Types of Candlestick Patterns

Understanding the stock market charts is important for every trader, and candlestick patterns play the most important role in this. These patterns tell us in which direction the price can go and what the psychology of the market is saying. If you are wondering how many types of candlestick patterns are there or how many types of candlestick patterns are important to learn, then this blog is for you. Here we will learn in detail all types of candlestick patterns, their meaning, and the right way to use them, that too in easy and practical language.

What Are Candlestick Patterns?

Candlestick patterns originated in 18th century Japan. Japanese trader Homma Munehisa first used these patterns to analyze rice prices. Over time, this technique spread globally and has become one of the most reliable methods of technical analysis today.

What does a candlestick show?

Each candle shows the price behavior of a specific time period, consisting of four main data points:

Open : the price at the beginning of that time period

High :  the highest price in that period

Low :  the lowest price in that period

Close :  the price at the end of that period

All of this data is represented by the body and wicks (shadows) of the candle.

Some important things to understand candlesticks

To read candlestick charts correctly, it is important to know some basic things:

• Body: This is the thick part of the candle, which tells where the price started (Open) and where it closed (Close) during that time.

• Wick or Shadow: These are thin lines that are above and below the candle. They show what was the highest and lowest price at that time.

• Bullish Candlestick: When the price closes upwards, that is, the Close is higher than the Open. In such a case, the candle is often green.

• Bearish Candlestick: When the price closes downwards, that is, the Close is lower than the Open. It is usually shown in red.

• Gap: When the price suddenly opens up or down without any transition, that is, it opens much above or below the previous day's Close.

How Many Types of Candlestick Patterns Are There?

When people start trading, the first question that comes to mind is - "How many types of candlestick patterns are there?"

In fact, it is a bit difficult to directly count candlestick patterns, because the strength and use of each pattern depends on different market conditions. But for understanding, they are divided into three main categories:

Single Candlestick Patterns : These patterns are formed by a single candle and often indicate a reversal or indecision. For example: Hammer, Shooting Star, Doji.

Double Candlestick Patterns : In these, two candles together form a pattern that indicates a change in the market. Example: Bullish Engulfing, Bearish Engulfing, Piercing Pattern.

Triple Candlestick Patterns : These patterns are formed by three candles together and their signal is often considered strong. For example: Morning Star, Evening Star, Three Black Crows.

Single Candlestick Patterns

Bullish Single Candlestick Patterns 

Hammer

• This pattern is formed when the market falls throughout the day but in the end buying comes in and the price closes higher.

• The body of the candle is small and the lower shadow (wick) is long, which shows that buyers have taken control despite the selling pressure.

• This pattern is stronger when it is formed at a strong support level or oversold zone.

How to identify:

• Long lower wick

• Small body (Close is near Open)

• Upper wick is negligible or very small

• More reliable if formed on high volume

Inverted Hammer

• This pattern is also formed after a downtrend, but its structure is inverted – that is, the upper wick is long and the lower body is short.

• This indicates that buyers pulled the price higher, but sellers are still slightly active. This is an early sign that a reversal may occur.

• Do not use the Inverted Hammer alone validate with RSI, MACD or Volume Confirmation.

Dragonfly Doji

• This is a rare but strong reversal pattern. It has a very small body (Close and Open are almost equal), and only a long wick on the downside.

• This means that the price fell throughout the day but buyers made a strong comeback and brought the price back to where it started.

• Dragonfly Doji formed at a support level often signals a bullish movement the next day.

Bearish Single Candlestick Patterns 

Shooting Star

• When the price moves up throughout the day but finally falls and closes near the open, it forms a Shooting Star.

• Its long upper shadow shows that buyers tried, but sellers pushed the price down strongly.

Accurate signal:

• Formed in an uptrend

• Volume is high

• Next candle confirms (gap down or bearish engulfing)

Hanging Man

• The structure is similar to Hammer but it is formed in an uptrend.

• Long lower work shows that sellers had built up intraday pressure, which can indicate a potential trend reversal ahead.

• Do not consider Hanging Man as a bullish signal – it is a warning signal that buyers are getting weak now.

Gravestone Doji  

• When Open, Low and Close are almost the same and a long upper wick is formed, it is called Gravestone Doji.

• This pattern is formed when the market tries to go up but loses all the gains in the end – that is, the selling pressure is heavy.

