The Hammer formation is created when the open, high, and close are roughly the

same price. Also, there is a long lower shadow,

twice the length as the real body.
When the high and the close are the same, a
bullish Hammer candlestick is formed and it is
considered a stronger formation because the
bulls were able to reject the bears completely
plus the bulls were able to push price even
more past the opening price.
In contrast, when the open and high are the
same, this Hammer formation is considered
less bullish, but nevertheless bullish. The bulls
were able to counteract the bears, but were not
able to bring the price back to the price at the
open.
The long lower shadow of the Hammer implies that the market tested to find
where support and demand was located. When the market found the area of
support, the lows of the day, bulls began to push prices higher, near the opening
price. Thus, the bearish advance downward was rejected by the bulls.
Hammer Candlestick Chart Example
The chart below of American International Group (AIG) stock illustrates a
Hammer reversal pattern after a downtrend:

In the chart above of AIG, the market began the day testing to find where
demand would enter the market. AIG's stock price eventually found support at
the low of the day. In fact, there was so much support and subsequent buying
pressure, that prices were able to close the day even higher than the open, a
very bullish sign.
The Hammer is an extremely helpful candlestick pattern to help traders visually
see where support and demand is located. After a downtrend, the Hammer can
signal to traders that the downtrend could be over and that short positions should
probably be covered.
However, other indicators should be used in conjunction with the Hammer
candlestick pattern to determine buy signals, for example, waiting a day to see if
a rally off of the Hammer formation continues or other chart indications such as a
break of a downward trendline. But other previous day's clues could enter into a
traders analysis. An example of these clues, in the chart above of AIG, shows
three prior day's Doji's (signs of indecision) that suggested that prices could be
reversing trend; in that case and for an aggressive buyer, the Hammer formation
could be the trigger to go long.
The bearish version of the Hammer is the Hanging Man formation (see: Hanging
Man). Another similar candlestick pattern to the Hammer is the Dragonfly Doji
(see: Dragonfly Doji).
Doji
The Doji is a powerful Candlestick formation, signifying indecision between bulls
and bears. A Doji is quite often found at the bottom and top of trends and thus is
considered as a sign of possible reversal of price direction, but the Doji can be
viewed as a continuation pattern as well.

A Doji is formed when the opening price and
the closing price are equal. A long-legged Doji,
often called a "Rickshaw Man" is the same as a
Doji, except the upper and lower shadows are
much longer than the regular Doji formation.
The creation of the Doji pattern illustrates why
the Doji represents such indecision. After the
open, bulls push prices higher only for prices to
be rejected and pushed lower by the bears.
However, bears are unable to keep prices
lower, and bulls then push prices back to the
opening price.
Of course, a Doji could be formed by prices moving lower first and then higher
second, nevertheless, either way, the market closes back where the day started.
The chart below of General Electric (GE) stock shows two examples of Doji's:


In a Doji pattern, the market explores its options both upward and downward, but
cannot commit either way. After a long uptrend, this indecision manifest by the
Doji could be viewed as a time to exit one's position, or at least scale back.
Similarly, after a long downtrend, like the one shown above of General Electric
stock, reducing one's position size or exiting completely could be an intelligent
move.
It is important to emphasize that the Doji pattern does not mean reversal, it
means indecision. Doji's are often found during periods of resting after a
significant move higher or lower; the market, after resting, then continues on its
way. Nevertheless, a Doji pattern is a great sign that a prior trend is losing its
strength, and taking some profits might be well advised.
Two intra-day examples of how a daily Doji formation is created is
presented next.
Intra-day Doji Formation
The first Doji outlined on the daily chart of General Electric on the previous page
was a high-low Doji, where prices made the highs for the days first, and the lows
for the day second. The intra-day chart (15-minute) of this occurance is given
below:

At the opening, the bulls were in charge; however, the morning rally did not last
long before the bears took charge. From mid-morning until late-afternoon,
General Electric sold off, but by the end of the day, bulls pushed GE back to the
opening price of the day.
The second Doji daily chart on the previous page is shown next. In the intra-day
chart below (Doji B), the Doji was created the exact opposite way as the chart
shown above (Doji A) was created; Doji B made its day's lows first, then highs
second.

