30 Important Candlestick Patterns: The stock market constitutes emotions as it consists of a large number of people. These emotions can be largely responsible for the movements in the market. As people tend to exhibit similar behavior when dealing with familiar situations, the overall market movements can be understood to an extent using candlesticks.
Candlesticks are one of the important tools that help us in technical analysis. These 30 important candlestick patterns can help us recognize the interaction between the buyers and sellers in the market.
In this article, we will be covering 30 important candlestick patterns that every trader should know
What is a candlestick?
A candlestick is a type of chart that indicates the opening price, the high, the low, and the closing price of a security for a specific time period.
A candlestick pattern comprises a body and a wick which shows us the information of the price in a simple and concise manner.
The body of the candle indicates the price at which a security has opened and closed during a specific time period. The wick or the shadow of the candle indicates the high and low security reached during a specific time period.
A Candlestick can be divided into two categories:
- Bullish Candlestick
- Bearish Candlestick
Bullish Candlestick: A candle is said to be bullish when the body of the candle is green. In this candle, the bottom of the body represents the opening price and the top of the candle represents the closing price.
Bearish Candlestick: A candle is said to be bearish when the body of the candle is red. In this candle, the top of the body represents the opening price and the bottom of the candle represents the closing price.
Now that we have understood how a candlestick looks, we will now look into 30 important candlestick patterns and understand how they represent the different sentiments in the market.
30 Important Candlestick Patterns and How are they read
Below are the 30 important candlestick patterns that every trader should know before investing in the stock market
Single Candlestick pattern
Important Candlestick Patterns #1 – Marubozu Candlestick
A marubozu candlestick is a single candlestick formation that makes a big movement in a single direction with any pushback from the opposite direction. Marubozu candlesticks can be divided based on their bullish or bearish momentum
Bullish Marubozu Candlestick
This candlestick pattern represents extreme bullishness in the market. This candle indicates that the buyers are in control of the stock price throughout the trading session. In this candle, the low is the opening price and the high is the closing price for the session.
Bearish Marubozu Candlestick
This candlestick pattern represents extreme bearishness in the market. This candle indicates that the sellers are in control of the stock price throughout the trading session. In this candle, the high is the opening price and the low is the closing price for the session.
Important Candlestick Patterns #2 – Bullish Hammer
A bullish candlestick is a formation that appears after a falling trend in the market. This candle indicates that the market is likely going to make a reversal uptrend. This candle can be characterized by a small body and a wick at the bottom which is twice the size of the body.
The larger the wick of the candle, the better the chances are for its reversal. The body of the candle can be either green or red. This candle is formed at the bottom of the chart.
Important Candlestick Patterns #3 – Hanging man
A hanging man is a candle pattern that looks identical to a bullish hammer. But the candle appears after an uptrend with an indication that the market is likely to make a reversal downtrend.
Important Candlestick Patterns #4 – Bullish Inverted Hammer
An inverted hammer is a candle formation that occurs at the bottom of the downtrend. It acts as a trigger for a potential upside in the market. This candle pattern has a small body and a wick only at the top which is as twice the size of the body.
The larger the wick of the candle, the better the chances are for its reversal. The body of the candle can be either green or red. This candle is formed at the bottom of the chart.
Important Candlestick Patterns #5 – Shooting star
A shooting star pattern looks identical to a candle pattern but appears at the top of the uptrend. This candle is a trigger that indicates that markets may likely reverse downwards.
Doji candlestick Patterns
Dojis are candlestick patterns with wicks and nobody. A Doji candle opens and closes at the same price. The Doji candlestick patterns are of four types:
Important Candlestick Patterns #6 – Neutral Doji:
A neutral Doji is a candle pattern with no conviction of its own. This candle pattern indicates an equal number of buying and selling pressure. The future price movement will be uncertain in this pattern
Important Candlestick Patterns #7 – Long-Legged Doji
A long-legged Doji candle is considered the most prominent when they appear during a strong uptrend or a downtrend. The long-legged doji signal indicates that supply and demand are approaching balance and that a trend reversal may take place.
Important Candlestick Patterns #8 – Dragonfly Doji
Dragonfly Doji is a candlestick pattern that indicates a bullish reversal in the market. It mainly appears at the bottom of the downtrend.
A dragonfly Doji is formed when the open, high, and close are on the same price level and has a long lower wick
Important Candlestick Patterns #9 – Bearish Gravestone Doji
Gravestone Doji is a candlestick pattern that indicates a bearish reversal in the market. It mainly appears at the top of the uptrend.
A dragonfly Doji is formed when the open, low, and close are on the same price level and has a long upper wick
Important Candlestick Patterns #10 – Spinning Top Candlestick
The spinning top is a candlestick pattern that is similar to a Doji candlestick which indicates indecision between the buyer and the seller in the market.
The only differentiation between a Doji and a spinning top candle is their formation. The body of the spinning top is slightly larger when compared to a Doji. Due to the relatively small change in the market direction, it is known as a continuation pattern
Spinning top Candlestick can be divided into bullish and bearish forms depending on their opening and closing prices.
Double Candle Candlestick Patterns
Important Candlestick Patterns #11 – Bullish engulfing
Bullish engulfing is a two-candlestick chart pattern that is formed when a red candle is followed by a large green candle that completely covers or engulfs the previous candlestick stick
In this pattern, the green candle opens below the red candle and closes above the red candle indicating a bullish signal in the market.
Important Candlestick Patterns #12 – Bearish engulfing
Bearish engulfing is a two-candlestick chart pattern that is formed when a green candle is followed by a red candle that completely covers or engulfs the previous candlestick stick
In this pattern, the red candle opens above the green candle and yet closes below the green candle indicating a bullish signal in the market.
