The Japanese have been using candlesticks to trade commodities since the 17th century which makes them the first and most basic form of Technical Analysis. Candlesticks remain popular even today as they are a visually appealing way to monitor price data. The body of a candle is created by the difference between the open and close (also referred to as “the real body”), while the thin “shadows” on either end of the candle mark the high and low over that period (also referred to as “wicks” or “tails”). A dark or red candle means the close was below the open, while a white, green or blue candle shows the price closed higher than it opened.

candlestick formation

Let us examine some of the most popular (and powerful) candlesticks and candlestick formations.

Black & White Candles

Black and white candles are the most frequent candlesticks you can find on a chart. They are normal size candles with upper and lower wicks (shadows) that are smaller than the body. They are in most occasions continuation candlesticks.

Long Black & White Candles

Long Black and White candlesticks are candles that have a tall body in comparison to most of the ones that preceded it. They have upper and lower wicks (size doesn’t matter) and are in most occasions continuation candlesticks.

Short Black & White Candles

Short Black and White candlesticks are as the name suggests short, meaning that they have a short body. They are required to have 2 wicks (shadows) that are shorter than the body so in most cases barely visible. They are neither reversal or continuation patterns in nature since the price action is very limited.

Inside Candle

An inside candlestick is a candlestick that its price action is completely covered by the price action of the previous candlestick. The color of the candlesticks involved (bullish or bearish) is completely irrelevant.

Outside Candle

An outside candlestick is a candlestick that its price action completely covers the price action of the previous candlestick. The color of the candlesticks involved (bullish or bearish) is completely irrelevant.

Bullish Engulfing

A bullish engulfing pattern is a chart pattern that forms when a candlestick fully engulfs the previous day’s candlestick. Obviously this is an indication that the move lower that preceeded has a high chance of reversing since the bulls managed to take control.

Bearish Engulfing

A bearish engulfing pattern is a chart pattern that forms when a candlestick fully engulfs the previous day’s candlestick. Obviously this is an indication that the move higher that preceeded has a high chance of reversing since the bears managed to take control.

Harami (Bullish)

A bullish harami pattern is a chart pattern that forms when a large bearish candlestick is followed by a smaller bullish one whose body is within the range (inside) of the first one. This is consider a reversal formation.

Harami (Bearish)

A bearish harami pattern is a chart pattern that forms when a large bullish candlestick is followed by a smaller bearish one whose body is within the range (inside) of the first one . This is consider a reversal formation.

Morning Star

A morning star formation is a bullish candlestick pattern consisting of three candlesticks. The first is a bearish candlestick (preferably large in size) the second is a small indecision candlestick and the thrid is a bullish candlestick that closes at least above the middle of the first one. This is a very strong and reliable signal that a downtrend is reversing.

Candlesticks patterns - Evening Star

Evening Star

An evening star formation is a bearish candlestick pattern consisting of three candlesticks. The first is a bullish candlestick (preferably large in size) the second is a small indecision candlestick and the thrid is a bearish candlestick that closes at least below the middle of the first one. This is a very strong and reliable signal that an uptrend is reversing.

Piercing Line

A piercing line pattern is a chart pattern that forms when a bearish candlestick is followed by a bullish one which meets the following criteria: a) it opens with a gap down and b) closes above the 50% retracement of the first (bearish) one. This is considered a strong reversal formation.

Dark Cloud Cover

Dark Cloud Cover

A dark cloud cover pattern is a chart pattern that forms when a bullish candlestick is followed by a bearish one which meets the following criteria: a) it opens with a gap higher and b) closes below the 50% retracement of the first (bullish) one. This is considered a strong reversal formation.

Hammer

A hammer is single candlestick that forms when a security initially trades lower from the opening price but later on the day trades higher to close the day above the opening price. An important requirement is that the body of the candlestick has to be less than 50% of the wick. This is considered a bullish reversal pattern near the bottom of a downtrend or a continuation pattern if met in an uptrend.

Hanging Man

A hanging man is single candlestick that forms when a security initially trades lower from the opening price but later on the day trades higher to close the day below but close to the opening price. An important requirement is that the body of the candlestick has to be less than 50% of the wick. This is supposed to be a bearish reversal. Statistics have shown that it ISN’T. A hanging man has proven to be a BULLISH candlestick more often than a bearish one.

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Shooting Star

A shooting star is single candlestick that forms when a security initially trades higher from the opening price but later on the day trades lower to close the day below the opening price. An important requirement is that the body of the candlestick has to be less than 50% of the wick. This is considered a bearish reversal pattern near thetop of an uptrend or a continuation pattern if met in a downtrend.

Inverted Hammer

An inverted hammer is single candlestick that forms when a security initially trades higher from the opening price but later on the day trades lower to close the day above but close to the opening price. An important requirement is that the body of the candlestick has to be less than 50% of the wick. This is supposed to be a bullish reversal. Statistics have shown that it ISN’T. An inverted hammer has proven to be a BEARISH candlestick more often than a bullish one.

Doji

A doji is a single candlestick that looks like a cross and forms when the opening and the closing prices of a security are identical. A Doji demonstrates market indecision but under the proper circumstances can indicate a reversal. There are 2 popular variations of the doji, the Dragonfly Doji and the Gravestone Doji. A Dragonfly doji is a doji which has a long lower wick and the body near or at the top and is usually a bullish candlestick. A Gravestone Doji oppositely has a long higher wick and the body is at or near the bottom and is usually a bearish candlestick.

Spinning Top

A spinning top is a single candlestick that has a small body and both a higher and a lower wick. It forms when after a volatile movement, the price closes near the opening price. A Spinning Top demonstrates market indecision but under the proper circumstances can indicate a reversal.

Tweezer Top

A Tweezer Top is a chart pattern consisting of 2 candlesticks. The first one is a bullish, registering a new high (might be a S/T high), however, the next one is a bearish candlestick that after testing the last candlestick’s highs moves directly lower. For a Tweezer Top formation to be valid that 2nd candlestick has to close below the 50% retracement of the first one. This is consider a reversal formation but statistically hasn’t proved to be such a strong reversal indicator as theory suggests.

Tweezer Bottom

A Tweezer Bottom is a chart pattern consisting of 2 candlesticks. The first one is a bearish, registering a new lows (might be a S/T high), however, the next one is a bullish candlestick that after testing the last candlestick’s lows moves directly higher. For a Tweezer Bottom formation to be valid that 2nd candlestick has to close above the 50% retracement of the first one. This is consider a reversal formation but statistically hasn’t proved to be such a strong reversal indicator as theory suggests.

Candlesticks patterns Marubozu

Marubozu White

A Maruzobu White is a single candlestick that doesn’t have lower or upper shadows, in essence that means that the opening price is the same as the low and the closing price is the same as the high. Obviously this is a very bullish candlestick.

Marubozu Black

A Maruzobu Black is a single candlestick that doesn’t have lower or upper shadows, in essence that means that the opening price is the same as the high and the closing price is the same as the low. Obviously this is a very bearish candlestick.