is below the MA of D1 and H4, and thus in an established downtrend, but recently the price has been charging above the MA of H1 or M Step 2 — Confirm the potential for a trend reversal if price is nearing key resistance levels defined by horizontal lines across swing highs, or pivot point resistance lines, or Fibonacci retracement levels. This is very important.
The strength any candlestick pattern is determined by the nearness to a resistance level. Step 3 — Confirm the reversal with any of the above patterns. Bullish Railroad Made up of two candlesticks of almost equal sizes — a bearish followed by a bullish. When they follow each other, it is often a sign that the market is taking a sharp turn towards the uptrend. Bullish Marubozu A long bullish candlestick with no wicks or negligible wicks that suggests an uptrend continuation. Morning Star Made up of three candlesticks.
The first candlestick is bearish. The second one is a small candle with a negligible body and very little wicks. The third one is a bullish candlestick that suggests a turnaround in the market bias. Three White Soldiers Made up of three bullish candlesticks with little or no wicks. This often suggests a bullish continuation. Three Inside Up Harami Made up of three candlesticks — a bearish followed by two bullish ones. The first bullish candlestick after the bearish one is small compared to the previous bearish candlestick.
But the next bullish candlestick engulfs the bearish one suggesting the market is making a strong move towards the uptrend. Bullish Tweezers Tweezers are almost similar to exhaustion candlesticks, except that bullish tweezers come in twos and often have shorter wicks. What marks it out as a bearish candlestick pattern is a small body underneath a long wick. Bearish Engulfing Made up of two candlesticks — a bullish followed by a bearish one.
It is called bearish engulfing because the size of the bearish candle completely engulfs the bullish one preceding it. Bearish Railroad Made up of two candlesticks of almost equal sizes — a bullish followed by a bearish. When they follow each other, it is often a sign that the market is taking a sharp turn towards the downtrend. Bearish Marubozu A long bearish candlestick with no wicks or negligible wicks that suggests a downtrend continuation.
Evening Star Made up of three candlesticks. The first candlestick is bullish. The second one is a little candle without a body and very little wicks. The third one is a bearish candle that suggests a turnaround in the market bias. Three Black Crows Made up of three bearish candlesticks with little or no wicks. This often suggests a bearish continuation.
Three Inside Down Harami Made up of three candlesticks, a bullish followed by two bearish ones. The first bearish candlestick after the bullish one is small compared to the previous bullish candlestick. But the next bearish one engulfs the bullish candlestick to suggest the market is making a move towards the downtrend. Bearish Tweezers Bearish tweezers are almost similar to bearish exhaustion candlesticks, except that bearish tweezers come in twos and often have shorter wicks.
Related Articles. What's Next? Learn basic Sentiment Strategy Setups. A candlestick that has a long wick underneath it with a tiny body at the top. Made up of two candlesticks — a bearish followed by a bullish one. Made up of two candlesticks of almost equal sizes — a bearish followed by a bullish.
A long bullish candlestick with no wicks or negligible wicks that suggests an uptrend continuation. Made up of three candlesticks.
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. Candlestick Patterns (Every trader should know) visually seen on the chart. A bullish engulfing candle occurs after a significant downtrend. 35 Types of Candlestick Patterns: 1. Hammer: 2. Piercing Pattern: 3. Bullish Engulfing: 4. The Morning Star: 5. Three White.