Important Candlestick Patterns #13 – Bullish Harami
A bullish harami is a pattern that is formed after a bear trend in the market.
This pattern is formed when there is a large red candle followed by a small green candle inside the previous red candle. This pattern indicates the return of bulls in the market.
Important Candlestick Patterns #14 – Bearish Harami
A Bearish harami is a pattern that is formed after a bull trend in the market.
This pattern is formed when there is a large green candle followed by a small red candle inside the previous green candle. This pattern indicates the return of bears in the market.
Important Candlestick Patterns #15 – Bullish Harami cross
A bullish harami cross is a pattern that is formed after a downtrend in the market.
This pattern consists of a long red candle followed by a Doji candle that is located in the middle of the previous candle. This pattern forecasts a bull trend in the market.
Important Candlestick Patterns #16 – Bearish Harami cross
A bearish harami cross is a pattern that is formed after an uptrend in the market.
This pattern consists of a long green candle followed by a Doji candle that is located in the middle of the previous candle. This pattern forecasts a downward trend in the market.
Important Candlestick Patterns #17 – Bullish Piercing Line
A Bullish Piercing Line is a candlestick pattern that indicates a reversal after an extended downtrend in the market. This formation indicates a resumption of the uptrend in the market
This candle formation consists of a red candle followed by a green candle which opens gap down and covers more than 50% of the previous candle while closing.
Important Candlestick Patterns #18 – Dark cloud cover
A Dark cloud cover is a bearish pattern that indicates a reversal after an uptrend in the market
This candle formation consists of a green candle followed by a red candle which opens gap up and covers more than 50% of the previous candle while closing.
Important Candlestick Patterns #19 – Tweezer Bottom Candlestick
A tweezer bottom is a bullish candlestick pattern that is formed at the end of a downtrend in the market. It is formed when the sellers are not able to push the prices down any further in the market.
This pattern consists of a red candle which is followed by a green candle. The green candle will have the same low as the red candle indicating support at that level
Important Candlestick Patterns #20 – Tweezer Top Candlestick
A tweezer top is a bearish candlestick pattern that is formed after an uptrend in the market. This pattern indicates the buyers not being able to push the price higher.
This pattern consists of a green candle which is followed by a red candle. The red candle will have the same high as the green candle indicating a resistance at that level.
Important Candlestick Patterns #21 – Bullish homing pigeon
The bullish homing pigeon is a candlestick pattern that indicates the weakening of the current downtrend and shows the likelihood of a reversal
The pattern consists of a large red candle followed by another red candle within the range of the first candle
Important Candlestick Patterns #22 – Bearish homing pigeon
The bearish homing pigeon is a candlestick pattern that indicates the weakening of the uptrend in the market and indicates the market reversal
The pattern consists of a large green candle followed by another green candle within the range of the first candle
Triple Candle Candlestick Patterns
Important Candlestick Patterns #23 – Three white soldiers
Three white soldiers is a candlestick pattern that indicates bullishness in the market. This candle pattern is formed when long-bodied green candles appear that are close higher than the previous candle for three consecutive sessions.
Important Candlestick Patterns #24 – Three black crows
Three black crows is a candlestick pattern that indicates a downtrend in the market. This candle pattern is formed when long-bodied red candles appear that are close lower than the previous candle for three consecutive sessions.
Important Candlestick Patterns #25 – Bullish Upside Tasuki gap
The Upside Tasuki gap is a candlestick pattern that indicates a continuation of the bullish trend in the market
This is a three-candle formation that consists of a large green candle followed by another green candle that has gapped above the previous candle. And the third candle that closes between the gaps of the previous two bars
Important Candlestick Patterns #26 – Bearish Downside Tasuki gap
The Downward Tasuki gap is a candlestick pattern that indicates a continuation of the downtrend in the market.
This pattern consists of a large red candle followed by another red candle that has gapped down below the previous candle. And the third candle that closes between the gaps of the previous two bars
Important Candlestick Patterns #27 – Morning star pattern
A Morningstar pattern is a candlestick formation that occurs after a downtrend in the market. This candle pattern signals the beginning of an uptrend in prices.
This candle pattern consists of a red candle followed by a small-bodied candle that closes below the previous candle. The third candle will be a large green candle that opened above the second candle.
The second candle can either be a green or a red candle.
Important Candlestick Patterns #28 – Evening star pattern
An evening star pattern is a candlestick formation that after an uptrend in the market. This candle pattern signals a downtrend in the market.
This candle pattern consists of a green candle followed by a small-bodied candle that closes above the previous candle. The third candle will be a large red candle that opened below the second candle.
The second candle can either be a green or a red candle
Important Candlestick Patterns #29 – Three inside up
The three inside up is a candlestick formation that is formed at the bottom of the downtrend. It is a bullish pattern that indicates the reversal of the downtrend in the market
It is a three-candle pattern consisting of a long red candle followed by a green candle that covers the first candle at least till the midpoint. The third candle should be a green candle that should close above the first candle indicating the buyers overpowering the sellers.
Important Candlestick Patterns #30 – Three inside down
The three inside down is a candlestick formation that is formed at the top of an uptrend. It is a bearish pattern that indicates the reversal of the uptrend in the market.
It is a three-candle pattern consisting of a long green candle followed by a red candle that covers the first candle at least till the midpoint. The third candle should be a red candle that should close below the first candle indicating the sellers overpowering the buyers.
Conclusion
In this article, we discussed 30 important candlestick patterns divided as single candlestick patterns, double candlestick patterns, and triple candle stick pattern
Knowing the different 30 important candlestick patterns can help in knowing how the market psychology works and using these candle patterns along with other technical tools can help you take better trades in the market.
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