Candlestick Charts

Introduction to Candlesticks History and formation of Candlesticks

Candlesticks and Traditional Chart Analysis In addition to their own merits as a charting system, Japanese candlesticks can function as confirmation for signals generated by other technical analysis techniques.

Candlesticks and Support This list contains candlesticks and candlestick patterns that can be used with support levels.

Candlesticks and Resistance This list contains candlesticks and candlestick patterns that can be used to identify or confirm resistance levels.

A bullish reversal candlestick pattern signals a potential change from a downtrend to an uptrend. It's a hint that the market's sentiment might be shifting from selling to buying.

A bearish reversal candlestick pattern is a sequence of price actions or a pattern that signals a potential change from uptrend to downtrend. It's a hint that the market sentiment may be shifting from buying to selling.

Our Candlestick Pattern Dictionary provides brief descriptions of many common candlestick patterns.

Introduction

Single candlesticks and candlestick patterns can confirm or mark support levels. Such a support level could be formed after an extended decline or confirm a previous support level. In a trading range, candlesticks can help choose entry points for buying near support and selling near resistance. The list below contains some, but not all, of the candlesticks and candlestick patterns that can be used together with support levels. The bullish reversal patterns are marked with an (R).

• Bullish Engulfing (R)

• (R)

• Doji (, , )

• (R)

• (R)

• Long White candlestick or White

• or (R)

• (R)

• (R)

Bullish reversal candlesticks and patterns indicate that buying pressure overcame early selling pressure for a strong finish. This bullish price action suggests enough strong demand for support to be established.

The inverted hammer, long white candlestick, and Marubozu show increased buying pressure rather than an actual price reversal. With its long upper shadow, an inverted hammer signifies intra-session buying interest that faded by the finish. Even though the security finished well below its high, the ability of buyers to push prices higher during the session is bullish. The long white candlestick and white Marubozu signify sustained buying pressure in which prices advanced sharply from open to close. Signs of increased buying pressure bode well for support.

The doji and spinning top denote indecision and are generally considered neutral. These non-reversal patterns indicate a decrease in selling pressure but not necessarily a revival of buying pressure. After a decline, the appearance of a doji or spinning top denotes a sudden letup in selling pressure. A stand-off has developed between buyers and sellers, and a support level may form.

In the chart below, Electronic Data Systems (EDS) traded within a range between $58 and $75 for about four months at the beginning of 2000.

Support at $58 was established in early January, followed by resistance at $75 in late January. The stock declined to its previous support level in early March, forming a long-legged doji and later a spinning top (red circle). Notice that the doji formed immediately after a Marubozu (long black candlestick without upper or lower shadows). This doji marked a sudden decrease in relative selling pressure and support held. Support was tested again in April, and this test was marked by a long-legged doji (blue arrow).

Broadcom (BRCM) formed a bullish engulfing pattern to mark a new support level below $210 (green oval) in late July 2000. A few days later, a long white candlestick formed and engulfed the previous four candlesticks.

The combination of the bullish engulfing and long white candlestick reinforced the validity of support around $208. The stock has since tested support around $208 once in early September and twice in October. A piercing pattern (red arrow) formed in early October, and a large hammer in late October.

Medtronic (MDT) established support around $46 in late February with a spinning top (red arrow) and early March with a harami.

The stock declined sharply in April, and a hammer was formed to confirm support at $46 (first green arrow). After a to resistance around $57, the stock declined sharply and again found support around $46 (blue arrow).

Additional Reading

Reference Tool

Benefits of Candlestick Charts

Candlestick charts have merits as a charting system, but they also confirm signals generated by other technical analysis tools. We will examine how candlesticks interact with , breakout signals, , and volume, and how they form mutually beneficial relationships that strengthen investor confidence when analyzing charts.

Single candlesticks and candlestick patterns can confirm or mark . Such a resistance level could be new after an extended advance or an existing resistance level confirmed within a trading range. In a trading range, candlesticks can help identify entry points to sell near resistance or buy near . The list below contains some, but not all, of the candlesticks and candlestick patterns that can be used to identify or confirm resistance levels. The bearish reversal patterns are marked with an (R).

