Candlestick Patterns Every Trader Should Know
What is a Candlestick Pattern?
Candlesticks are a visual way to represent price action in a single period (for example 1 minute, 1 hour or 1 day). Each candle shows open, high, low and close — the body shows the range between open and close while wicks show extremes. Patterns formed by one or multiple candles can signal continuation, reversal, or indecision, and are used by traders across forex, stocks, and crypto.
Single-Candle Patterns to Know
Doji
A Doji has nearly equal open and close prices and signals indecision. When a Doji forms at a strong support or resistance level it can hint at a reversal — but confirmation from the next candle is essential.
Hammer & Hanging Man
Both have small bodies and long lower wicks. A Hammer appearing at the bottom of a downtrend is bullish; the Hanging Man appearing at the top of an uptrend can warn of a potential reversal.
Spinning Top
Small body with wicks on both sides — indicates a balance between buyers and sellers. Often a sign to reduce position size or wait for confirmation.
Multi-Candle Patterns
Bullish & Bearish Engulfing
Engulfing patterns consist of two candles where the second candle completely 'engulfs' the first. A Bullish Engulfing after a downtrend can indicate buyers stepping in. Volume confirmation increases reliability.
Morning Star & Evening Star
Three-candle patterns that signal major reversals. A Morning Star at the end of a downtrend signals a bullish reversal; an Evening Star at the end of an uptrend signals a bearish reversal.
Three White Soldiers & Three Black Crows
Three strong candles in the same direction showing sustained buying or selling pressure — good evidence of trend continuation when combined with momentum indicators.
How to Trade Candlestick Patterns
Never trade patterns in isolation. Use these rules to boost probability:
- Confirm with trend: Patterns that align with the larger trend are more reliable.
- Wait for confirmation: Use the close of the next candle or a breakout above/below the pattern's high/low before entering.
- Use stop-loss: Place stops beyond recent swing highs/lows or the opposite wick for tight risk control.
- Consider volume: Rising volume on the confirming candle supports the move.
Combining Patterns with Support & Resistance
Patterns are strongest when they form around meaningful levels. For example, a Hammer at a historical support zone has a higher chance of success. Add moving averages or trendlines to filter false signals — for instance only taking bullish patterns above the 50-period MA for trend confirmation.
Common Mistakes to Avoid
- Ignoring the bigger picture: short-term patterns against a strong higher-timeframe trend often fail.
- Overtrading: waiting for high-probability setups avoids low-quality signals.
- Not managing risk: position sizing and stop placement are more important than picking the perfect pattern.
Practical Examples & Trade Management
Example trade: Spot a Bullish Engulfing at a support zone on EUR/USD 1H chart. Wait for the next candle to close above the engulfing high, enter on close, set stop below the engulfing low, and target a nearby resistance or use a 1:2 risk:reward. Trail stops as price makes higher highs.
Record each trade in a journal: pattern, timeframe, setup reason, result — this builds edge over time.
Further Learning & Related Articles
Expand your toolkit with these guides on RFXSignals:
Downloadable Cheatsheet
Save a printable cheatsheet for quick reference: Candlestick Cheatsheet (PDF).