At the opening bell, bears took a hold of GE, but by mid-morning, bulls entered
into GE's stock, pushing GE into positive territory for the day. Unfortunately for
the bulls, by noon bears took over and pushed GE lower. By the end of the day,
the bears had successfully brought the price of GE back to the day's opening
price.
As was presented above, the Doji formation can be created two different ways,
but the interpretation of the Doji remains the same: the Doji pattern is a sign of
indecision, neither bulls nor bears can successfully take over.
Two powerful versions of the Doji formation are linked below:
Dragonfly Doji
Gravestone Doji
Hanging Man
The Hanging Man candlestick formation, as one could predict from the name, is a
bearish sign. This pattern occurs mainly at the top of uptrends and is a warning
of a potential reversal downward. It is important to emphasize that the Hanging
Man pattern is a warning of potential price change, not a signal, in and of itself, to
go short.

The Hanging Man formation, just like
theHammer, is created when the open, high,
and close are roughly the same price. Also,
there is a long lower shadow, which should be
at least twice the length of the real body.
When the high and the open are the same, a
bearish Hanging Man candlestick is formed and
it is considered a stronger bearish sign than
when the high and close are the same, forming
a bullish Hanging Man (the bullish Hanging Man
is still bearish, just less so because the day
closed with gains).
After a long uptrend, the formation of a Hanging Man is bearish because prices
hesitated by dropping significantly during the day. Granted, buyers came back
into the stock, future, or currency and pushed price back near the open, but the
fact that prices were able to fall significantly shows that bears are testing the
resolve of the bulls. What happens on the next day after the Hanging Man
pattern is what gives traders an idea as to whether or not prices will go higher or
lower.
Hanging Man Candlestick Chart Example
The chart below of Alcoa (AA) stock illustrates a Hanging Man, and the large red
bearish candle after the Hanging Man strengthens the bears thinking that a
downward reversal is coming:


In the chart above of Alcoa, the market began the day testing to find where
demand would enter the market. Alcoa's stock price eventually found support at
the low of the day. The bears' excursion downward was halted and prices ended
the day slightly above the close.
Confirmation that the uptrend was in trouble occured when Alcoa gapped down
the next day and continued downward creating a large bearish red candle. To
some traders, this confirmation candle, plus the fact that the upward trendline
support was broken, gave the signal to go short.
It is important to repeat, that the Hanging Man formation is not the sign to go
short; other indicators such as a trendline break or confirmation candle should be
used to generate sell signals.
The bullish version of the Hanging Man is the Hammer formation (see: Hammer)
that occurs after downtrends.
Dragonfly Doji
The Dragonfly Doji is a significant bullish reversal candlestick pattern that mainly
occurs at the bottom of downtrends.

The Dragonfly Doji is created when the open,
high, and close are the same or about the same
price (Where the open, high, and close are
exactly the same price is quite rare). The most
important part of the Dragonfly Doji is the long
lower shadow.
The long lower shadow implies that the market
tested to find where demand was located and
found it. Bears were able to press prices
downward, but an area of support was found at
the low of the day and buying pressure was
able to push prices back up to the opening
price. Thus, the bearish advance downward was entirely rejected by the bulls.
Dragonfly Doji Candlestick Chart Example
The chart below of the mini-Dow Futures contract illustrates a Dragonfly Doji
occuring at the bottom of a downtrend:


In the chart above of the mini-Dow, the market began the day testing to find
where demand would enter the market. The mini-Dow eventually found support
at the low of the day, so much support and subsequent buying pressure, that
prices were able to close the day approximately where they started the day.
The Dragonfly Doji is an extremely helpful Candlestick pattern to help traders
visually see where support and demand is located. After a downtrend, the
Dragonfly Doji can signal to traders that the downtrend could be over and that
short positions should probably be covered. Other indicators should be used in
conjunction with the Dragonfly Doji pattern to determine buy signals, for example,
a break of a downward trendline.
The bearish version of the Dragonfly Doji is the Gravestone Doji
(see: Gravestone Doji).
Gravestone Doji
The Gravestone Doji is a significant bearish reversal candlestick pattern that
mainly occurs at the top of uptrends.

