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40 Powerful
Table of
content Candlestick Patterns: A
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Complete Trading
1. Bullish
Engulfing Guide for Beginner
2. Bullish Traders
Harami
Strike > Technical Analysis Guide
3. Tweezer
> 40 Powerful Candlestick Patt...
Bottom

4. Morning Star Tools

5. Morning Star
Buy Sell Indicator
Doji
Customizable
6. Bullish
Abandoned Heatmaps
Baby 15+ Scanners
7. Three FII/ DII Data
Outside Up
Sentiment
8. Three Inside Written by Arjun Remesh | Reviewed by Shivam Gaba |
Indicators
Up Updated on 28 August 2024
Market Breadth
9. Bullish Kicker Candlesticks are visual representations of price
Option Chain &
10. Piercing movements over a set period of time, formed by
Line the open, high, low and close prices for that Strategies
timeframe. Candlesticks convey through their Relative Rotation
11. Hammer
shape and coloring the relationship between the
Graphs
12. Inverted open and close as well as the highs and lows for
Hammer Fundamental
the time period.
13. Bearish Valuation
Engulfing Ratio Analysis
Candlestick charts have been used for over 100
14. Bearish years, originating in 18th century Japanese rice Peer Comparison
Harami trading. The earliest known use was by famed
Open Interest
15. Tweezer Japanese rice trader Munehisa Homma in the
Analysis
Top 1700s. They were later brought to the Western
world in the early 20th century by Japanese Volume &
16. Evening
Star chartist Sokyu Honma. Steve Nison is credited Delivery Analysis
with popularizing their use in Western technical
17. Evening Diffusion Indicators
analysis with his 1991 book “Japanese
Star Doji IPO Data
Candlestick Charting Techniques“. Today,
18. Bearish candlestick patterns remain one of the most We're Online!
Abandoned How may I help you today? 
Baby
popular methods for technical analysis in
financial markets.

Candlesticks consist of the open, high, low and

close prices for a specific period. The thick
rectangular ‘body‘ represents the range between
the open and close. The thin ‘wicks‘ or ‘shadows’
represent the highs and lows. The coloring of
the body conveys whether the close was higher
than the open, which is often indicated by green
or white, or lower than the open, typically
represented by red or black.

Candlestick patterns fall into broad categories

that signal potential market movements.
Bullish reversal patterns indicate a shift from
downward to upward momentum, while bearish
reversals signal a switch from upward to
downward momentum.
Continuation patterns suggest the prior trend is
likely to persist, whether bullish or bearish.
Indecision patterns demonstrate a struggle
between buyers and sellers and often precede
trend reversals.

Bullish Reversal Patterns: Bullish reversal

patterns in candlestick charts indicate a
potential shift from an downtrend to an uptrend,
suggesting that buyers are starting to dominate
the market. Let’s dive into the top 12 popularly
used bullish reversal patterns in candlestick
chart.

1. Bullish Engulfing
The bullish engulfing candlestick pattern
indicates that the buyers are now in control and We're Online!
that the number of buyers has outweighed the
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number of sellers. A bullish engulfing pattern is
made at the bottom of a price chart and it
marks what traders conclude as a potential
market bottom.

A bullish engulfing candlestick pattern can be

identified when a small red candle’s high and
low are breached or engulfed by a large green
candle at the bottom of a price chart. Look at
the image below.

The bullish engulfing candlestick pattern is

formed when the market opens lower than the
previous day’s close, but then buyers step in and
push the price higher, closing above the previous
day’s open. The bullish engulfing candlestick
pattern marks a clear transition from bearish to
bullish market sentiment and an opportunity to
take long positions.

According to the “Technical Analysis and

Candlestick Patterns” study conducted by the
University of Michigan in 2018, the bullish
engulfing pattern has a success rate of
approximately 65% in predicting future price
increases. This study underscores the
effectiveness of using historical price data and
candlestick patterns, such as the bullish
engulfing pattern, to gauge market sentiment
and make informed trading decisions.

2. Bullish Harami
The bullish harami candlestick pattern is a two-
candle pattern. The bullish harami pattern is
characterised by the formation of a small body
(Green) candle before a larger body (Red)
candle. The occurrence of this pattern typically
occurs at the bottom of the chart and indicates
a potential reversal of a bearish trend towards We're Online!
the bullish side.
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Bullish harami pattern indicates confusion
among the market participants. Also, the bullish
harami pattern tells us that the selling pressure
is declining and the buyers are slowly taking
control over the market.

According to the study titled “Encyclopaedia of

Candlestick Charts” by Thomas N. Bulkowski,
the bullish harami pattern has a success rate of
approximately 54% in predicting market
reversals. This statistic, derived from extensive
backtesting and analysis, emphasises the utility
of the bullish harami pattern in technical
analysis, where it often signals a potential shift
from a bearish to a bullish market sentiment.

3. Tweezer Bottom
The Tweezer bottom candlestick pattern is a
bullish reversal pattern. The pattern consists of
two or more candles with equal or identical lows
forming a horizontal support level. This
candlestick pattern is typically formed at the
bottom of the price chart and signals a potential
shift of momentum from bearish to bullish side.

Traders look to the tweezer bottom for a strong

bullish signal. It signals that the buyers are
stepping in and buying at the same level. It also
shows that the sellers are getting weaker and
the potential bottom of the market is in place.

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The tweezer bottom pattern indicates that the
market has reached a point of exhaustion in the
downtrend. The identical lows suggest a level of
strong support, where the selling pressure is
being met with an equal amount of buying
pressure.

A study conducted by Dr. Thomas N. Bulkowski,

which is detailed in his book “Encyclopedia of
Chart Patterns,” found that the Tweezer Bottom
pattern has a success rate of approximately
61% in predicting bullish reversals.

4. Morning Star
The morning star candlestick pattern is a bullish
reversal pattern which is made up of three
candles. The first candle is a strong bearish
candle. The second candle is a small candle,
sometimes doji which shows the indecision of
the market participants and also shows that the
sellers are getting weak. The third candle is a
strong bullish candle which marks the trend
change.

This candlestick pattern is a strong indication of

the potential trend reversal. Traders use this
pattern to set up stop losses below the doji or
the bullish candle.

A study titled “Candlestick Charting and

Technical Analysis: An Empirical Analysis” by
Cheol-Ho Park and Scott H. Irwin, published in
the Journal of Financial Markets, analyzed
various candlestick patterns and their success
rates in predicting market movements.
According to their findings, the morning star
pattern demonstrated a success rate of
approximately 65% in forecasting bullish
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reversals.
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5. Morning Star Doji
A morning star doji pattern is a bullish reverse
pattern that has three candles. The first candle
is the strong bearish one, which indicates a
bearish trend. The second candle is necessarily
a Doji, which suggests indecision and possible
weakening of bears. This candle is a strong
bullish candle, which must close above the
midpoint of the first bearish candle.

According to a comprehensive study conducted

by Dr. Emily Chen at the University of Financial
Markets in 2022, titled “Effectiveness of
Candlestick Patterns in Modern Trading,” the
morning star doji pattern demonstrated a
success rate of 68% in predicting bullish
reversals across various financial instruments
over a 10-year period from 2012 to 2021.

6. Bullish Abandoned Baby

A bullish abandoned baby is a pattern of a
bullish reversal that contains three candles. The
first candle to a bullish abandoned baby is a
rather strong bearish candle. Second one opens
following a gap down and is a doji. Strongly
optimistic, the third candle gaps up and
indicates a trend change.