• (R)

• (R)

History of Candlestick Charts

The Japanese began using technical analysis to trade rice in the 17th century. While this early version of technical analysis was different from the US version initiated by Charles Dow around 1900, many of the guiding principles were very similar:

• The “what” (price action) is more important than the “why” (news, earnings, and so on).

• All known information is reflected in the price.

• Buyers and sellers move markets based on expectations and emotions (fear and greed).

• Markets fluctuate.

• The actual price may not reflect the underlying value.

According to , candlestick charting first appeared sometime after 1850. Much of the credit for candlestick development and charting goes to a legendary rice trader named Homma from the town of Sakata. It is likely that his original ideas were modified and refined over many years of trading, eventually resulting in the system of candlestick charting that we use today.

Formation of Candlestick Charts

To create a candlestick chart, you must have a data set that contains open, high, low and close values for each time period you want to display. The hollow or filled portion of the candlestick is called “the body” (also referred to as “the real body”). The long thin lines above and below the body represent the high/low range and are called “shadows” (also referred to as “wicks” and “tails”). The high is marked by the top of the upper shadow and the low by the bottom of the lower shadow.

If the stock closes higher than its opening price, a hollow candlestick is drawn with the bottom of the body representing the opening price and the top of the body representing the closing price. If the stock closes lower than its opening price, a filled candlestick is drawn with the top of the body representing the opening price and the bottom of the body representing the closing price.

Compared to traditional bar charts, many traders consider candlestick charts more visually appealing and easier to interpret. Each candlestick provides a simple, visually appealing picture of price action; a trader can instantly compare the relationship between the open and close and the high and low.

The relationship between the open and close is considered vital information and forms the essence of candlesticks. Hollow candlesticks, where the close is greater than the open, indicate buying pressure. Filled candlesticks, where the close is less than the open, indicate selling pressure.

Long Versus Short Bodies

Generally speaking, the longer the body is, the more intense the buying or selling pressure. Conversely, short candlesticks indicate little price movement and represent consolidation.

Long white candlesticks show strong buying pressure. The longer the white candlestick is, the further the close is above the open. This indicates that prices advanced significantly from open to close and buyers were aggressive. While long white candlesticks are generally bullish, much depends on their position within the broader technical picture. After extended declines, long white candlesticks can mark a potential turning point or level. If buying gets too aggressive after a long advance, it can lead to excessive bullishness.

Long black candlesticks show strong selling pressure. The longer the black candlestick is, the further the close is below the open. This indicates prices declined significantly from the open and sellers were aggressive. After a long advance, a long black candlestick can foreshadow a turning point or mark a future level. After a long decline, a long black candlestick can indicate panic or capitulation.

Even more potent long candlesticks are the Marubozu brothers, black and white. Marubozu bars don't have upper or lower shadows and the high and low are represented by the open or close (see image below).

A white Marubozu forms when the open equals the low and the close equals the high. This indicates that buyers controlled the price action from the first trade to the last trade. Black Marubozu form when the open equals the high and the close equals the low. This indicates that sellers controlled the price action from the first trade to the last trade.

Long Versus Short Shadows

The upper and lower shadows on candlesticks can provide valuable information about the trading session. Upper shadows represent the session high and lower shadows the session low. Candlesticks with short shadows indicate that most of the trading action was confined near the open and close. Candlesticks with long shadows show that prices extended well past the open and close.

Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated during the session, bidding prices higher, but sellers ultimately forced prices down from their highs. This contrast of strong high and weak close resulted in a long upper shadow. Conversely, candlesticks with long lower shadows and short upper shadows indicate that sellers dominated during the session and drove prices lower. However, buyers later resurfaced to bid prices higher by the end of the session; the strong close created a long lower shadow.

Candlesticks with a long upper shadow, long lower shadow, and small real body are called spinning tops (see image below). One long shadow represents a reversal of sorts.

Spinning tops represent indecision. The small real body (whether hollow or filled) shows little movement from open to close, and the shadows indicate that bulls and bears were active during the session.

Even though the session opened and closed with little change, prices moved significantly higher and lower in the meantime. Neither buyers nor sellers could gain the upper hand and the result was a standoff.

After a long advance or long white candlestick, a spinning top indicates weakness among the bulls and a potential change or interruption in trend. After a long decline or long black candlestick, a spinning top indicates weakness among the bears and a potential change or interruption in trend.