The Gravestone Doji is created when the open,
low, and close are the same or about the same
price (Where the open, low, and close are
exactly the same price is quite rare). The most
important part of the Graveston Doji is the long
upper shadow.
The long upper shadow is generally interpreted
by technicians as meaning that the market is
testing to find where supply and potential
resistance is located.
The construction of the Gravestone Doji pattern
occurs when bulls are able to press prices upward.
However, an area of resistance is found at the high of the day and selling
pressure is able to push prices back down to the opening price. Therefore, the
bullish advance upward was entirely rejected by the bears.
Gravestone Doji Example
The chart below of Altria (MO) stock illustrates a Gravestone Doji that occured at
the top of an uptrend:

In the chart above of Altria (MO) stock, the market began the day testing to find
where support would enter the market. Altria eventually found resistance at the
high of the day, and subsequently fell back to the opening's price.
The Gravestone Doji is an extremely helpful Candlestick reversal pattern to help
traders visually see where resistance and supply is likely located. After an
uptrend, the Gravestone Doji can signal to traders that the uptrend could be over
and that long positions should probably be exited. But other indicators should be
used in conjunction with the Gravestone Doji pattern to determine an actual sell
signal. A potential trigger could be a break of the upward trendline support.
The reverse of the Gravestone Doji is the bullish Dragonfly Doji (see: Dragonfly
Doji).
Candlestick Pattern Dictionary
Abandoned Baby: A rare reversal pattern characterized by a gap
followed by a Doji, which is then followed by another gap
in the opposite direction. The shadows on the Doji must completely
gap below or above the shadows of the first and third day.

Dark Cloud Cover: A bearish reversal pattern that
continues the uptrend with a long white body. The next day
opens at a new high then closes below the midpoint of the
body of the first day.



Doji: Doji form when a security's open and close are virtually
equal. The length of the upper and lower shadows can
vary, and the resulting candlestick looks like, either, across, inverted
cross, or plus sign. Doji convey a sense of indecision or tug-of-war between
buyers and sellers. Prices move above and below the opening level
duringthe session, but close at or near the opening level.
Downside Tasuki Gap: A continuation pattern with a long, black body
followed by another black body that has gapped below the first
one. The third day is white and opens within the body of the second
day, then closes in the gap between the first two days, but does not
close the gap.
Dragonfly Doji: A Doji where the open and close
price are at the high of the day. Like other Doji days, this one
normally appears at market turning points.

Engulfing Pattern: A reversal pattern that can be bearish or bullish,
depending upon whether it appears at the end of an uptrend (bearish
engulfing pattern) or a downtrend (bullish engulfing pattern). The first
day is characterized by a small body, followed by a day whose body
completely engulfs the previous day's body.
Evening Doji Star: A three day bearish reversal pattern similar
to the Evening Star. The uptrend continues with a large white
body. The next day opens higher, trades in asmall range, then
closes at its open (Doji). The next day closes
below the midpoint of the body of the first day.
Evening Star: A bearish reversal pattern that continues an uptrend
with a long white body day followed by a gapped up small body
day, then a down close with the close below the midpoint of the first
day.
Falling Three Methods: A bearish continuation pattern. A long black
body is followed by three small body days, each fully contained
within the range of the high and lowof the first day. The fifth day
closes at a new low.



Gravestone Doji: A doji line that develops when the Doji is at, or very
near, the low of the day.

Hammer: Hammer candlesticks form when a security moves
significantly lower after the open, but rallies to close
well above the intraday low. The resulting candlestick looks
like a square lollipop with a long stick. If this candlestick forms
during a decline, then it is called a Hammer
Hanging Man: Hanging Man candlesticks form when a security moves
significantly lower after the open, but rallies to close
well above the intraday low. The resulting candlestick looks
like a square lollipop with a long stick. If this candlestick forms
during an advance, then it is called a Hanging Man.