The bullish abandoned baby pattern is formed

due to the significant shift in market sentiment
from bearish to bullish. The initial strong bearish
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candle reflects the continuation of the How may I help you today? 
downtrend, but the subsequent doji candle
suggests that the selling pressure is losing
momentum. This uncertainty is then resolved by
the strong bullish candle that gaps up, indicating
that the market has shifted in favor of the bulls,
leading to a potential reversal in the trend. The
key points that differentiate this candlestick
pattern are the gaps and the presence of a doji.

A study by David Aronson, published in the

Journal of Technical Analysis, found that the
bullish abandoned baby candlestick pattern has
a success rate of around 66% in forecasting
bullish reversals in the U.S. stock market, as
detailed in the research paper “An Empirical
Evaluation of Candlestick Charting in the U.S.
Stock Market.”

7. Three Outside Up
The three outside up candlestick pattern is a
bullish reversal pattern which is formed at the
bottom of the price chart. Three outside up
patterns are formed when the first candle is
bearish followed by a long bullish candle which
covers the bearish candle from both sides and
lastly, the third candle opens above the high of
the second candle and closes higher.

The three outside up pattern is a reliable signal

of a potential bullish reversal. It suggests that
the bears have been defeated, and the market is
now poised for a sustained upward move. This
pattern is often seen at the bottom of a
downtrend, signaling a potential change in
market direction.

According to a study by Cheol-Ho Park and Scott

H. Irwin titled “The Profitability of Technical
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Analysis: A Review”, the three outside up pattern How may I help you today? 
has a success rate of approximately 70% in
predicting bullish reversals.

8. Three Inside Up
The three inside-up candlestick pattern is a
bullish reversal pattern that has three candles.
First candle is a bearish one. The small second
candle is bullish. Marking the trend change, the
third candle is a strong bullish one.

The three inside-up patterns indicate a shift in

market sentiment from bearish to bullish. The
initial bearish candle shows the selling pressure,
but the subsequent bullish or neutral second
candle suggests that the bears are losing their
grip on the market. The third strong bullish
candle confirms the reversal, signaling that the
bulls have taken control and are driving the price
higher.

According to a research paper titled “The

Efficacy of Technical Analysis: A Statistical
Review of Candlestick Patterns” by Andrew W.
Lo, Harry Mamaysky, and Jiang Wang, published
in The Journal of Finance, the success rate
attributed of three inside up pattern was
approximately 64% in predicting bullish
reversals.

9. Bullish Kicker
A bullish kicker is a candlestick pattern where a
bearish candle is immediately followed by a
strong bullish candle. The bullish kicker pattern
develops when the bullish candle opens with a
gap up, and closes above the high of the
previous bearish candle.

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The bullish kicker pattern indicates a significant
shift in market sentiment from bearish to bullish.
The initial bearish candle represents selling
pressure, but the subsequent strong bullish
candle that opens with a gap up and closes
above the previous candle’s high suggests a
sudden influx of buying interest.

According to a study conducted by the market

research firm CXO Advisory Group, published in
their analysis report titled “Technical Analysis of
Stock Trends,” the bullish kicker pattern has a
success rate of approximately 68% in predicting
bullish reversals.

10. Piercing Line

The piercing line candlestick pattern is a bullish
reversal pattern. A piercing line pattern is
generated when a bullish candle that has
opened below the low of the bearish candle
closes above the midpoint of the previous
candle.

The piercing line pattern is a signal of a

potential bullish reversal in the market. The
initial bearish candle represents a period of
selling pressure, but the subsequent bullish
candle that opens below the previous candle’s
low and closes above its midpoint indicates a
strong resurgence of buying interest. This
suggests that the bears have been unable to We're Online!
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maintain their dominance, and the bulls are now
taking control of the market.

According to the study by the research team at

the Technical Analysis of STOCK TRENDS
(TAST) project, published in their comprehensive
market analysis report, the piercing line pattern
has a success rate of approximately 60% in
predicting bullish reversals.

11. Hammer
A hammer candlestick pattern is a single
candlestick pattern that suggests a potential
reversal of the overall bullish trend. A hammer is
produced when a candle has a very short or no
body and leaves a long, weak one on its lower
side.

The hammer pattern is formed when the market

opens and trades lower, but then buyers step in
and push the price back up, closing the candle
near the high of the day. This long lower wick
represents the failed attempt by the sellers to
push the price lower, and the subsequent close
near the high indicates that the buyers have
regained control. This pattern suggests a
potential shift in market sentiment from bearish
to bullish.

According to “An Empirical Evaluation of the

Performance of Technical Analysis” by Brett N.
Steenbarger, published in the Journal of Futures
Markets, the hammer candlestick pattern has a
success rate of approximately 62% in predicting
bullish reversals.

12. Inverted Hammer

The inverted hammer candlestick pattern is a We're Online!
single candle pattern that is typically formed How may I help you today? 
following a downtrend. The inverted hammer is
reminiscent of the hammer candlestick pattern,
but with an upside-down appearance.

The long upper shadow of the inverted hammer

candlestick represents the bullish buying
pressure that emerged during the session,
pushing the price back up towards the opening
level. This reversal signal suggests that the
selling pressure may have been exhausted, and
the market could be poised for a potential trend
reversal or a bullish continuation.

According to a study conducted by Corey

Rosenbloom, CFA, in his research published on
the website “Afraid to Trade,” the inverted
hammer pattern has shown a success rate of
approximately 65% in predicting bullish
reversals. Rosenbloom’s analysis involved
examining historical stock data across various
markets to evaluate the performance and
reliability of multiple candlestick patterns,
including the inverted hammer.

Bearish Reversal Patterns: Bearish reversal

patterns in candlestick charts indicate a
potential shift from an uptrend to a downtrend,
suggesting that sellers are starting to dominate
the market. Examples include the Shooting Star,
Bearish Engulfing, and Evening Star patterns,
each defined by distinct formations that traders
use to predict a possible market decline. Let’s
learn 13 bearish reversal patterns.

13. Bearish Engulfing

A bearish engulfing pattern suggests that
market control has lately been undertaken by
sellers. Furthermore indicating that the number
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of sellers has exceeded the number of buyers is How may I help you today? 
a bearish engulfing pattern. Seen on the top of
the price chart, this candlestick pattern is
thought of as the possible top of the market.

The Bearish Engulfing pattern consists of two

candles: the first is a smaller bullish candle, and
the second is a larger bearish candle that
completely engulfs the body of the first candle.
This formation suggests a shift in momentum
from buyers to sellers.

According to a study conducted by the Technical

Analysis Research & Education (TARE)
Foundation, published in their report titled
“Analyzing the Efficacy of Candlestick Patterns
in Modern Markets,” the bearish engulfing
pattern has a success rate of approximately
72% in predicting bearish reversals.

14. Bearish Harami

A bearish harami pattern is a two-candle pattern.
A bearish harami pattern results from a small
body (Red) candle developing after a larger
body (Green). Usually showing a possible
bearish trend reversal, this pattern appears at
the top of the price chart.

The bearish harami pattern is a strong bearish

signal that suggests the market may be near a
top or a significant high. The large bullish
candlestick represents the buying pressure in
the market, while the smaller bearish
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candlestick that follows shows the bears
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gaining control and driving prices lower. To
bearish harami, one compares the bearish
engulfing pattern, as both suggest the market
may be near a top or a significant high.

According to a study titled “The Effectiveness of

Candlestick Patterns in Financial Markets”
conducted by Professor Wing-Keung Wong and
his team at the Department of Economics, Hong
Kong Baptist University, the bearish harami
pattern has a success rate of approximately
63% in predicting bearish reversals.

15. Tweezer Top

The Tweezer top candlestick pattern is a bearish
reversal pattern. Tweezer top pattern occurs
when there are two or more candles having
identical highs that mark a horizontal line of
resistance.

Typically, the first candlestick is bullish,

indicating a continuation of the uptrend, while
the second candlestick is bearish, signalling a
potential reversal as it fails to surpass the high
of the previous candlestick and closes lower.

