A candlestick chart is one of the most widely used tools in technical analysis, offering a clear view of market behaviour across specific time intervals. The formations on these charts are known as candlestick patterns, which help traders assess buying and selling pressure, momentum shifts, and short-term sentiment. Many beginners start learning these patterns soon after they open free demat account online, as it helps them analyse market movements more confidently. Findoc explains these patterns in a structured and accessible manner, helping readers understand their role in market analysis more effectively.
What are Candlestick Patterns?
Candlestick patterns are formations that appear on a candlestick chart and represent the price movement of a security within a specific period. Each candle shows four key data points: the opening price, the closing price, the highest price, and the lowest price. When multiple candles form recognisable structures, they may indicate potential shifts in market sentiment. These classifications help traders interpret how different candlestick chart patterns reflect shifts in sentiment and short-term market behaviour.
Types of Candlestick Patterns
Candlestick patterns are commonly grouped into bullish reversal, bearish reversal, and continuation patterns. Each category helps traders determine whether the market may reverse or continue its current movement. Understanding these classifications helps readers see how different candlestick formations reflect shifts in sentiment and potential short-term market behaviour.
Some commonly observed candlestick patterns include:
1. Bullish Engulfing Pattern
A Bullish Engulfing pattern forms when a small red candle is followed by a larger green candle that fully covers the previous candle. It indicates a shift from selling pressure to stronger buying interest. This pattern often appears after a decline and may suggest improving sentiment in the near term.
2. Hammer Pattern
The Hammer is a single candle with a small body and a long lower shadow, typically appearing after a downtrend. It shows that sellers initially pushed the price lower, but buyers entered at those levels and restored it closer to the open. This may indicate emerging buying interest.
3. Morning Star Pattern
The Morning Star is a three-candle pattern that consists of a long red candle, a small indecisive candle, and a long green candle. It reflects weakening selling momentum and early signs of buying interest. This pattern may signal a shift in sentiment following a downtrend.
4. Piercing Line Pattern
The Piercing Line is a two-candle formation where a long red candle is followed by a green candle that closes above the midpoint of the previous body. It highlights increased buying participation after a decline and may point to a short-term improvement in sentiment.
5. Bullish Harami Pattern
This pattern appears when a large red candle is followed by a smaller green candle positioned within the previous body. It suggests a slowdown in selling momentum and the possibility of buying interest emerging, often observed during early signs of trend exhaustion.
6. Three White Soldiers Pattern
Three consecutive green candles of progressively higher closes form this pattern. Each candle opens within the prior body and closes near its high. It illustrates consistent buying interest over three sessions.
7. Inverted Hammer Pattern
The Inverted Hammer features a small body with a long upper wick and appears after a downtrend. It indicates that buyers attempted to lift prices despite earlier selling. While not a confirmation on its own, it can signal early buyer interest at lower levels.
8. Dragonfly Doji
A Dragonfly Doji has little to no body and a long lower wick, showing that sellers pushed prices down but buyers later restored them to the opening level. When seen after a decline, it may reflect buying interest emerging at key support levels.
9. Bullish Abandoned Baby Pattern
This pattern consists of a long red candle, a Doji that gaps down, and a long green candle that gaps up. The separation between the candles suggests a sharp change in sentiment. It is often interpreted as a potential bullish reversal when appearing after a decline.
10. Three Inside Up Pattern
The pattern begins with a long red candle, followed by a smaller green candle closing above the midpoint of the prior body, and concludes with a stronger green candle. It reflects a gradual transition from selling pressure to increasing buying interest.
11. Three Outside Up Pattern
This pattern begins with a red candle, followed by a larger green candle that engulfs the previous body, and a second green candle that closes higher. The sequence indicates strengthening buying interest and confirms a shift in sentiment after a decline. It is generally viewed as a reinforcing bullish signal.
12. Bullish Kicker Pattern
A Bullish Kicker pattern appears when a red candle is followed by a green candle that opens significantly higher, creating a noticeable price gap. This reflects a sharp change in sentiment, often driven by new information or strong buying interest. It is regarded as a decisive change in direction.
