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16 candlestick patterns every trader should know

Source: Adobe images

Written by
Becca Cattlin
Financial writer

What is a candlestick?
A candlestick is a way of displaying information about an asset’s price movement. Candlestick charts
are one of the most popular components of technical analysis, enabling traders to interpret price
information quickly and from just a few price bars.
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This article focuses on a daily chart, wherein each candlestick details a single day’s trading. It has
three basic features:
The body, which represents the open-to-close range
The shadow, that indicates the intra-day high and low
The colour, which reveals the direction of market movement – a green (or white) body indicates
a price increase, while a red (or black) body shows a price decrease
Over time, individual candlesticks form patterns that traders can use to recognise major support
and resistance levels. There are a great many candlestick patterns that indicate an opportunity
within a market – some provide insight into the balance between buying and selling pressures, while
others identify continuation patterns or market indecision.
Before you start trading, it’s important to familiarise yourself with the basics of candlestick patterns
and how they can inform your decisions.
Practise reading candlestick patterns
The best way to learn to read candlestick patterns is to practise entering and exiting trades from the
signals they give. You can develop your skills in a risk-free environment by opening an IG demo
account, or if you feel confident enough to start trading, you can open a live account today.
When using any candlestick pattern, it is important to remember that although they are great for
quickly predicting trends, they should be used alongside other forms of technical analysis to
confirm the overall trend. You can learn more about candlesticks and technical analysis with IG
Academy’s online courses.
Six bullish candlestick patterns
Bullish patterns may form after a market downtrend, and signal a reversal of price movement. They
are an indicator for traders to consider opening a long position to profit from any upward trajectory.
Hammer
The hammer candlestick pattern is formed of a short body with a long lowershadow, and is found at
the bottom of a downward trend. The lower shadow must be at least twice the length of the body.
A hammer shows that although there were selling pressures during the day, ultimately a strong
buying pressure drove the price back up. The colour of the body can vary, but green hammers
indicate a stronger bullish signal than red hammers.
The next day must be bullish to confirm this reversal pattern.
Inverted hammer

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A less bullish pattern is the inverted hammer. The only difference being that the upper shadow is
long, at least twice the length of the body, while the lower shadow is short.
It indicates a buying pressure, followed by a selling pressure that was not strong enough to drive the
market price down. The inverse hammer suggests that buyers might soon have control of the
market but is not a very reliable pattern.
Bullish engulfing
The bullish engulfing pattern is formed of two candlesticks. The first candle is a short red body that
is completely engulfed by a larger green candle.

Though the second day opens lower than the first, the bullish market pushes the price up,
culminating in an obvious win for buyers.
Piercing line
The piercing line is also a two-candlestick pattern, made up of a long red candle, followed by a long
green candle.
There is usually a significant gap down between the first candlestick’s closing price, and the green
candlestick’s opening. It indicates a strong buying pressure, as the price is pushed up to or above
the mid-price of the previous day.
Confirmation is seen by a further bullish candle.
Morning star
The morning star candlestick pattern is considered a sign of hope in a bleak market downtrend. It is
a three-candlestick pattern: one short-bodied candle between a long red and a long green candle.
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Traditionally, the ‘star’ will have no overlap with the longer bodies, as the market gaps both on open
and close.

It signals that the selling pressure of the first day is subsiding, and a bullish reversal is on the horizon.
Three white soldiers
The three white soldiers pattern occurs over three days. It consists of consecutive long green (or
white) candles with small shadows, which open and close progressively higher than the previous
day.
It is a very strong bullish signal that occurs after a downtrend, and shows a steady advance amid
buying pressure.
Six bearish candlestick patterns
Bearish candlestick patterns usually form after an uptrend, and signal a point of resistance. Heavy
pessimism about the market price often causes traders to close their long positions, and open a
short position to take advantage of the falling price.
Hanging man
The hanging man is the bearish equivalent of a hammer; it has the same shape but forms at the end
of an uptrend. Like the hammer, the lower shadow must be at least twice the length of the body.
It indicates that there was a significant sell-off during the day, but that buyers were able to push the
price up again. The large sell-off is often seen as an indication that the bulls are losing control of the
market.
Shooting star
The shooting star is the same shape as the inverted hammer, but is formed in an uptrend: it has a
small lower body, and a long upper shadow which must be at least twice the length of the body.

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Usually, the market will gap slightly higher on opening and rally to an intra-day high before closing at
a price just above the open – like a star falling to the ground.
Bearish engulfing
A bearish engulfing pattern occurs at the end of an uptrend. The first candle has a small green body
that is engulfed by a subsequent long red candle.

It signifies a peak or slowdown of price movement, and is a sign of an impending market downturn.
The lower the second candle goes, the more significant the trend reversal is likely to be.
Evening star
The evening star is a three-candlestick pattern that is the equivalent of the bullish morning star. It is
formed of a short candle sandwiched between a long green candle and a long red candlestick.

It indicates the reversal of an uptrend, and is particularly strong when the third candlestick erases
the gains of the first candle.
Three black crows
The three black crows candlestick pattern comprises of three consecutive long red candles with
short or non-existent shadows. Each session opens at a similar price to the previous day, but selling
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pressures push the price lower and lower with each close.
Traders interpret this pattern as the start of a bearish downtrend, as the sellers have overtaken the
buyers during three successive trading days.
Dark cloud cover
The dark cloud cover candlestick pattern indicates a bearish reversal – a black cloud over the
previous day’s optimism. It comprises two candlesticks: a red candlestick which opens above the
previous green body, and closes below its midpoint.

It signals that the bears have taken over the session, pushing the price sharply lower. If the shadows
of the candles are short it suggests that the downtrend was extremely decisive.
Four continuation candlestick patterns
If a candlestick pattern doesn’t indicate a change in market direction, it is what is known as a
continuation pattern. These can help traders to identify a period of rest in the market, when there is
market indecision or neutral price movement.
Doji
When a market’s open and close are almost at the same price point, the candlestick resembles a
cross or plus sign – traders should look out for a short to non-existent body, with shadows of varying
length.
This doji’s pattern conveys a struggle between buyers and sellers that results in no net gain for
either side. Alone a doji is a neutral signal, but it can be found in reversal patterns such as the bullish
morning star and bearish evening star.
Spinning top
The spinning top candlestick pattern has a short body centred between shadows of equal length.
The pattern indicates indecision in the market, resulting in no meaningful change in price: the bulls
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sent the price higher, while the bears pushed it low again. Spinning tops are often interpreted as a
period of consolidation, or rest, following a significant uptrend or downtrend.
On its own the spinning top is a relatively benign signal, but it can be interpreted as a sign of things
to come as it signifies that the current market pressure is losing control.
Falling three methods
Three-method formation patterns are used to predict the continuation of a current trend, be it
bearish or bullish.
The bearish pattern is called the ‘falling three methods’. It is formed of a long red body, followed by
three small green bodies, and another red body – the green candles are all contained within the
range of the bearish bodies. It shows traders that the bulls do not have enough strength to reverse
the trend.
Rising three methods
The opposite is true for the bullish pattern, called the ‘rising three methods’ candlestick pattern. It is
comprised of three short red candles sandwiched within the range of two long green candles. The
pattern shows traders that, despite some selling pressure, buyers are retaining control of the
market.

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