Doji

Doji represent an important type of candlestick, providing information on their own and as components of many important patterns. Doji form when a security's open and close are virtually equal. The length of the upper and lower shadows can vary, with the resulting candlestick looking like a cross, inverted cross, or plus sign. Alone, doji are neutral patterns. Any bullish or bearish bias is based on preceding price action and future confirmation. The word “doji” refers to both the singular and plural form.

Ideally, but not necessarily, the open and close should be equal. While a doji with an equal open and close would be considered more robust, it is more important to capture the essence of the candlestick. Doji convey a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening level during the session, but close at or near the opening level. The result is a standoff. Neither bulls nor bears were able to gain control and a turning point could be developing.

Different securities have different criteria for determining the robustness of a doji. A $20 stock could form a doji with a 0.125 point difference between open and close, while a $200 stock might form one with a 1.25 point difference. Determining the robustness of the doji will depend on the price, recent volatility, and previous candlesticks.

Relative to previous candlesticks, the doji should have a very small body that appears as a thin line (see image below).

Steven Nison notes that a doji that forms among other candlesticks with small real bodies would not be considered important. However, a doji that forms among candlesticks with long real bodies would be deemed significant.

Doji and Trend

The relevance of a doji depends on the preceding trend or preceding candlesticks. After an advance, or long white candlestick, a doji signals that the buying pressure is starting to weaken. After a decline, or long black candlestick, a doji signals that selling pressure is starting to diminish.

Doji indicate that the forces of supply and demand are becoming more evenly matched and a change in trend may be near. On their own, doji are not enough to mark a reversal. You'll need further confirmation.

After an advance or long white candlestick, a doji signals that buying pressure may be diminishing and the uptrend could be nearing an end. To sustain an uptrend, there needs to be continued buying pressure. A security can decline in price if there aren't enough buyers. Therefore, a doji may be more significant after an uptrend or long white candlestick (see image below).

Even after the doji forms, further downside is required for bearish confirmation. This may come as a gap down, long black candlestick, or decline below the long white candlestick's open. After a long white candlestick and doji, traders should be alert for a potential evening doji star.

After a decline or long black candlestick, a doji indicates that selling pressure may be diminishing and the downtrend could be nearing an end. Even though the bears are starting to lose control of the decline, further strength is required to confirm any reversal. Bullish confirmation could come from a gap up, long white candlestick, or advance above the long black candlestick's open. After a long black candlestick and doji, traders should be on the alert for a potential morning doji star.

Long-Legged Doji

Long-legged doji have long upper and lower shadows almost equal in length. They reflect the market's indecision.

Long-legged doji indicate that prices traded well above and below the session's opening level but closed virtually even with the open. After a whole lot of yelling and screaming, the result showed little change from the initial open.

Dragonfly and Gravestone Doji

Dragonfly Doji

Dragonfly doji form when the open, high, and close are equal, and the low creates a long lower shadow. The resulting candlestick looks like a “T” due to the lack of an upper shadow. Dragonfly doji indicate that sellers dominated trading and drove prices lower during the session. By the end of the session, buyers resurfaced and pushed prices back to the opening level and the session high.

The reversal implications of a dragonfly doji depend on previous price action and future confirmation. The long lower shadow provides evidence of buying pressure, but the low indicates that plenty of sellers still loom. After a long downtrend, long black candlestick, or at , a dragonfly doji could signal a potential bullish reversal or bottom. After a long uptrend, long white candlestick, or at , the long lower shadow could foreshadow a potential bearish reversal or top. Bearish or bullish confirmation is required for both situations.

Gravestone Doji

Gravestone doji form when the open, low, and close are equal, and the high creates a long upper shadow. The resulting candlestick looks like an upside-down “T” due to the lack of a lower shadow. Gravestone doji indicate buyers dominated trading and drove prices higher during the session. However, by the end of the session, sellers resurfaced and pushed prices back to the opening level, and the session low.

As with the dragonfly doji and other candlesticks, the reversal implications of gravestone doji depend on previous price action and future confirmation. Even though the long upper shadow indicates a failed rally, the intraday high provides evidence of some buying pressure. After a long downtrend, long black candlestick, or at support, the focus turns to the evidence of buying pressure and a potential bullish reversal. After a long uptrend, long white candlestick, or at resistance, the focus turns to the failed rally and a potential bearish reversal. Bearish or bullish confirmation is required for both situations.

