- A candle shows four prices: open, high, low and close.
- The body is open to close; the wicks show where price went but could not hold.
- A pattern only matters at the right place: at support or resistance, or after a clear trend.
Single-candle patterns
1. Hammer
A small body near the top with a long lower wick, at least twice the body. Sellers pushed price down, buyers took it back. Most useful at support after a fall. Bias: bullish reversal.
2. Shooting star
The mirror image: small body near the bottom, long upper wick. Buyers pushed up, sellers rejected the move. Most useful at resistance after a rise. Bias: bearish reversal.
3. Doji
Open and close are almost the same, so the body is a thin line. It shows indecision. After a long trend it can be an early warning; in a range it means very little. Bias: neutral until confirmed.
4. Bullish and bearish marubozu
A long body with little or no wicks. One side was in control from open to close. A marubozu breaking a level is a strong sign of momentum. Bias: continuation in its direction.
Two-candle patterns
5. Bullish engulfing
A red candle followed by a bigger green candle whose body fully covers the red body. Buyers overpowered sellers in one session. Bias: bullish reversal.
6. Bearish engulfing
A green candle followed by a bigger red candle that engulfs it. Bias: bearish reversal.
7. Tweezer top and tweezer bottom
Two candles with matching highs (top) or matching lows (bottom). Price tested the same level twice and was rejected both times. Bias: reversal at that level.
8. Inside bar (harami)
The second candle sits completely inside the range of the first. Volatility is contracting; a breakout of the mother candle's high or low often follows. Bias: wait for the break.
Three-candle patterns
9. Morning star
A big red candle, a small indecisive candle, then a strong green candle closing well into the first one. Selling exhausted, buyers stepped in. Bias: bullish reversal.
10. Evening star
A big green candle, a small candle, then a strong red candle. Bias: bearish reversal.
How to use patterns without getting trapped
- Location first: a hammer at a tested support zone is meaningful; the same candle in the middle of a range is noise.
- Wait for confirmation: the next candle should move in the pattern's direction, ideally with higher volume.
- Respect the trend: reversal patterns against a strong trend fail more often. Continuation setups in the trend's direction are easier.
- Use the pattern for the stop: below a hammer's low, above a shooting star's high.
- Check the timeframe: daily patterns carry more weight than 1-minute ones.
To practise, open a chart of any index or stock and look back at older candles: find a pattern, then note what happened in the next few sessions. Done on past data, this trains your eye without risking money.
For education only. This is not investment advice or a recommendation to buy or sell any security. Abhimanyu Traders is not a SEBI-registered investment adviser. Trading in equities and derivatives involves risk of loss.