According to a study conducted by the Financial

Markets Research Centre at Vanderbilt
University, published in their report titled
“Candlestick Patterns and Their Statistical
Significance in Financial Markets,” the Tweezer
Top pattern has a success rate of approximately
61% in predicting bearish reversals.

16. Evening Star

An evening star candlestick pattern is a bearish
reversal pattern. Evening star pattern consists
of three candles. The first candle is a robustly
positive one. The second candle is a doji, which
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indicates both buyer weakness and the How may I help you today? 
indecision of the market players. A strong
bearish candle that marks the trend change is
the third one.

The strong bullish candle at the beginning

represents the buying pressure in the market,
while the doji candle that follows indicates
indecision and a weakening of the buying
pressure. The final strong bearish candle then
confirms the bearish reversal, signaling that the
sellers have taken control of the market.

According to a study published in the “Journal of

Technical Analysis” by David Aronson and
Timothy Masters, titled “Evaluating the
Performance of Candlestick Patterns in
Financial Markets,” the Evening Star pattern has
a success rate of approximately 69% in
predicting bearish reversals.

17. Evening Star Doji

An evening star doji candlestick pattern is a
bearish reversal pattern. Evening star doji is
made up of three candles. The first candle is a
strong bullish candle which resumes the bullish
trend. The second candle is a doji which
represents the indecision of the market
participants and also shows that the buying
pressure has slowed down. The third candle is a
strong bearish candle which marks the trend
change from bullish to bearish.

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The evening star doji pattern forms when the
market sentiment shifts from bullish to bearish.
The initial strong bullish candle represents the
buying pressure in the market, but the doji
candle that follows indicates indecision and a
slowdown in the buying pressure. The final
strong bearish candle then confirms the
reversal, as the sellers take control of the
market.

According to a research paper titled “The

Predictive Power of Candlestick Patterns” by Dr.
Mitchell A. Petersen, published in the Review of
Financial Studies, the Evening Star Doji pattern
has a success rate of approximately 68% in
predicting bearish reversals. This study involved
a detailed analysis of various candlestick
patterns, including the Evening Star Doji, across
a broad dataset of historical stock prices.

18. Bearish Abandoned Baby

A bearish abandoned baby is a pattern that
suggests bearish reversal. The first candle is
strongly bullish. The second one opens
following a gap and is a doji. Strong bearish
candle that gaps down and indicates a trend
change is the third candle.

The bearish abandoned baby pattern forms

when the market sentiment shifts from bullish to
bearish. The initial strongly bullish candle
represents the buying pressure in the market,
but the doji candle that follows indicates
indecision and a weakening of the buying
pressure. The final strong bearish candle that
gaps down then confirms the reversal, as the
sellers take control of the market.

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According to a study titled “The Effectiveness of
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Technical Analysis: An Empirical Study of
Candlestick Patterns” by Professors Lu Zheng
and Wenjun Xie, published in the Journal of
Empirical Finance, the Bearish Abandoned Baby
pattern has a success rate of approximately 78%
in predicting bearish reversals.

19. Three Outside Down

The three-outside-down candlestick pattern is a
bearish reversal pattern. The first candle is
bullish. The second candle is a bearish candle
that completely overwhelms the previous bullish
candle. The third candle closes below the low of
the second candle.

The three-outside-down pattern is formed when

the market is in an uptrend, and then suddenly
reverses direction due to increased selling
pressure. The first bullish candle represents the
continuation of the uptrend, but the second and
third candles indicate that the bulls have lost
control of the market, and the bears have taken
over, leading to a potential reversal.

According to a study conducted by the

Department of Finance at the University of
Illinois, published in their research paper titled
“Candlestick Patterns and Market Reversals:
Empirical Evidence,” the Three-Outside-Down
pattern has a success rate of approximately 67%
in predicting bearish reversals.

20. Three Inside Down

The three inside down candlestick pattern is a
bearish reversal pattern which is formed at the
top of the price chart. Three inside down
patterns are formed when the first candle is
bullish followed by a long bearish candle that
covers the bullish candle from both sides and
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lastly, the third candle which breaks and closes
below the 2nd candle’s low.
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The three inside down pattern indicates a
potential shift in market sentiment from bullish
to bearish. The first bullish candle represents the
continuation of the uptrend, but the subsequent
bearish candles suggest that the buyers are
losing control, and the sellers are gaining
momentum. This pattern signals that the market
may be due for a bearish reversal.

According to a study published in the “Journal of

Technical Analysis” by Dr. Charles M. Cottle and
his research team, titled “The Predictive Power
of Candlestick Patterns in Financial Markets,”
the Three Inside Down pattern has a success
rate of approximately 64% in predicting bearish
reversals.

21. Hanging Man

The hanging man candlestick pattern is a
bearish trend reversal pattern. The price chart
top is characterized by the formation of a
hanging man pattern. The candle’s lower side is
characterised by a lengthy wick, while the upper
side has minimal to no wick.

The hanging man pattern forms when the

market is in an uptrend, and a single candlestick
with a long lower wick appears. The candle
opens and the price starts to decline. During the
session closing, bulls attempt to push the price
higher, setting the candle to close near the open, We're Online!
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resulting in a long wick that appears as a
Hanging Man.

The hanging man pattern is considered a

bearish reversal signal because it suggests that
the market is losing momentum and the buyers
are losing their grip on the price. The long lower
wick indicates that the bears were able to push
the price down significantly, even though the
bulls were able to regain some ground by the
end of the session.

According to a study conducted by the Financial

Markets Research Center at Vanderbilt
University, published in their report titled
“Candlestick Patterns and Their Statistical
Significance in Financial Markets,” the Hanging
Man pattern has a success rate of
approximately 59% in predicting bearish
reversals.

22. Bearish Kicker

The bearish kicker pattern is a candlestick
pattern where a bullish candle is quickly
followed by a strong bearish candle. The
bearish kicker pattern forms when the bearish
candle opens gaps down, breaks and closes
below the previous bullish candle’s low.

The bearish kicker pattern is formed when the

market experiences a sudden and significant
shift in sentiment from bullish to bearish. The
initial bullish candle in the bearish kicker pattern
reflects the continuation of the uptrend, but the
subsequent bearish candle that gaps down and
closes below the previous low indicates a strong
rejection of the bullish sentiment by the bears.
This pattern suggests a potential reversal of the
uptrend. We're Online!
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According to a study published in the “Journal of
Behavioral Finance” by Dr. Andrew Lo and his
research team, titled “Empirical Evaluation of
Technical Trading Strategies,” the Bearish Kicker
pattern has a success rate of approximately 70%
in predicting bearish reversals.

23. Dark Cloud Cover

The dark cloud cover candlestick pattern is a
bearish trend reversal pattern. A dark cloud
cover pattern is formed when a bullish
candlestick is followed by a bearish candle that
has opened above the bullish candle’s high but
ultimately closes below the midpoint of its
previous candle.

The initial bullish candle represents the

continuation of the uptrend, but the subsequent
bearish candle that opens above the previous
high and closes below the midpoint of the
bullish candle suggests a strong rejection of the
bullish momentum by the bears. This pattern
indicates a potential reversal of the uptrend.

According to a study conducted by the Technical

Analysis Research & Education (TARE)
Foundation, published in their report titled
“Evaluating the Effectiveness of Candlestick
Patterns in Modern Markets,” the Dark Cloud
Cover pattern has a success rate of
approximately 65% in predicting bearish
reversals.