Bulls Versus Bears

A candlestick depicts the battle between bulls (buyers) and bears (sellers) over a given period. An analogy to this battle can be made between two football teams, which we can also call the Bulls and the Bears. The candlestick's bottom (intra-session low) represents a touchdown for the Bears, and the top (intra-session high) a touchdown for the Bulls. The closer the close is to the high, the closer the Bulls are to a touchdown. The closer the close is to the low, the closer the Bears are to a touchdown. While there are many variations, let's narrow the field to six types of games (or candlesticks).

1. Long white candlesticks indicate that the Bulls controlled the ball (trading) for most of the game.

2. Long black candlesticks indicate that the Bears controlled the ball (trading) for most of the game.

3. Small candlesticks indicate that neither team could move the ball, and prices finished about where they started.

4. A

What Candlesticks Don't Tell You

Candlesticks don't reflect the sequence of events between the open and close. They only reflect the relationship between the open and close. The high and the low are obvious and indisputable, but candlesticks (and bar charts) cannot tell us which came first.

With a long white candlestick, the assumption is that prices advanced most of the session. However, based on the high/low sequence, the session could have been more . The example above depicts two possible high/low sequences forming the same candlestick.

The first sequence shows two small moves and one large move—a small decline off the open to form the low, a sharp advance to form the high, and a small decline to form the close. The second sequence shows three sharp moves—a sharp advance off the open to form the high, a sharp decline to form the low, and a sharp advance to form the close.

The first sequence portrays strong, sustained buying pressure and would be considered more bullish. The second sequence reflects more volatility and some selling pressure. These are just two examples; there are hundreds of potential combinations that could result in the same candlestick.

Candlesticks still offer valuable information on the relative positions of the open, high, low, and close. However, the trading activity that forms a particular candlestick can vary.

Prior Trend

In his book , Greg Morris notes that, for a pattern to qualify as a reversal pattern, there should be a prior trend to reverse. Bullish reversals require a preceding downtrend, and bearish reversals require a prior uptrend. The direction of the trend can be determined using , , peak/trough analysis, or other aspects of technical analysis. A downtrend might exist if the security was trading below its downtrend line, below its previous reaction high, or below a specific moving average. The length and duration will depend on individual preferences. However, because candlesticks are short-term, it is usually best to consider the last 1-4 weeks of price action.

Candlestick Positioning

Star Position

A candlestick that gaps away from the previous candlestick is said to be in star position. The first candlestick usually has a large real body, but not always, and the second candlestick in the star position has a small real body.

Depending on the previous candlestick, the star position candlestick and appears isolated from the previous price action. The two candlesticks can be any combination of white and black. , , , and spinning tops have small, real bodies and can form in the star position. There are also several two- and three-candlestick patterns that utilize the star position.

Harami Position

A candlestick that forms within the real body of the previous candlestick is in Harami position. Harami means pregnant in Japanese; appropriately, the second candlestick is nestled inside the first.

The first candlestick usually has a large real body, and the second a smaller real body than the first. The second candlestick's shadows (high/low) do not have to be contained within the first, though it is preferable if they are. Doji and spinning tops have small real bodies, meaning they can form in the harami position as well. There are also several two- and three-candlestick patterns that utilize the harami position.

Long Shadow Reversals

There are two pairs of single candlestick reversal patterns: a small real body, one long shadow, and one short or non-existent shadow. Generally, the long shadow should be at least twice the length of the real body, which can be black or white. The location of the long shadow and preceding price action determine the classification.

The first pair, Hammer and Hanging Man, consists of identical candlesticks with small bodies and long lower shadows. The second pair, Shooting Star and Inverted Hammer, also contains identical candlesticks but with small bodies and long upper shadows. Only preceding price action and further confirmation determine the bullish or bearish nature of these candlesticks. The Hammer and Inverted Hammer form after a decline and are bullish reversal patterns, while the Shooting Star and Hanging Man form after an advance and are bearish reversal patterns.

