Candlestick Patterns

Candlesticks are the fastest signals in the market. While chart patterns take weeks, candlesticks take days. They give you the earliest warning of a reversal.

The Power of Location

CRITICAL: A candlestick pattern is USELESS in isolation.

• A Hammer in the middle of a sideways range = Noise.
• A Hammer at a major Support Level = Gold.

Always combine candles with Support/Resistance.

Top Bullish Patterns (Buy Signals)

1. The Hammer (Pinbar)

• Look: Small body at the top, very long lower wick.
• Story: Bears pushed price down hard. Bulls stepped in and pushed it all the way back up. Bears failed.
• Entry: Buy above the high of the hammer.

2. Bullish Engulfing

• Look: Day 1 is Red. Day 2 is Green and the body completely covers (engulfs) Day 1.
• Story: Total shift in sentiment. Buyers have overpowered sellers completely.

3. Morning Star

• Look: Day 1 Big Red. Day 2 Small body (indecision). Day 3 Big Green.
• Story: Downward momentum stopped (Day 2), and reversed (Day 3).

Top Bearish Patterns (Sell Signals)

1. Shooting Star

• Look: Inverted Hammer. Small body at bottom, long upper wick.
• Story: Bulls tried to rally. Bears slapped price down. Bulls failed.

2. Bearish Engulfing

• Look: Day 1 Green. Day 2 Red and engulfs Day 1.
• Story: Sellers have taken control.

3. Evening Star

• Look: Day 1 Green. Day 2 Small. Day 3 Red.
• Story: Uptrend stalled and reversed.

Indecision Patterns (Wait)

The Doji

• Look: Opens and Closes at virtually the same price. Looks like a cross.
• Story: Tug of war. Buyers and Sellers are equal.
• Action: A Doji indicates a potential reversal, but needs a confirmation candle the next day to prove it.