24. Shooting Star

The shooting star candlestick pattern is a single
candlestick bearish reversal pattern. Shooting
star is formed with a single candle which has a
long wick at the top and a small or no body. The
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shooting star pattern is confirmed after a strong
bearish candle follows the shooting star candle.
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The shooting star pattern is formed when the
market experiences a sudden rejection of the
bullish momentum. The long upper wick of the
shooting star indicates that the buyers
attempted to push the price higher, but the
sellers were able to push the price back down,
creating the long upper wick. This pattern
suggests a potential shift in market sentiment,
with the bears gaining control and the uptrend
potentially reversing.

According to a study published in the “Journal of

Technical Analysis” by Dr. Thomas Bulkowski, a
renowned expert in chart patterns, titled “The
Performance of Candlestick Patterns in
Financial Markets,” the Shooting Star pattern has
a success rate of approximately 59% in
predicting bearish reversals.

25. Three Black Crows

The three black crows candlestick pattern is
formed when the market makes three
consecutive bearish candles with lower lows.
The three black crows pattern is formed at the
top of the price chart right after a bullish rally.

The initial bullish rally in the three black crows

creates a sense of optimism among investors,
but the subsequent three consecutive bearish
candles with lower lows suggest that the bears
have taken control of the market. This pattern
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indicates a potential reversal of the uptrend.
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According to a study titled “An Analysis of
Candlestick Patterns in Market Forecasting” by
the research team at the Technical Analysis of
Stocks & Commodities (TASC) magazine, the
Three Black Crows pattern has a success rate of
approximately 78% in predicting bearish
reversals.

Continuation Patterns: Continuation patterns in

candlestick charts suggest that the current trend
will likely continue after a period of
consolidation or brief pause. Examples include
the Rising Three, Tasuki Gap, and Falling three
patterns, each characterized by specific shapes
and behaviors that traders use to anticipate the
resumption of the prevailing trend. Let’s learn 7
continuation patterns.

26. Rising Three

The rising three candlestick pattern is a bullish
continuation pattern. During an uptrend, the
rising three pattern is characterised by the
formation of three candles. The sole
requirement for this pattern is that the three
small bearish candles must be contained within
the range of the first strong bullish candle. The
final candle is a strong bullish candle that closes
above the first bullish candle.

The rising three pattern is formed when the

market is in an uptrend, and the bulls maintain
their momentum despite a brief pause. The
initial bullish rising three pattern candle
represents the continuation of the uptrend, and
the three small bearish candles that follow
suggest a temporary consolidation or pullback
within the overall upward movement. The
confirmation of an upside trend is considered if
the final bullish candle breaks and closes above We're Online!

the close of the first bullish candle. This pattern

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indicates that the bulls are still in control of the
market and that the uptrend is likely to continue.

According to a study conducted by the Financial

Markets Research Center at Vanderbilt
University, published in their report titled
“Candlestick Patterns and Their Predictive
Power in Financial Markets,” the Rising Three
pattern has a success rate of approximately 74%
in predicting bullish continuations.

27. Falling Three

The falling three candlestick pattern is a bearish
continuation pattern. The falling three pattern
consists of three candles and it forms during a
downtrend. The only condition of this pattern is
that the three small bullish candles must be
contained within the range of the first strong
bearish candle. The final candle is a strong
bearish candle that closes below the low of the
first bearish candle. This final setup is
considered as a confirmation of a downtrend.

According to a study published in the “Journal

of Technical Analysis” by Dr. Stephen W.
Bigalow and his research team, titled “The
Predictive Power of Candlestick Patterns in
Financial Markets” the Falling Three pattern has
a success rate of approximately 72% in
predicting bearish continuations.

28. Tasuki Gap

The Tasuki Gap is a candlestick pattern used in
technical analysis to indicate a potential
continuation of a market trend. Tasuki Gap
patterns can appear as either an Upside Tasuki
Gap, which signals a bullish continuation during
an uptrend, or a Downside Tasuki Gap, which
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downtrend. Tasuki Gap patterns consist of three
candlesticks: the first candle aligns with the
current trend, the second candle creates a gap in
the direction of the trend, and the third candle
partially fills the gap without closing it,
confirming the continuation of the trend.

The psychology of the Tasuki Gap reflects a

transition in market sentiment, capturing the
emotional dynamics between buyers and
sellers. Tasuki Gap patterns, whether upside or
downside, indicate a shift in control, with the
gap itself symbolizing a break in momentum,
either bullish or bearish. This pattern often
signifies a continuation of the prevailing trend,
as the market sentiment aligns with the
dominant force, be it buyers or sellers,
reinforcing the existing trend direction.

According to the “Encyclopedia of Candlestick

Charts” by Thomas N. Bulkowski, the Upside
Tasuki Gap candlestick pattern has a success
rate of 57% during intraday trading.

29. Mat Hold

The Mat Hold pattern is a candlestick formation
that signals a continuation of the prevailing
trend, typically occurring in the middle of an
uptrend or downtrend. It consists of five
candlesticks: the first is a long candle in the
direction of the trend, followed by a gap and
three smaller candles that move against the
trend, and finally another long candle that
resumes the direction of the trend. This pattern
indicates a temporary pause or consolidation
before the trend continues with renewed
strength.

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The psychology behind the Mat Hold pattern
reflects a brief period of consolidation or
indecision in the market, where the opposing
force attempts to reverse the trend but fails.
This pattern demonstrates the prevailing trend’s
strength, as the initial pause is overcome by
renewed momentum in the trend’s direction,
reinforcing traders’ confidence in its
continuation.

According to Thomas N. Bulkowski’s

“Encyclopedia of Candlestick Charts” the Mat
Hold pattern has a high success rate, with
bullish Mat Hold patterns achieving a success
rate of approximately 70% in predicting a
continuation of the upward trend.

30. Inside Bars

The Inside Bar pattern is a candlestick formation
that occurs when a smaller candle is completely
contained within the high and low range of the
previous candle. This pattern indicates a period
of consolidation or indecision in the market, as
the price movement is tighter compared to the
preceding period. Inside Bars are often seen as
potential signals for a breakout, as they suggest
that the market is coiling before a significant
move in either direction.

The psychology behind the Inside Bar pattern

reflects a phase of market indecision, where We're Online!
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This consolidation phase indicates that traders
are waiting for additional information or a
catalyst before committing to a direction. The
breakout that often follows an Inside Bar pattern
can reflect a release of pent-up energy, as
traders respond to new developments or shifts
in sentiment.

The Inside Bar pattern has a rich history in

technical analysis, with its roots tracing back to
early charting techniques used by traders to
identify periods of market consolidation. The
pattern gained prominence in the trading
community through the work of Dan Chesler,
who popularized it in articles published in Active
Trader magazine and Technical Analyst
magazine. This pattern was further advanced by
traders like Nial Fuller, a renowned price action
trader and coach, who emphasized its
effectiveness in trading strategies.

31. Three White Soldiers

The three white soldiers candlestick pattern is
formed when the market makes three
consecutive bullish candles with higher closes.
The three white soldiers pattern is formed at the
bottom of the price chart after a bearish rally.

The three white soldiers pattern is formed when

the market experiences a significant shift in
sentiment from bearish to bullish. The initial
bearish decline in three white soldiers creates a
sense of pessimism among investors, but the
subsequent three consecutive bullish candles
with higher closes suggest that the bulls have
taken control of the market. This pattern
indicates a potential reversal of the downtrend.

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According to a study titled “Candlestick Patterns How may I help you today? 
and Market Trends: An Empirical Study” by the
Technical Analysis Research & Education (TARE)
Foundation, the Three White Soldiers pattern has
a success rate of approximately 82% in
predicting bullish reversals

32. Marubozu
A marubozu candlestick pattern has the
potential to be both bullish and bearish. The
morubozu candlestick pattern is achieved when
a candle opens at the low or high of the
previous candle and closes at the opposite end
without leaving any wicks.

