Candlestick pattern
Family VI · Charts & indicators
Not to be confused with candlestick, chart pattern, flag pattern.
Candlestick pattern refers to a recognisable shape or sequence formed by candlesticks on a price chart. Each candlestick encodes four data points for one period: open, high, low and close. Patterns are descriptive tools for reading price action, not guarantees of future direction.
Construction and common forms
A candlestick is drawn from the period's open, high, low and close. The body spans open to close; the wicks extend to the high and low. A close above the open is typically shaded one way, a close below the other, though colour conventions vary by platform and user settings.
Patterns are usually grouped by the number of candles involved:
- Single-candle: doji (open and close nearly equal), hammer, shooting star, marubozu.
- Two-candle: engulfing, harami, piercing line, dark cloud cover.
- Three-candle: morning star, evening star, three white soldiers, three black crows.
Context matters: the same shape can carry different implications depending on where it appears relative to recent highs, lows or consolidation.
Worked example
A bullish engulfing pattern requires a down candle followed by an up candle whose body completely covers the prior body. Suppose a stock closes at 50.00 after opening at 51.00, then the next session opens at 49.80 and closes at 51.40.
The current body extends beyond both ends of the prior body, so the pattern is present. Traders often look for confirmation such as a higher close in the following period, because the pattern alone does not predict direction.
Use and limitations
Candlestick patterns are used to frame entries, exits and stop placement, often alongside support and resistance, volume or trend indicators. Reliability varies by market, timeframe and instrument, and patterns can fail or produce false signals. They are not a standalone trading system.
Often confused with
- candlestick
- A candlestick is the single graphical element showing one period's open, high, low and close, whereas a candlestick pattern is a specific arrangement of one or more such elements; the visible sign is that a candlestick stands alone, while a pattern spans two or more candles or a named single-candle shape.
- chart pattern
- A chart pattern is a broader formation built from price action over many periods, such as a head and shoulders or triangle, while a candlestick pattern is composed of a small number of candles; the visible sign is the scale, with chart patterns covering dozens of bars and candlestick patterns only a few.
- flag pattern
- A flag pattern is a continuation formation consisting of a sharp price move followed by a small consolidation channel, whereas a candlestick pattern is a short sequence of candles; the visible sign is the flag's distinct pole and parallel channel, which a candlestick pattern lacks.
See also
- forex technical analysis indicators
- price action
- fundamental analysis
- support and resistance
- technical analysis
- fibonacci