Candlestick Patterns: A Complete Guide and Cheat Sheet

Candlestick patterns are formations of one, two or three price candles that traders read as clues about a shift in buying and selling pressure. The best known, such as the hammer, the doji, the engulfing pattern and the morning star, are reversal signals that only matter after a clear move and at a meaningful price level. They sit at the smallest scale of chart patterns, the larger multi-week shapes such as head and shoulders or double tops.

Quick answer: Candlestick patterns are sequences of one to three Japanese candlesticks that suggest a possible price reversal. Bullish candlestick patterns such as the hammer and morning star appear after declines; bearish candlestick patterns such as the shooting star and evening star appear after rallies. A candlestick pattern is confirmed when the next candle closes in the signalled direction.

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How do you read a candlestick?

A candlestick shows four prices for one period: the open, the high, the low and the close. The thick part, the body, spans the open and the close. The thin lines above and below, the wicks (also called shadows), mark the highest and lowest prices reached during the period.

On a green (up) candle the open sits at the bottom of the body and the close at the top; on a red (down) candle it is the reverse. Long wicks show price travelled far beyond the body and was pushed back, the raw material of most candlestick patterns. If you are new to charts, start with how to read stock charts.

Where do candlestick charts come from?

Candlestick charts originated in 18th-century Japanese rice trading, and the rice merchant Munehisa Homma is widely credited with early work on reading market psychology from prices. The method was popularised in the West around 1990 by Steve Nison's books, and candlesticks are now the default chart type on almost every platform.

Candlestick patterns cheat sheet

The candlestick patterns cheat sheet below lists the main single, double and triple candle patterns, what each signals, the context it needs and what confirms it.

The same candle shape means different things in different places: a hammer after a decline is potentially bullish, while the identical shape after a rally, a hanging man, is potentially bearish.

What is a hammer candlestick?

A hammer candlestick is a single bullish reversal candle with a small body near the top of its range and a long lower wick, usually at least twice the length of the body, that appears after a decline. The long lower wick shows sellers pushed price well lower during the session, then buyers drove it back up near the open.

As the chart shows, the hammer forms at the end of a decline, and the next candle closing higher completes the signal. Without that confirmation the hammer only shows selling stalled for one session. Body colour matters less than position.

What is a hanging man?

A hanging man is the same shape as a hammer but appears after a rally. The long lower wick shows sellers could drive price down sharply, an early warning that demand is weakening. A hanging man needs a lower close on the next candle to confirm.

What is a shooting star candlestick?

A shooting star candlestick is a single bearish reversal candle with a small body near the bottom of its range and a long upper wick that appears after a rally. Buyers pushed price sharply higher during the session, then sellers drove it back down near the open, rejecting the higher prices.

The shooting star is the bearish mirror of the hammer. As the chart shows, it needs a prior rally and a lower close on the next session to confirm. A shooting star at a known resistance level, such as a previous high, is stronger than one in open space.

What is an inverted hammer?

An inverted hammer has the shape of a shooting star but appears after a decline, showing buyers testing higher prices. It is a weaker bullish signal than the hammer and needs a higher close on the next candle.

What does a doji candle mean?

A doji is a candle where the open and close are equal or almost equal, so the body is a thin line, and it signals indecision rather than direction. Buyers and sellers ended the session in balance.

A doji after a strong move, as on the chart, can warn that the move is tiring, but the confirmation comes from the next candles. A doji in the middle of a sideways range means very little. The main doji types are:

1. Standard doji: short wicks on both sides; pure indecision.
2. Long-legged doji: long wicks on both sides; a wide fight that ended level.
3. Dragonfly doji: a long lower wick and no upper wick; after a decline, a possible bullish reversal, similar in meaning to a hammer.
4. Gravestone doji: a long upper wick and no lower wick; after a rally, a possible bearish reversal, similar in meaning to a shooting star.

What is an engulfing pattern?

An engulfing pattern is a two-candle reversal pattern where the body of the second candle completely covers the body of the first candle and closes in the opposite direction. It shows control switching from one side to the other within a single session.

Bullish engulfing pattern

A bullish engulfing pattern forms after a decline: a red candle is followed by a larger green candle whose body opens at or below the red candle's close and closes above the red candle's open.

As the chart notes, the bigger the engulfing candle relative to recent candles, the stronger the signal, and one at support on higher volume carries more weight.

Bearish engulfing pattern

A bearish engulfing pattern forms after a rally: a green candle is followed by a larger red candle whose body fully covers the green body.

As the chart shows, the buyers' last push is fully reversed in one session. A bearish engulfing pattern at resistance or after an extended rally is one of the more widely watched bearish candlestick patterns, but it still needs follow-through on the next candle.

What is a morning star pattern?

A morning star is a three-candle bullish reversal pattern: a long red candle, then a small-bodied candle (sometimes a doji) that gaps or holds lower, then a long green candle that closes well into the body of the first candle. It appears after a decline.