• In most cases: Gravestone Doji occurs before a sharp reversal, especially when it forms near resistance.

Double Candlestick Patterns

Sometimes the market situation is not completely clear from a single candle. In such a situation, when two candles together form a special pattern, they give us another strong signal. These patterns are called Double Candlestick Patterns, and they are considered quite reliable for reversal or trend continuation.

Bullish Double Candlestick Patterns

1. Bullish Engulfing : The first candle is a small bearish candle. After this, a large bullish candle is formed which completely “engulfs” the first candle.

• This pattern indicates that sellers took control initially, but on the second day buyers completely reversed the market.

• Strong reversal signal, especially when it is formed at a support zone or oversold level.

2. Bullish Harami : The first candle is large bearish and the second small bullish candle is formed inside the “body” of the first.

• This is an early signal of buyers returning, which indicates that the selling pressure is weakening.

• Medium, but used with a confirmation candle.

3. Piercing Pattern : The first candle is a large bearish candle. The second bullish candle opens below the low of the first day and closes above the midpoint of its body.

• This means that buyers made a strong comeback on the second day and pierced the previous selling.

• Good reversal signal, especially in a downtrend.

4. Tweezer Bottom : Two candles with almost the same low. The first candle is bearish and the second is bullish.

• This shows that the market has stalled at a support level twice, and buyers started taking control from the second day.

• Strong signal when it forms at a major support zone.

5. Matching Low : Two consecutive bearish candles with the same closing price.

• This indicates that a tug-of-war is going on between sellers and buyers, and buyers may be active at the support level.

• More reliable when accompanied by RSI oversold or volume confirmation.

Bearish Double Candlestick Patterns

1. Bearish Engulfing : The first candle is small bullish and the second large bearish candle completely engulfs it.

• This shows that buyers had taken control earlier, but the momentum changed completely on the second day due to sellers.

• Strong bearish reversal signal, especially on resistance.

2. Bearish Harami : The first candle is large and the second small bearish candle forms inside its body.

• This shows that the bullish momentum may stop and the market is in hesitation.

• Medium strength pattern, confirmation is needed.

3. Dark Cloud Cover : The first candle is large and bullish. The second candle opens gap-up but closes below the midpoint of the day.

• This gives a warning that buyers are getting weak and sellers may take control again.

• Moderate to strong, especially with volume confirmation.

4. Tweezer Top : Two candles with the same high. The first candle is bullish and the second is bearish.

• This indicates selling pressure at a resistance level where buyers are unable to take the market higher again.

• A good pattern is formed when it forms at multiple tops or resistance zones.

5. Matching High : Two bullish candles with almost the same closing price.

• This means the market is unable to move higher and resistance is active.

• Low to medium, but if there is divergence then the pattern can become strong.

Triple Candlestick Patterns

Triple candlestick patterns are chart signals that form based on three consecutive candles and indicate a major change in market direction. These patterns mostly act as reversal signals, that is, when the trend is about to change.

Bullish Triple Candlestick Patterns

1. Morning Star : This pattern forms in a downtrend and signals a possible reversal.

• The first candle is a large bearish candle, the second is a small one (doji or spinning top), and the third is a large bullish candle.

• This indicates that selling pressure is subsiding and buyers are making a comeback.

2. Three White Soldiers : Three consecutive large bullish candles form that close progressively higher.

• Each candle has a small wick, indicating buying momentum.

• This pattern often signals the beginning of a strong bullish trend.

3. Bullish Abandoned Baby : The first candle is a large bearish candle, followed by a gap followed by a doji.

• Then comes a large bullish candle that covers the gap and confirms the reversal.

• This pattern is rare but gives a very reliable signal.

4. Bullish Tri-Star : Three consecutive doji candles are formed, with the middle doji being in a gap.

• This pattern shows a bullish bias after the indecision.

• It is very uncommon, but once formed it signals a strong trend reversal.

5. Bullish Three Inside Up : The first candle is bearish, the second is bullish and remains inside the first.

• The third candle is bullish and breaks both the first ones upside.

• It signals an early reversal and provides an entry point to traders.

Bearish Triple Candlestick Patterns

1. Evening Star : This pattern is formed after an uptrend and signals a reversal.

• The first candle is largely bullish, the second is small (doji or spinning top), and the third candle is large bearish.

• It shows that buyers are losing strength and sellers are taking over.