Hammer and Hanging Man

The Hammer and Hanging Man look identical but have different implications based on the preceding price action. Both have small real bodies (black or white), long lower shadows, and short or non-existent upper shadows. As with most single and double candlestick formations, the Hammer and Hanging Man require confirmation before action.

The Hammer is a bullish reversal pattern that forms after a decline. In addition to a potential trend reversal, hammers can mark bottoms or levels. After a decline, hammers signal a bullish revival. The low of the long lower shadow implies that sellers drove prices lower during the session. However, the strong finish indicates that buyers regained their footing to end the session on a strong note. While this may seem like enough to act on, hammers require further bullish confirmation. The low of the hammer shows that plenty of sellers remain. Further buying pressure, and preferably on expanding , is needed before acting. Such confirmation could come from a or long white candlestick. Hammers are similar to selling climaxes, and heavy volume can serve to reinforce the validity of the reversal.

The Hanging Man is a bearish reversal pattern that can also mark a top or level. Forming after an advance, a Hanging Man signals that selling pressure is starting to increase. The low of the long lower shadow confirms that sellers pushed prices lower during the session. Even though the bulls regained their footing and drove prices higher by the finish, the appearance of selling pressure raised the yellow flag. As with the Hammer, a Hanging Man requires bearish confirmation before action. Such confirmation can be a gap down or a long black candlestick on heavy volume.

Inverted Hammer and Shooting Star

The Inverted Hammer and Shooting Star look identical but have different implications based on previous price action. Both candlesticks have small real bodies (black or white), long upper shadows and small or nonexistent lower shadows. These candlesticks mark potential trend reversals but require confirmation before action.

The Shooting Star is a bearish reversal pattern that forms after an advance and in the star position, hence its name. A Shooting Star can mark a potential trend reversal or resistance level. The candlestick forms when prices gap higher on the open, advance during the session, and close well off their highs. The resulting candlestick has a long upper shadow and small black or white body. After a large advance (the upper shadow), the ability of the bears to force prices down raises the yellow flag. To indicate a substantial reversal, the upper shadow should be relatively long and at least 2 times the length of the body. Bearish confirmation is required after the Shooting Star and can be a gap down or a long black candlestick on heavy volume.

The Inverted Hammer looks exactly like a Shooting Star, but forms after a decline or downtrend. Inverted Hammers represent a potential trend reversal or support levels. After a decline, the long upper shadow indicates buying pressure during the session. However, the bulls were not able to sustain this buying pressure and prices closed well off of their highs to create the long upper shadow. Because of this failure, bullish confirmation is required before action. An Inverted Hammer followed by a gap up or long white candlestick with heavy volume could act as bullish confirmation.

Blending Candlesticks

Candlestick patterns are made up of one or more candlesticks and can be blended to form one candlestick. This blended candlestick captures the essence of the pattern and can be formed using the following:

• The open of the first candlestick

• The close of the last candlestick

• The high and low of the pattern

By using the open of the first candlestick, close of the second candlestick, and high/low of the pattern, a or blends into a . The long lower shadow of the Hammer signals a potential bullish reversal. As with the Hammer, the Bullish Engulfing Pattern and Piercing Pattern require bullish confirmation.

Blending the candlesticks of a or Pattern creates a Shooting Star. The long, upper shadow of the Shooting Star indicates a potential bearish reversal. As with the Shooting Star, Bearish Engulfing, and Dark Cloud Cover Patterns require bearish confirmation.

More than two candlesticks can be blended using the same guidelines: open from the first, close from the last, and high/low of the pattern. Blending creates a long white candlestick and blending creates a long black candlestick.

Charts with Current CandleStick Patterns

StockCharts.com maintains a list of all stocks that currently have common candlestick patterns on their charts in the Predefined Scan Results area. To see these results, and scroll down until you see the “Candlestick Patterns” section. The results are updated throughout each trading day.

Additional Reading

ChartSchool Articles

Further Study

The StockCharts Candlestick Pattern Dictionary provides brief descriptions of many common candlestick patterns.

Abandoned Baby

A rare reversal pattern characterized by a gap followed by a Doji, which is then followed by another gap in the opposite direction. The shadows on the Doji must completely gap below or above the shadows of the first and third day.

Dark Cloud Cover

A bearish reversal pattern that continues the uptrend with a long white body. The next day opens at a new high, then closes below the midpoint of the body of the first day.