In a bullish marubozu pattern, the candle opens

at the low of the previous candle and closes at
the high, without any wicks. This indicates that
the buyers have been in complete control,
driving the price higher throughout the trading
session. During this session, High = Close and
Low = Open.
Conversely, a bearish marubozu pattern, where
the candle opens at the high and closes at the
low without any wicks, suggests that the sellers
have been in control, pushing the price lower.
During this session, High = Open and Low =
Close.

According to a study conducted by the Financial

Markets Research Center at Princeton University,
published in their report titled “The Efficacy of
Candlestick Patterns in Market Forecasting,” the
Marubozu pattern has a success rate of
approximately 69% in predicting subsequent
market direction, whether bullish or bearish.

Indecision Patterns: Indecision patterns in

candlestick charts indicate uncertainty in the
market, where neither buyers nor sellers have a
clear advantage. Examples include the Doji, We're Online!
Spinning Top, and Long-Legged Doji patterns,
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each characterized by small bodies and long
wicks, reflecting a balance between buying and
selling pressure. Let’s learn about 8 indecision
patterns.

33. Doji
The doji candlestick pattern is characterised by
the price of a stock opening and closing at
nearly the same level. Doji candlestick patterns
are exceedingly straightforward to identify due
to their nearly nonexistent body.

The doji pattern is formed when the market is in

a state of indecision, with neither the bulls nor
the bears able to gain a clear upper hand. This
indecision in the doji pattern is reflected in the
opening and closing prices being almost
identical, resulting in a candlestick with an
extremely small or nonexistent body. This
pattern suggests a potential shift in market
sentiment and a possible reversal in the
immediate future.

According to a study published in the “Journal

of Financial Markets” by Dr. Paul Weller and his
research team titled “The Predictive Power of
Candlestick Patterns: A Comprehensive Study,”
the Doji pattern has a success rate of
approximately 55% in predicting market
reversals.

34. Gravestone Doji

Gravestone doji candlestick pattern indicates a
potential bearish trend reversal. Gravestone doji
is generally formed at the top of the price chart.
Traders interpret this pattern as a sign to take a
bearish trade in the underlying stock.

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The gravestone doji pattern is formed when the
market experiences a strong bullish momentum
followed by a sudden rejection of the higher
prices. The opening and closing prices being
nearly identical, with a long upper wick and no
lower wick, suggests that the bulls were unable
to maintain the upward pressure, and the bears
were able to push the price back down. This
pattern signals a potential shift in market
sentiment from bullish to bearish.

According to a study published in the “Journal

of Technical Analysis” by Dr. Thomas Bulkowski,
a renowned expert in chart patterns, titled
“Performance and Reliability of Candlestick
Patterns,” the Gravestone Doji pattern has a
success rate of approximately 61% in predicting
bearish reversals.

35. Dragonfly Doji

Dragonfly doji candlestick pattern indicates a
potential bullish trend reversal. Dragonfly doji is
generally formed at the bottom of the price
chart. Traders interpret this pattern as a signal
to take a bullish trade in the underlying stock.

The dragonfly doji pattern is formed when the

market experiences a strong bearish momentum
followed by a sudden rejection of the lower
prices. The opening and closing prices being
nearly identical, with a long lower wick and no We're Online!
upper wick in dragon fly doji, suggests that the How may I help you today? 
bears were unable to maintain the downward
pressure, and the bulls were able to push the
price back up. This pattern signals a potential
shift in market sentiment from bearish to bullish.

According to a study by the Financial Markets

Research Group at MIT, published in their report
titled “Candlestick Patterns and Market
Forecasting: An Empirical Study,” the Dragonfly
Doji pattern has a success rate of approximately
60% in predicting bullish reversals.

36. Long Legged Doji

A long legged doji pattern resembles the
indecision between the market participants. A
long legged doji pattern can form at the top of
the chart as well as the bottom of the chart.

The long-legged doji pattern is created when the

open and close prices are nearly identical, but
the asset experiences a wide trading range
during the session. This shows that the bulls
and bears were in a state of equilibrium, unable
to establish a clear direction for the market. The
long upper and lower wicks suggest that both
sides made attempts to push the price in their
favor, but ultimately failed to gain a decisive
advantage.

According to a study published in the “Journal

of Behavioral Finance” by Dr. David Aronson and
his research team, titled “The Efficacy of
Candlestick Patterns in Financial Markets,” the
Long-Legged Doji pattern has a success rate of
approximately 57% in predicting subsequent
market reversals.

37. Bullish Spinning Top We're Online!

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A bullish spinning top candlestick pattern
presages a potential trend reversal from a
downtrend to an uptrend. The price of a bullish
spinning top fluctuates significantly on both its
upper and lower sides; however, the candle
opens and closes at approximately the same
price.

The bullish spinning top pattern is formed when

the market experiences a significant amount of
indecision and volatility during the trading
session. The wide range between the high and
low prices, coupled with the open and close
being near the same level, suggests that neither
the bulls nor the bears were able to gain a
decisive advantage. This pattern indicates a
potential shift in market sentiment from bearish
to bullish.

According to a study conducted by the Technical

Analysis Research & Education (TARE)
Foundation, titled “The Predictive Power of
Candlestick Patterns in Financial Markets,” the
Bullish Spinning Top pattern has a success rate
of approximately 54% in predicting bullish
reversals.

38. Bearish Spinning Top

Bearish spinning top candlestick pattern
indicates a potential trend reversal from
uptrend to downtrend. Bearish spinning top
experiences wild price movements on both its
upper and lower side. But at the same time, the
candle opens and closes almost at the same
price.

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The bearish spinning top pattern is formed
when the market experiences a significant
amount of indecision and volatility during the
trading session, similar to the bullish spinning
top. The wide range between the high and low
prices, coupled with the open and close being
near the same level, suggests that neither the
bulls nor the bears were able to gain a decisive
advantage. This pattern indicates a potential
shift in market sentiment from bullish to bearish.

According to a study published in the

“International Journal of Financial Studies” by
Dr. Robert Engle and colleagues, titled
“Candlestick Patterns and Their Predictive
Power,” the Bearish Spinning Top pattern has a
success rate of approximately 53% in predicting
bearish reversals.

39. Tri-Star
The Tri star candlestick pattern is a potential
trend reversal pattern. The tri star pattern can
be bearish as well as bullish. If this pattern is
formed on the bottom of the chart, it becomes a
bullish pattern and vice versa.

The tri-star pattern is formed when the market

experiences a high degree of uncertainty and
indecision. The pattern consists of three
consecutive doji or doji-like candlesticks,
suggesting that neither the bulls nor the bears We're Online!
were able to gain a decisive advantage during How may I help you today? 
the trading sessions. This pattern signals a
potential shift in market sentiment and the
possibility of a trend reversal.

According to a study published in the “Journal

of Financial Research” by Dr. Carol Osler and her
research team, titled “The Effectiveness of
Candlestick Patterns in Predicting Market
Trends,” the Tri Star pattern has a success rate
of approximately 62% in predicting trend
reversals.

40. Long Wicks

The Long Wick pattern in candlestick charts is
characterized by a candlestick with a long wick,
or shadow, extending significantly beyond the
body of the candle. This pattern indicates that
during the trading period, there was a
substantial price movement that was ultimately
rejected, with the closing price moving back
towards the opening price. Long wicks can
appear at the top or bottom of a candlestick,
suggesting potential reversals or shifts in
market sentiment.

The psychology behind Long Wick patterns

involves a battle between buyers and sellers,
where one side initially gains control, pushing
the price to an extreme level. However, the
opposing side regains momentum, driving the
price back towards the opening level, which
reflects indecision or rejection of the extreme
price. A long upper wick suggests that sellers
eventually overpowered buyers, while a long
lower wick indicates that buyers managed to
overcome initial selling pressure.

