Now that you can read individual candles, it is time to learn what happens when specific candles appear in specific contexts. These patterns have been studied for centuries — they originated in Japanese rice trading in the 1700s.
Reversal Patterns
These patterns suggest the current trend might be about to change direction.
Doji
A candle where the open and close are virtually the same, creating a cross or plus sign shape. It means neither buyers nor sellers won — pure indecision. After a strong trend, a doji can signal exhaustion.
Hammer
A small body at the top of the candle with a long lower wick (at least 2x the body size) and little or no upper wick. Appears after a downtrend. It means sellers pushed the price down hard, but buyers fought back and closed near the high. Bullish reversal signal.
Shooting Star
The opposite of a hammer — small body at the bottom, long upper wick. Appears after an uptrend. Buyers tried to push higher but sellers took control. Bearish reversal signal.
Engulfing Patterns
Bullish engulfing: A large green candle completely "engulfs" (covers the entire body of) the previous red candle. Strong bullish reversal at support.
Bearish engulfing: A large red candle engulfs the previous green candle. Strong bearish reversal at resistance.
Morning Star & Evening Star
Three-candle patterns. Morning star (bullish): big red candle, then a small-bodied candle (indecision), then a big green candle. Evening star (bearish): the reverse — big green, small body, big red.
Continuation Patterns
Three white soldiers: three consecutive green candles with progressively higher closes. Strong bullish continuation.
Three black crows: three consecutive red candles with progressively lower closes. Strong bearish continuation.
Reliability Ratings
| Pattern | Type | Reliability |
|---|---|---|
| Engulfing | Reversal | High |
| Morning/Evening Star | Reversal | High |
| Hammer/Shooting Star | Reversal | Medium-High |
| Doji | Reversal | Medium (needs confirmation) |
| Three Soldiers/Crows | Continuation | High |
Warning
Context matters more than pattern. A hammer at a major support level after a long downtrend is a strong signal. A hammer in the middle of nowhere is meaningless noise. Never trade a pattern in isolation — always look at where it appears on the chart and confirm with other evidence (support/resistance, volume, trend).
Risk Disclaimer: Trading financial markets involves significant risk of loss. The content on this page is for educational purposes only and does not constitute financial advice. Past performance is not indicative of future results. You should not trade with money you cannot afford to lose. 70-80% of retail investor accounts lose money when trading CFDs and spread bets. Consider whether you understand how these products work and whether you can afford the high risk of losing your money.