2. Three Black Crows : Three consecutive long bearish candles form that close progressively lower.

• These candles have long bodies and short upper wicks — a clear indication of selling pressure.

• This is a strong bearish signal, especially if it forms in a resistance zone.

3. Bearish Abandoned Baby : The first candle is a large bullish one, then a doji forms with a gap up.

• This is followed by a large bearish candle that covers the gap and confirms the reversal.

• This is a rare but effective pattern, especially in volatile markets.

4. Bearish Tri-Starc : Three consecutive doji candles form, with the middle doji forming in a gap.

• This pattern indicates downside pressure following an indecision.

• This is an uncommon signal but may indicate a strong reversal.

5. Bearish Three Inside Down : The first candle is a large bullish candle, the second is a bearish candle that forms inside the first.

• The third candle breaks out downside and confirms the trend reversal.

• This gives a subtle but early warning that the market direction is about to change.

Advanced or Hybrid Patterns

Apart from the basic candlestick patterns, there are some advanced or hybrid patterns that provide in-depth information about the market. These are often used by experienced traders to understand better entry and exit points. Let's know some of the most popular advanced patterns:

1. Bullish Harami Cross : This pattern is formed when first there is a large red (bearish) candle and then a Doji candle is formed, which is completely inside the first candle.

• This means that the selling pressure is weakening and the market can now reverse.

• If this pattern is formed near a support level, then it gives a strong bullish reversal signal.

2. Bearish Harami Cross : First a long green (bullish) candle is formed and then a Doji comes which is completely inside it.

• This indicates that the buying strength is now slowing down and the market can go down.

• If it is formed near a resistance level, then it gives a clear signal of a bearish reversal.

3. Rising Three Methods : This is a continuation pattern, in which a large green candle is followed by three small red candles, and finally a large green candle again comes.

• This means that some profit booking did take place in between, but buyers still have control.

• This pattern shows that the uptrend will continue.

4. Falling Three Methods : In this, a large red candle is followed by three small green candles, and then another large red candle is formed.

• This pattern shows that buyers became a little active but the pressure of sellers is still dominant.

• This is a bearish continuation pattern, which indicates that the downtrend will continue.

5. Morning Star Doji : This pattern is made up of three candles: a large red candle, followed by a Doji, and then a long green candle.

• It indicates that the downtrend is now coming to an end and the market may turn upwards.

• It is a strong bullish reversal signal, especially when volume supports it.

6. Evening Star Doji : This is also made up of three candles: a large green candle, then a Doji, and finally a long red candle.

• It indicates that the uptrend is now coming to an end and profit-booking or a downtrend may begin.

• This is a bearish reversal pattern that is especially effective when formed at the top.

Common Mistakes While Using Candlestick Patterns

Candlestick patterns are a great way to understand market movements, but if not read correctly they can also cause negative losses.

Trading by looking at patterns only : Many times traders make decisions based on candlestick patterns only without understanding the entire market context. But the true meaning of any pattern is revealed only when it is seen along with the trend, volume and support/resistance levels.

Entering on incomplete patterns : Some traders take trades without waiting for the candlestick pattern to be fully formed, which can give false signals and lead to losses.

Ignoring volume and fundamentals : Many times people trade by looking at the charts only and ignore volume or major events like RBI policy, company results, which can completely change the market sentiment.

Finding patterns in low volume stocks : Candle patterns often do not work in low volume stocks because the true market sentiment is not visible there.

Conclusion

Candlestick patterns play a very important role in trading. But it is important to use them wisely and in the right context. Every pattern says something in itself, you just need to read it carefully and use it in combination with other indicators. Remember, patience and understanding are the biggest weapons in the market.

FAQs

Q1. How many types of candlestick patterns are there?

There are mainly three types of candlestick patterns – single, double and triple candlestick patterns.

Q2. Are candlestick patterns reliable for trading?

Yes, if used correctly and with other indicators, they can be quite reliable.

Q3. Can beginners use candlestick patterns?

Absolutely, beginner traders can also start with easy patterns like hammer, bullish engulfing, etc.

Q4. Do candlestick patterns work in all timeframes?

Candlestick patterns work in all timeframes, but their reliability is more on larger timeframes.

Q5. Which are the most commonly used candlestick patterns?

Patterns like bullish engulfing, bearish engulfing, hammer, shooting star and doji are most commonly used.