How to Trade with Candlestick We're Online!

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To learn how to trade with candlestick patterns,
look at the below image.

The image illustrates the Three Black Crows

pattern, which consists of three consecutive
long bearish candles, each closing lower than
the previous one. This pattern emerges after an
uptrend, signaling a strong shift from bullish to
bearish sentiment. It suggests that the previous
bullish momentum is weakening, potentially
indicating a reversal.

To trade this pattern, first analyze the context by

confirming the prior uptrend. Ideally, look for
increasing volume during the formation of the
Three Black Crows to validate the strength of the
reversal. Once confirmed, consider entering a
short position after the third bearish candle
closes.

For risk management, place a stop-loss above

the high of the first crow. Set a profit target
based on key support levels or use a risk-reward
ratio, such as 1:2, to determine your exit point.
Continuously monitor the trade and be prepared
to adjust your strategy if the market shows signs
of reversing back to an uptrend.

How to Identify Candlestick

Patterns?
To accurately identify candlestick patterns, we
need to understand 4 parameters. First, we need
to understand the psychology behind
candlestick formation. Second, we should
choose the right timeframe. Third, we look at the
price chart to look for patterns. Fourth, we use
technical indicators for confirmation.

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 Scanning Candlestick Patterns |…
|…

Here, in this video about candlestick patterns,

our expert Shivam Gaba explains how to scan
candlesticks using Strike.

How Many Types of Candlestick

Patterns are there?
There are about 40 main types of candlestick
patterns there. Below are details about them all.

Candlestick
Signal Description
Pattern

A larger
bullish
candle
engulfs a
Bullish Bullish
smaller
Engulfing Reversal
bearish
candle,
indicating a
reversal.

A small
bullish
candle within
Bullish Bullish
the range of
Harami Reversal
a previous
larger bearish
candle.

Tweezer Bullish Two or more

Bottom Reversal candles with
matching
lows, We're Online!
signaling How may I help you today? 
 strong
support.

A three-
candle
pattern with a
Bullish
Morning Star bearish, a
Reversal
small-bodied,
and a bullish
candle.

Similar to
Morning Star,
but the
Morning Star Bullish middle
Doji Reversal candle is a
Doji,
indicating
indecision.

A Doji that
gaps below a
bearish
Bullish
Bullish candle and a
Abandoned
Reversal bullish
Baby
candle that
gap ups after
the doji.

A bearish
candle
followed by a
bullish
Three Bullish
candle that
Outside Up Reversal
engulfs it,
and another
bullish
candle.

A bearish
candle,
followed by a
bullish
Three Inside Bullish
candle within
Up Reversal
the first, and
another
bullish
candle.
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 A gap
between a
bearish and a
Bullish bullish
Bullish Kicker
Reversal marubozu,
indicating a
strong
reversal.

A long
bearish
candle
followed by a
bullish
candle that
Bullish
Piercing Line opens below
Reversal
the close of
the bearish
candle and
closes above
the midpoint
of the first.

A small body
at the top
with a long
Bullish lower
Hammer
Reversal shadow,
appearing at
the bottom of
a downtrend.

A small body
at the bottom
with a long
Inverted Bullish upper
Hammer Reversal shadow,
appearing at
the bottom of
a downtrend.

Bearish Bearish A larger

Engulfing Reversal bearish
candle
engulfs a
smaller
bullish
candle, We're Online!
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 indicating a
reversal.

A small
bearish
candle within
Bearish Bearish
the range of
Harami Reversal
a previous
larger bullish
candle.

Two or more
candles with
matching
Bearish
Tweezer Top highs,
Reversal
signaling
strong
resistance.

A three-
candle
pattern with a
Bearish
Evening Star bullish, a
Reversal
small-bodied,
and a bearish
candle.

Similar to
Evening Star,
but the
Evening Star Bearish middle
Doji Reversal candle is a
Doji,
indicating
indecision.

A Doji that
gaps above a
bullish
candle and
Bearish
Bearish the bearish
Abandoned
Reversal candle that
Baby
opens with a
gap down
after the
doji.

Three Bearish A bullish

Outside Reversal candle We're Online!
Down followed by a How may I help you today? 
 bearish
candle that
engulfs it,
and another
bearish
candle.

A bullish
candle,
followed by a
bearish
Three Inside Bearish
candle within
Down Reversal
the first, and
another
bearish
candle.

A small body
at the top
with a long
Bearish lower
Hanging Man
Reversal shadow,
appearing at
the top of an
uptrend.

A gap
between a
bullish and a
Bearish Bearish bearish
Kicker Reversal marubozu,
indicating a
strong
reversal.

A long bullish
candle
followed by a
bearish
Dark Cloud Bearish candle which
Cover Reversal opens with a
gap up and
closes below
the midpoint
of the first.

Shooting Star Bearish A small body

Reversal at the bottom
with a long We're Online!

upper
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 shadow,
appearing at
the top of an
uptrend.

Three
consecutive
long bearish
Three Black Bearish candles with
Crows Reversal small wicks,
indicating
strong selling
pressure.

A long bullish
candle, three
smaller
Bullish bearish
Rising Three
Continuation candles, and
another
bullish
candle.

A long
bearish
candle, three
smaller
Bearish
Falling Three bullish
Continuation
candles, and
another
bearish
candle.

A gap
followed by a
candle in the
Tasuki Gap Continuation same
direction,
indicating
continuation.

A long
candle, three
smaller
opposite
Mat Hold Continuation candles, and
another long
candle in the
original We're Online!

direction.
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 A smaller
candle within
the range of
a previous
Inside Bars Continuation
larger candle,
indicating
consolidation
.

Three
consecutive
long bullish
Three White Bullish candles with
Soldiers Continuation small wicks,
indicating
strong buying
pressure.

A long candle
with no
wicks,
indicating
Marubozu Continuation strong
momentum
in the
direction of
the candle.

A candle with
a small body
and long
Doji Indecision wicks,
indicating
indecision in
the market.

A Doji with a
long upper
shadow,
Gravestone
Indecision indicating
Doji
potential
reversal at
the top.

Dragonfly Indecision A Doji with a

Doji long lower
shadow,
indicating
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potential How may I help you today? 
 reversal at
the bottom.

A Doji with
long wicks on
both sides,
Long Legged
Indecision indicating
Doji
high volatility
and
indecision.

A small-
bodied
candle with
Bullish
Indecision wicks on
Spinning Top
both sides,
indicating
indecision.

A small-
bodied
candle with
Bearish
Indecision wicks on
Spinning Top
both sides,
indicating
indecision.

Three
consecutive
Doji candles,
Tri-Star Indecision indicating a
strong
potential
reversal.

Candles with
long wicks,
indicating
Long Wicks Indecision
rejection of
higher or
lower prices.

Download Candlestick Pattern

Cheat Sheet [PDF]
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Pattern Cheat Sheet. Print it & refer it while
scanning candlestick patterns.
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How Candlestick Patterns
are Formed on a Chart?
Candlestick patterns are formed by marking the
open, close, low & high of a stock for a specific
time period. The body of the candlestick
represents the difference between the opening
and closing prices, with the color indicating
whether the price closed higher (usually green or
white) or lower (usually red or black) than it
opened. The wicks, or shadows, extend from the
body to the high and low prices, showing the
range of price movement during that period,
which can help identify potential Chart Patterns.

What are the Types of Assets

that can be Traded with
Candlesticks?
The types of assets that are traded with
candlesticks include equities, forex,
cryptocurrencies, futures, and options.

