Candlestick Patterns: The 12 Chart Patterns Every Trader Should Know

hammer candlestick pattern

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Combined with other trading methods such as fundamental analysis and other market analysis tools, the hammer candlestick pattern may provide insights into trading opportunities. This article will take you through what hammer candlestick patterns are and how to read them. For each of these aspects, several candlestick patterns for day trading are ideal for identifying a potential path of price. Upon their recognition, crafting anoptimized strategy to capitalize on a forthcoming market move becomes possible.

2-3 Pattern: candlestick model trading

The black and white parts of the candles are known as the body while the two lines are known as shadows. 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 bull market than red hammers. Regardless of the complexity, the location of all these candlestick patterns is one of the most important aspects of understanding candlesticks pattern types. The period of each candle typically depends on the time frame chosen by the trader.

Bulls were clearly in control during each session with very little energy from the bears. To move lower, more supply may need to enter the market at higher prices. This could represent a near term level of resistance which will have to be broken for the price to move higher. Honma actually wrote a trading psychology book around 1755 claiming that emotions impacted rice prices considerably. Honma traded on the Dojima Rice Exchange of Osaka, considered to be the first formal futures exchange in history.

Three black crows

The story behind this candle tells us that there were extensive sellers in the formation of the candle, signified by the long wick. With that being said, let’s look at some examples of how candlestick patterns can help us anticipate reversals, continuations, and indecision in the market. According to, it is commonly believed that candlestick charts were invented by a Japanese rice futures trader from the 18th century. Before you begin day trading, it is important to conduct investment research and identify the mood of the market by analyzing various timeframes ranging from 5-minute charts to daily charts. This will help you understand the overall trend and make better trading decisions. I set a stop loss inside the ‎flag‎ at the point where the growth started.


Reading candlestick patterns is quite easy once you know how to do the same. Let us find out the interpretation of candlestick patterns as well as the detection of a candlestick pattern in the chart. Bullish harami is the opposite version that forms at the top of a trend producing a smaller lower high candlestick contained with the body of the prior high candlestick. Each candlestick represents a story in relation to price action. Consider each candlestick like a corner store in the neighborhood that sells fresh bread dynamically priced based on the day’s supply and demand.

Dragonfly Doji Candle

Three-method candlestick patterns for day trading patterns are used to predict the continuation of a current trend, be it bearish or bullish. 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.

What is the 3 candle rule?

The pattern requires three candles to form in a specific sequence, showing that the current trend has lost momentum and a move in the other direction might be starting.

Buy in strength and sell in weakness means buying in high price and selling low price. A marubuzo is not supposed to have any shadow in the first place. YOu can be flexible with one side shadow, but if its either ways then the price action is saying something else. The length of the shadows should not be more than 1% of the length of the real body.

Bullish candle

The last candle closes deep into the real body of the candle two days prior. The pattern shows a stalling of the buyers and then the sellers taking control. ​An engulfing pattern on the bullish side of the market takes place when buyers outpace sellers. This is reflected in the chart by a long green real body engulfing a small red real body.

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Common candlestick patterns tend to be composed of two to three consecutive candles. Even single candlesticks need a second candle to confirm the pattern. In practice, these candlestick patterns tend to be among the most accurate indicators of a reversal. Bulkowski’s Encyclopedia of Candlestick Charts found that both patterns had greater than 70 percent accuracy in predicting a reversal. This trader is considered to be the most successful trader in history, he was known as the God of markets in his days, his discovery made him more than $10 billion in today’s dollar. This trading system is based on Japanese candlestick patterns in combination with technical analysis.

Upside gap between the first candle and the Doji (the shadows of the two candles don’t touch). To differentiate this pattern from the Advance Block pattern, each candle must not be far shorter than the prior candle. The first candle’s close should be under the prior white candle’s high. Candlestick patterns have several shared characteristics that are important to understand before diving into specifics. By understanding these characteristics, you can better interpret the patterns and see how they fit into the overall picture.


As the bearish harami candlestick closes, the next candle closes lower which starts to concern the longs. When the low of the preceding engulfing candle broken, it triggers a panic sell-off as longs run for the exits to curtail further losses. The conventional short-sell triggers form when the low of the engulfing candle is breached and stops can be placed above the high of the harami candlestick.

Trading requires that you spend a sufficient amount of time analyzing potential trades and planning them accordingly following trading patterns. Do not attempt to trade by “shooting from the hip” and making it up as you go along. If you cannot find high probability trades the evening before a trading day, sit back and wait for the following day. It is better to miss potential profits than to make up for losses. Chart patterns work on any timeframe, including intraday trading.

bearish reversal

The stop should be placed below the newly formed support line. This indicates that longs were anxious to take proactive measure and sell their positions even as new highs were being made. Dark cloud cover candles should have bodies that close below the mid-point of the prior candlestick body.


With time, these separate candlesticks create different day trading patterns or reversal patterns that are used in trading chart patterns. Traders rely on analyzing these patterns to gauge support & resistance levels and to get a heads up on what’s going to happen in the market next. There are a lot of different candlestick patterns that provide traders with great opportunities.

Is a candlestick chart useful for day trading?

Candlesticks are useful when trading as they show four price points (open, close, high, and low) throughout the period of time the trader specifies. Many algorithms are based on the same price information shown in candlestick charts. Trading is often dictated by emotion, which can be read in candlestick charts.

Which candlestick pattern is most reliable for day trading?

The shooting star candlestick is primarily regarded as one of the most reliable and one of the best candlestick patterns for intraday trading. In this type of intra-day chart, you will typically see a bearish reversal candlestick, which suggests a peak, as opposed to a hammer candle which suggests a bottom trend.