Harami: A two day pattern that has a small body day completely
contained within the range of the previous body, and is the opposite
color.

Harami Cross: A two day pattern similar to the Harami. The difference
is that the last day is a Doji.

Inverted Hammer: A one day bullish reversal pattern.
In a downtrend, the open is lower, then it trades higher, but closes near
its open, therefore looking like an inverted lollipop.

Long Day: A long day represents a large price move from open to
close, where the length of the candle body is long.

Long-Legged Doji: This candlestick has long upper and lower shadows
with the Doji in the middle of the day's trading range, clearly
reflecting the indecision of traders.

Long Shadows: Candlesticks with a long upper shadow and
short lower shadow indicate that buyers dominated during the first
part of the session, bidding prices higher. Conversely, candlesticks with
long lower shadows and short upper shadows indicate that sellers dominated
during the first part of the session, driving prices lower.
Marubozu: A candlestick with no shadow extending from the body at
either the open, the close or at both. The name means close-
cropped or close-cut in Japanese, though other interpretations refer to
it as Bald or Shaven Head.
Morning Doji Star: A three day bullish reversal pattern that is very
similar to the Morning Star. The first day is in a downtrend with a long
black body. The next day openslower with a Doji that has a small
trading range. The last day closes above the midpoint of the first day.
Morning Star: A three day bullish reversal pattern consisting of three
candlesticks - a long-bodied black candle extending the current
downtrend, a short middle candle that gapped down on the open,
and a long-bodied white candle that gapped up on the open and closed above
the midpoint of the body of the first day.

Piercing Line: A bullish two day reversal pattern. The first day,
in a downtrend, is a long black day. The next day
opens at a new low, then closes above the midpoint of the body
of the first day.

Rising Three Methods: A bullish continuation pattern in which a long
white body is followed by three small body days, each fully contained
within the range of the highand low of the first day. The fifth day
closes at a new high.

Shooting Star: A single day pattern that can appear in an uptrend. It
opens higher, trades much higher, then closes near its open. It looks
just like the Inverted Hammer except that it is bearish.

Short Day: A short day represents a small price move from open to
close, where the length of the candle body is short.

Spinning Top: Candlestick lines that have small bodies with
upper and lower shadows that exceed the length of the body.
Spinning tops signal indecision.


Stars: A candlestick that gaps away from the previous candlestick is
said to be in star position. Depending
on the previous candlestick, the star position candlestick gaps
up or down and appears isolated from previous price action.

Stick Sandwich: A bullish reversal pattern with two black bodies
surrounding a white body. The closing prices of the two black bodies
must be equal. A support price isapparent and the opportunity
for prices to reverse is quite good.
Three Black Crows: A bearish reversal pattern consisting of three
consecutive long black bodies where each day closes at or near
its low and opens within the body ofthe previous day.
Three White Soldiers: A bullish reversal pattern consisting of three
consecutive long white bodies. Each should open within the previous
body and the close should be near the high of the day.

Upside Gap Two Crows: A three day bearish pattern that only happens
in an uptrend. The first day is a long white body followed by a gapped
open with the small black body remaining gapped above the first
day. The third day is also a black day whose body is larger than the second
day and engulfs it. The close of the last day is stillabove the first long white day.

Upside Tasuki Gap: A continuation pattern with a long white body
followed by another white body that has gapped above the first
one. The third day is black and opens within the body of the second
day, then closes in the gap between the first two days, but does not
close the gap.

Charts with Current CandleStick Patterns
StockCharts.com maintains a list of all stocks that currently have common
candlestick patterns on their charts in the Predefined Scan Results area. To
see these results, click hereand then scroll down until you see the "Candlestick
Patterns" section. The results are updated throughout each trading day.


Definition of 'Pullback'
A falling back of a price from its peak. This type of price movement might
be seen as a brief reversal of the prevailing upward trend, signaling a slight
pause in upward momentum.