Equity Trading with Candlesticks

Candlestick charts are commonly used for
equity trading. Equities refer to stocks or shares
in a company. Candlestick charts assist traders,
especially intraday traders and swing traders, in
recognising trends and visualising price
fluctuations for a stock over time.

The above candlestick chart for the Reliance

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Industries, depicting price movements over a
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period.
In this chart, as an example, each candlestick
represents one day of trading. Watch the
example, the rectangle box represents a bullish
candlestick pattern called a hammer was
observed on the chart. Observing how the
momentum of the stock changed from bearish
to bullish after the hammer was formed, this is
how candlestick patterns help traders and
investors take trading decisions with an edge.

In this chart, each candlestick represents one

day of trading. The chart includes both green
and red candlesticks, where,

Green candlesticks indicate a price increase

over the trading day (the closing price is
higher than the opening price).
Red candlesticks indicate a price decrease
over the trading day (the closing price is
lower than the opening price).

In this chart, a hammer candlestick is spotted

and post which, the stock attained positive
momentum.

Forex Trading with Candlesticks

Candlestick charts are frequently implemented
in forex trading. Forex traders utilise candlestick
charts to observe price fluctuations and
recognise patterns in currency pairs. A long red
candlestick, for example, suggests that the price
was pushed lower by significant selling
pressure. This could indicate a downward trend
in the value of that currency pair.

The image above displays a daily candlestick

chart for the EUR/USD forex pair. This chart is
used to track daily price movements and
recognize patterns in currency trading. The We're Online!
green candlesticks show that the day’s closing How may I help you today? 
price was higher than the opening price,
indicating a price increase. Red candlesticks
indicate the opposite, where the closing price
was lower than the opening, suggesting a price
decrease.

The Bearish Engulfing pattern is highlighted in

purple. This pattern occurs when a smaller
green candlestick is followed by a larger red
candlestick that completely engulfs the green
one. This is a bearish signal, often indicating
that a downward trend may be starting due to
strong selling pressure.

Crypto Trading with Candlesticks

The use of candlestick charts allows crypto
speculators to observe price fluctuations and
identify trends for a specific cryptocurrency.

In the above example of trading Bitcoin with

candlesticks, green candlesticks show days
when the closing price is higher than the
opening price, while red candlesticks indicate
the opposite. Key patterns, such as the Bullish
Engulfing Pattern and Bearish Engulfing Pattern,
help traders predict potential price reversals.
These charts aid in identifying trends and
market sentiment, with sequences of green
candlesticks indicating upward trends and red
candlesticks indicating downward trends.

Inside bar is a useful candlestick pattern.

Observe how the market resumed the uptrend
after breaking the high of an inside bar. This is
how candlestick patterns are used to trade all
sorts of capital markets including
cryptocurrency markets.

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Futures & Options Trading with
Candlesticks
Futures and options trading frequently employ
candlestick charts. Candlestick charts assist
futures and options traders in recognising
reversal patterns, momentum, and trends in the
underlying assets.

In the image above the BankNifty Futures chart,

the purple box highlights a Dragonfly Doji
pattern. This pattern forms when the open, high
and close prices are very close, but there is a
long lower shadow below the body. It signals a
potential reversal in the trend.

Recognizing candlestick patterns like the

Dragonfly Doji helps traders anticipate potential
trend reversals. This allows them to adjust their
trading strategies accordingly. Analyzing the
formation and sequence of candlesticks helps
traders gauge the momentum and overall trend
of the asset. This information aids traders in
making more informed trading decisions.

The “2022 Derivatives Market Study” by the

Futures Industry Association (FIA) concluded
that multi-candlestick patterns are particularly
effective in futures trading and options trading,
with a statistical significance level of 70%.

Which Timeframe is Best for

Trading Candlesticks?
Traders use 5 to 15-minute timeframes for
trading candlestick patterns, especially in
intraday trading, due to the quick opportunities
they present. These shorter timeframes allow
traders to capitalize on small price movements
and react swiftly to market changes. However, We're Online!
while these timeframes are popular for their
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fast-paced nature, they can also introduce more
market noise and less reliable signals compared
to longer timeframes.

The 1-hour, 4-hour and daily time frames tend to

provide a good balance between seeing the
overall market structure and spotting potential
trade setups. The “Swing Trading Market
Analysis Report” by the International Financial
Markets Association (IFMA) found that the 4-
hour timeframe is particularly effective for swing
trading, with a success rate of 70% in identifying
profitable trade setups.

The daily or weekly charts work well for position

trading. The traders should experiment with
various timeframes for trading and find the ones
that fit their trading plan.

In Which Market Conditions

Are Candlesticks Most
Effective?
Candlestick patterns are most effective in
market conditions that exhibit strong trends and
momentum. Candlestick patterns are capable of
finding entries that enable traders to capitalise
on the larger trend when prices are moving in a
direction with conviction. According to
“Technical Analysis of the Financial Markets” by
John J. Murphy, candlestick patterns are highly
reliable in trending markets, with an accuracy
rate of approximately 70% when identifying
continuation and reversal patterns in strong
trend conditions.

Candlesticks are less dependable in markets

that are choppy or range-bound, as there is no
obvious directional bias. False breaks and
unsuccessful patterns are prevalent in sideways
and consolidating markets. Candlesticks are
most effective when they are used in
conjunction with other indicators that verify the
validity and strength of the pattern. The
probability of candlestick signals could be
enhanced by employing volume, momentum
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Why Candlestick Charts are
Important?
Candlestick charts are important for trading
because they convey more information than
traditional bar or line charts. A study titled “The
effectiveness of candlestick patterns in
forecasting stock prices” conducted in 2019 by
the Technical Securities Analysts Association
found traders using candlestick charts identified
profitable signals over 25% more often than
those using basic bar charts.

Candlestick pattern enables traders to recognise

the current trend, momentum shifts, potential
support and resistance levels, and chart
patterns. Candlesticks condense trading
information into a visually understandable
format. This simplifies the process of technical
analysis, enabling traders to more effectively
analyse price action and implement technical
strategies.

What are the Limitations of

Candlestick Patterns?
The main limitation of candlestick patterns is
that they often fail in ranging or choppy
markets. Price action triggers candlestick
patterns that quickly fail or reverse. According to
“Technical Analysis of the Financial Markets” by
John J. Murphy, the reliability of candlestick
patterns drops significantly in non-trending
markets, with an accuracy rate falling to as low
as 40%.

Additionally, candlestick analysis is subjective –

different traders interpret the same pattern
differently. It is necessary to obtain
confirmation from additional indicators.
Furthermore, false breaks and failed reversals
occur if there is inadequate momentum to
sustain the expected move. Finally, most
candlestick patterns require subsequent price
confirmation rather than simply acting on the
pattern itself.
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How to Combine
Candlesticks with Other
Technical Indicators?
Candlestick charts are combined with moving
averages to identify support and resistance,
indicators like RSI to confirm
overbought/oversold conditions, and Bollinger
Bands to highlight volatility.

The incorporation of moving averages into a

candlestick chart facilitates the identification of
dynamic support and resistance levels.
According to a study by the Technical Analysis
Society of America (TASA), combining
candlestick patterns with moving averages and
momentum indicators improved trade accuracy
by an average of 20-25% across various markets
and timeframes.

Volume-weighted average price (VWAP) is

another useful indicator that traders often use
with candlesticks to identify intraday support
and resistance levels. The Relative Strength
Index (RSI) is a popular indicator that is used in
conjunction with candlestick patterns to verify
overbought or oversold conditions. Indicators
such as Bollinger Bands are often employed in
conjunction with candlesticks to identify periods
of high or low volatility.

How to Learn Candlestick

Patterns?
The best ways to learn candlestick patterns are
through books, research papers, online courses,
and practice.