13. Tweezer Bottom Pattern
This pattern forms when two consecutive candles display nearly identical low points. It suggests that the market has tested a support level twice and rejected lower prices both times. The formation indicates stabilising sentiment and the possibility of buying interest at that level.
14. Rising Three Methods Pattern
This continuation pattern features a strong green candle, followed by a series of small red candles that remain within its range, and ends with another green candle closing higher. It reflects a temporary pause in an uptrend before buyers regain control. The structure suggests sustained upward momentum.
15. Bearish Engulfing Pattern
A Bearish Engulfing pattern forms when a small green candle is followed by a larger red candle that completely covers the previous body. It indicates increasing selling pressure and a potential sentiment shift after an upward move. It is often interpreted as a sign of weakening momentum.
16. Bearish Belt Hold Pattern
This pattern appears as a long red candle that opens at its high and closes near its low without forming an upper wick. It reflects strong selling interest from the start of the session and may indicate emerging downward pressure after an advance.
17. Three Black Crows Pattern
Three consecutive long red candles with small or no wicks create this pattern. Each candle opens within the prior body and closes lower. It signals sustained selling pressure and may indicate the early stages of a broader downward trend when seen after an upmove.
18. Bearish Evening Star Pattern
The Evening Star is a three-candle formation consisting of a strong green candle, a small indecisive candle, and a long red candle closing deep into the first candle’s body. It shows that upward momentum has weakened and that sellers are beginning to take control.
19. Bearish Shooting Star Pattern
A Shooting Star features a small body and a long upper wick and appears after an advance. It indicates that buyers attempted to push prices higher but were met with selling pressure. This shift may suggest early signs of weakening momentum near resistance.
20. Bearish Harami Pattern
This pattern forms when a large green candle is followed by a smaller red candle that sits within the prior body. It reflects slowing buying interest and indicates increasing selling interest. The formation may indicate hesitation in the ongoing uptrend.
21. Bearish Kicker Pattern
A Bearish Kicker consists of a strong green candle followed by a red candle that opens significantly lower, creating a clear downward gap. The abrupt price shift suggests a notable change in sentiment, often prompting a reassessment of the preceding trend.
22. Bearish Tweezer Top Pattern
This pattern occurs when two candles at the top of a trend share a similar high. The first is typically green, followed by a red candle. It suggests that the market encountered firm resistance at that level, indicating a potential shift towards selling pressure.
23. Dark Cloud Cover Pattern
The Dark Cloud Cover consists of a long green candle followed by a red candle that opens higher but closes below the midpoint of the previous body. It highlights rising selling interest and may indicate weakening momentum.
Also Read: Stock Market Technical Analysis
Conclusion
Candlestick patterns offer valuable insight into short-term market behaviour by showing how the price reacts to buying and selling pressure. Understanding these formations helps traders interpret shifts in sentiment and assess potential movements within ongoing trends. Findoc presents these concepts in a structured and accessible manner, supporting readers as they develop a sharper understanding of the role these patterns play in informed market analysis.
Frequently Asked Questions
No single candlestick pattern is universally accurate. Patterns such as the Bullish or Bearish Engulfing are considered strong signals, but their usefulness increases when combined with trend analysis, volume, and broader market context.
It refers to analysing three consecutive candles together to confirm a possible reversal or continuation. This approach helps traders avoid reacting to isolated candles and reduces the likelihood of misinterpreting short-term movements.
Candlestick patterns can be used to identify potential reversals, continuations, entry areas, and exit points. They highlight changes in buying and selling pressure, but should be interpreted alongside technical indicators and risk-management principles.
They are helpful tools for reading market behaviour, but they are not guarantees in and of themselves. Reliability improves when patterns are combined with supporting indicators, market structure, and broader analysis.
Candlestick patterns are formations created by price movement on a candlestick chart. They help traders understand market sentiment and assess whether prices may strengthen, weaken, or consolidate based on recent activity.
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