On the chart, the small middle candle shows the selling has stalled and the third candle shows buyers taking over. Many traders want the third candle to close above the midpoint of the first candle's body.

What is an evening star?

An evening star is the bearish mirror of the morning star: a long green candle after a rally, a small-bodied candle near the high, then a long red candle that closes deep into the first candle's body. It signals buyers losing control at the top of a move.

What is a harami pattern?

A harami is a two-candle pattern where a small second body sits entirely inside the large body of the first candle. "Harami" is Japanese for pregnant, describing the small candle tucked inside the large one. A bullish harami appears after a decline (a large red candle, then a small candle inside it). A bearish harami appears after a rally (a large green candle, then a small candle inside it). The harami signals that momentum has slowed, which makes it weaker than an engulfing pattern, and it needs a close beyond the first candle's body to confirm.

What are three white soldiers and three black crows?

Three white soldiers is a bullish pattern of three consecutive long green candles, each opening within the previous body and closing near its high, after a decline or a base. Three black crows is the bearish version: three long red candles, each closing near its low, after a rally. After three long candles price is often stretched, so many traders wait for a pullback rather than chasing the third candle.

Why does context matter for candlestick patterns?

Context matters because a candlestick pattern is a reversal signal, and a reversal needs something to reverse. A hammer in a choppy range is just a candle with a long wick; the same hammer after a sustained decline, at support that held before, is meaningful. Check three things:

1. Prior trend: bullish reversal patterns need a decline before them; bearish reversal patterns need a rally.
2. Location: patterns at support, resistance, a break of structure or the edge of a larger chart pattern (for example the second peak of a double top) carry more weight.
3. Volume: above-average volume on the signal candle or the confirmation candle shows real participation.

Candles that spike through a level and snap back can be liquidity sweeps rather than genuine reversals, so a long wick through a well-known high or low deserves a second look.

What confirms a candlestick pattern?

A candlestick pattern is confirmed when the next candle closes in the direction the pattern signals: higher after a hammer or bullish engulfing pattern, lower after a shooting star or bearish engulfing pattern. Waiting costs a worse entry but filters out many immediate failures. A practical sequence:

1. Identify the pattern after a clear move and at a level.
2. Wait for the confirmation candle to close.
3. Enter on the close or with a limit order on a small pullback toward the pattern.
4. Place the stop beyond the pattern's extreme: below the hammer's low, above the shooting star's high, beyond the low or high of a three-candle pattern.
5. Set a target at the next support or resistance level, and check the reward is at least worth the risk using the risk to reward ratio.

Velotrade co-founder Gianluca Pizzituti prefers limit orders to market orders, and a limit order on a pullback into the pattern often gives a tighter stop than chasing the confirmation candle (see market order vs limit order).

Which timeframe is best for candlestick patterns?

Daily candlestick patterns carry more weight than intraday ones because each daily candle aggregates a full session from many participants. A one-minute candle can be shaped by a single order, so one-minute hammers and dojis appear constantly and mean little. Four-hour, daily and weekly candles produce fewer signals, each reflecting more real buying and selling.

This matches Gianluca Pizzituti's warning against overtrading: "Stop living on the five-minute chart, refreshing every candle, hunting for the next click." Read patterns on higher timeframes and use a lower timeframe only to fine-tune entries (more in trading psychology). Price is not the whole story either: co-founder Vittorio De Angelis notes that fundamentals and flows matter alongside charts, as covered in fundamental vs technical analysis.

Can AI detect candlestick patterns?

Yes, AI tools and pattern scanners can detect candlestick patterns, which are among the easiest patterns to code because each has a short, rule-based definition. Scanners can flag every hammer, doji or engulfing pattern across hundreds of markets in seconds to build a watchlist (see AI trading signals).

The limits match the human eye. Definitions vary (how long must a hammer's wick be?), scanners rarely judge context such as the prior trend or a nearby level, and false positives are common. Test any candlestick rule with backtesting and review it with human judgement before real use.

How do you use candlestick patterns in a prop challenge?

In a prop challenge, candlestick patterns are best used as entry triggers inside a plan, with risk set before the trade. Velotrade, a multi-asset prop trading firm offering simulated evaluations across crypto, forex, stocks, index ETFs and commodities, applies a daily loss limit that resets at 00:30 UTC and is set from the higher of your balance or equity, plus a static maximum drawdown, a fixed dollar floor that does not move (explained in static maximum drawdown).

Candlestick patterns give a natural stop beyond the hammer's low or the shooting star's high. Size the position so that stop distance equals a small, fixed share of the account with the position size calculator, so a failed engulfing pattern costs a planned amount. News trading is allowed, but news candles often wick both ways, so treat patterns formed in news spikes with caution. A profitable trade is not the same as a good trade: judge each trade by whether it followed the plan. Compare account sizes and rules on the challenges page.

This article is educational and is not investment advice. Candlestick patterns are probabilistic and fail often.