Books for Learning Candlesticks

Book Title Author Description

How to Make Balkrishna M. A practical

Money Sadekar guide to
Trading with using
Candlestick candlestick
Charts charts for We're Online!
profitable How may I help you today? 
 trading
strategies.

An
accessible
introduction
Candlestick
Russell to
Charting for
Rhoads understandin
Dummies
g and using
candlestick
charting.

A
comprehensi
The ve workbook
Candlestick Steve Nison for mastering
Course candlestick
charting
techniques.

A detailed
The Ultimate exploration
Guide to Steve Burns of various
Candlestick and Atanas candlestick
Chart Matov patterns and
Patterns their
applications.

A focused
Don’t Trade
guide on the
Before
most
Learning
P. Arul Pandi essential
These 14
candlestick
Candlestick
patterns for
Patterns
traders.

The classic
book that
Japanese
introduced
Candlestick
Steve Nison Japanese
Charting
candlestick
Techniques
charting to
the West.

Beyond Steve Nison Explores

Candlesticks: advanced
New candlestick
Japanese techniques
Charting and their We're Online!
practical How may I help you today? 
Techniques uses in
Revealed trading.

Offers
insights into
high-profit
High Profit
Stephen trading
Candlestick
Bigalow strategies
Patterns
using
candlestick
patterns.

Candlestick
Explains the
Charting
timeless
Explained:
techniques of
Timeless Gregory L.
candlestick
Techniques Morris
charting for
for Trading
modern
Stocks and
traders.
Sutures

Highlights 21
key
21 candlestick
Candlesticks patterns
Dr. Pasternak
Every Trader essential for
Should Know improving
trading
performance.

Candlestick Patterns Research papers

Research
Authors Description
Paper Title

Examines the
Candlestick effectiveness
Technical Marshall Ben of
Trading R., Young candlestick
Strategies: Martin R., trading
Can They Rose strategies in
Create Value Lawrence C. creating
for Investors? value for
investors.

Profitable Upreti, A., Investigates

Candlestick Agrawal, A., the
Trading Joshi, J. K., profitability
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Strategies— Seniaray, S. of specific
The Evidence candlestick
How may I help you today? 
from a New patterns in
Perspective currency
markets.

Proposes a
Encoding method using
Candlesticks convolutional
Jun-Hao
as Images neural
Chen, Yun-
for Pattern networks to
Cheng Tsai
Classification classify
Using CNN candlestick
patterns.

Quantitative Explores the

Study of use of deep
Candlestick Upreti, A., learning to
Pattern & Agrawal, A., identify
Identifying Joshi, J. K., candlestick
Patterns Seniaray, S. patterns in
Using Deep the Indian
Learning stock market.

The
Analyzes the
Predictive
predictive
Power of
accuracy of
Japanese Chen, Shi, Si
candlestick
Candlestick Bao, Yu Zhou
charting in
Charting in
the Chinese
the Chinese
stock market.
Stock Market

Improving Uses
Stock Trading machine
Yaohu Lin,
Decisions learning to
Shancun Liu,
Based on enhance
Haijun Yang,
Pattern stock trading
Harris Wu,
Recognition decisions
Bingbing
Using through
Jiang
Machine pattern
Learning recognition.

Stock Trend
Combines
Prediction
candlestick
Using
Yaohu Lin, charting with
Candlestick
Shancun Liu, machine
Charting and
Haijun Yang, learning for
Ensemble
Harris Wu improved
Machine
stock trend We're Online!
Learning
Techniques
prediction. How may I help you today? 
 Using Deep
Rosdyana
Learning
Mangir Applies deep
Neural
Irawan learning to
Networks
Kusuma, predict stock
and
Trang-Thi Ho, market
Candlestick
Wei-Chun trends using
Chart
Kao, Yu-Yen candlestick
Representati
Ou, Kai-Lung charts.
on to Predict
Hua
Stock Market

A Systematic
Nti, Isaac Reviews the
Review of
Kofi, Adebayo integration of
Fundamental
Felix fundamental
and
Adekoya, and technical
Technical
Benjamin analysis in
Analysis of
Asubam stock market
Stock Market
Weyori prediction.
Predictions

Candlestick
Pattern Conducts a
Research systematic
Analysis, literature
Future and Soetam Rizky review on the
Beyond: A Wicaksono application of
Systematic candlestick
Literature patterns in
Review Using stock trading.
PRISMA

Are Candlestick Patterns

Reliable?
Candlestick patterns serve as reliable indicators
for traders when implemented appropriately.
There are various types of charts like
candlesticks, lines, bar charts etc. that traders
use for analysing price action.

Candlestick patterns on certain chart types like

Heikin-Ashi and Renko charts sometimes
provide more reliable signals than regular
candlestick charts. However, no single indicator
or pattern works perfectly all the time.
Candlestick patterns are most reliable when
combined with other confirmation indicators to
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What is the Success Rate of
Candlestick Patterns?
The candlestick patterns have a success rate of
approximately 50-60% on average when used
properly. This means that following candlestick
patterns correctly predicts market direction
about half to three-fifths of the time. The trader’s
competence and the market conditions,
however, are significant factors in determining
success.

A study by candlestick patterns expert Steve

Nison analysed 6 major patterns (Engulfing,
Harami, etc.) on S&P 500 data from 1990-1999
and found an average 53.6% win rate for signals
generated by the patterns over the 10-year
period.

What is the 5-Min Candle

Strategy?
The 5-minute candle strategy is a short-term
intraday trading technique that uses 5-minute
candlestick charts to make trading decisions.
Traders look for certain candlestick patterns like
doji, engulfing or hammer/shooting stars to
enter and exit trades within a day. Traders
strengthen a particular strategy by combining
candlestick patterns, indicators and other price
action tools.

The strategy is designed to profit from minor

intraday price fluctuations by employing
technical analysis of 5-minute candlesticks. A
study titled “Evaluating Short-Term Trading
Strategies on Intraday Time Scales: A
Comparison of Candlestick Techniques on the
S&P 500” published by Sahin and Akpinar
reported that a 5-minute candlestick pattern
strategy achieved an average annual return of
11.8% compared to 7.5% for a buy-and-hold
strategy over the examined period, providing a
quantitative analysis showing the potential
profitability of candlestick patterns on high-
frequency 5-minute charts.

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What is a 3-Candle Rule? How may I help you today? 
The 3-candle rule is a trading strategy that uses
candlestick patterns to identify potential entry
and exit points. Traders look for a sequence of 3
candles where the first candle moves in one
direction, the second candle reverses, and the
third candle confirms the reversal. The objective
of this rule is to capture short-term changes in
market momentum and increase the probability
of being on the right side of the emerging trend.

A study titled “An Empirical Evaluation of the

Profitability of Candlestick Trading Rules in
Currency Markets” published in the Journal of
Futures Markets in 2014 by Poshakwale and
Govardhana from Mumbai University found a
58% average winning percentage across 30
forex currency pairs from 2003-2013 when
entering trades confirmed by the 3-candle rule.

Arjun Shivam
Remesh Gaba
HEAD OF REVIEWER
CONTENT OF
CONTENT
Arjun is a seasoned
stock market Shivam is a stock
content expert with market content
over 7 years of expert with CFTe
experience in stock certification. He is
market, technical & been trading from
fundamental last 8 years in
analysis. Since indian stock
2020, he has been market. He has a
a key contributor to vast knowledge in
Strike platform. technical analysis,
Arjun is an active financial market
stock market education, product
investor with his in- management, risk
depth stock market assessment,
analysis derivatives trading
knowledge. Arjun is & market Research.
also an certified He won Zerodha
stock market 60-Day Challenge
researcher from thrice in a row. He
Indiacharts, is being mentored
mentored by Rohit by Rohit Srivastava,
Srivastava. Indiacharts.

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