Doji

Doji form when the open and close of a security are virtually equal. The length of the upper and lower shadows can vary, and the resulting candlestick looks like either a cross, inverted cross, or a plus sign. Doji convey a sense of indecision or tug-of-war between buyers and sellers. Prices move above and below the opening level during the session but close at or near the opening level.

Downside Tasuki Gap

A continuation pattern with a long, black body followed by another black body that has gapped below the first one. The third day is white and opens within the body of the second day, then closes in the gap between the first two days, but does not close the gap.

Dragonfly Doji

A Doji where the open and close price are at the high of the day. Like other Doji days, this one normally appears at market turning points.

Engulfing Pattern

A reversal pattern that can be bearish or bullish, depending upon whether it appears at the end of an uptrend (bearish engulfing pattern) or a downtrend (bullish engulfing pattern). The first day is characterized by a small body, followed by a day whose body completely engulfs the previous day's body and closes in the opposite direction of the trend. This pattern is similar to the , but does not require the entire range (high and low) to be engulfed, just the open and close.

Evening Doji Star

A three-day bearish reversal pattern similar to the Evening Star. The uptrend continues with a large white body. The next day opens higher, trades in a small range, then closes at its open (Doji). The next day closes below the midpoint of the body of the first day.

Evening Star

A bearish reversal pattern that continues an uptrend with a long white body day followed by a gapped up small body day, then a down close with the close below the midpoint of the first day.

Falling Three Methods

A bearish continuation pattern. A long black body is followed by three small body days, each fully contained within the range of the high and low of the first day. The fifth day closes at a new low.

Gravestone Doji

A doji line develops when the Doji is at, or very near, the low of the day.

Hammer

Hammer candlesticks form when a security moves significantly lower after the open but rallies to close well above the intraday low. The resulting candlestick looks like a square lollipop with a long stick. If this candlestick forms during a decline, it is called a Hammer.

Hanging Man

Hanging Man candlesticks form when a security moves significantly lower after the open but rallies to close well above the intraday low. The resulting candlestick looks like a square lollipop with a long stick. If this candlestick forms during an advance, it is called a Hanging Man.

Harami

A two-day pattern that has a small body day completely contained within the range of the previous body, and is the opposite color.

Harami Cross

A two-day pattern that's similar to the Harami. The difference is that the last day is a Doji.

Inverted Hammer

A one-day bullish reversal pattern. In a downtrend, the open is lower, then it trades higher, but closes near its open, therefore looking like an inverted lollipop.

Long Body / Long Day

A large price move from open to close, i.e., the length of the candle body is long.

Long-Legged Doji

This candlestick has long upper and lower shadows with the Doji in the middle of the day's trading range, clearly reflecting the indecision of traders.

Long Shadows

Candlesticks with a long upper shadow and short lower shadow indicate that buyers dominated during the first part of the session, bidding prices higher. Conversely, candlesticks with long lower shadows and short upper shadows indicate that sellers dominated during the first part of the session, driving prices lower.

Marubozu

A candlestick with no shadow extending from the body at the open, close, or both. The name means close-cropped or close-cut in Japanese, though other interpretations refer to it as Bald or Shaven Head.

Morning Doji Star

A three-day bullish reversal pattern that's similar to the Morning Star. The first day is in a downtrend with a long black body. The next day opens lower with a Doji with a small trading range. The last day closes above the midpoint of the first day.

Morning Star

A three-day bullish reversal pattern consisting of three candlesticks—a long-bodied black candle extending the current downtrend, a short middle candle that gapped down on the open, and a long-bodied white candle that gapped up on the open and closed above the midpoint of the body of the first day.

Piercing Line

A bullish two-day reversal pattern. The first day, in a downtrend, is a long black day. The next day opens at a new low, then closes above the midpoint of the body of the first day.

Rising Three Methods

A bullish continuation pattern in which a long white body is followed by three small body days, each fully contained within the range of the high and low of the first day. The fifth day closes at a new high.

Shooting Star

A single-day pattern that can appear in an uptrend. It opens higher, trades much higher, and then closes near its open. It looks just like the Inverted Hammer, except it's bearish.

Short Body / Short Day

A short day represents a small price move from open to close, where the length of the candle body is short.

Spinning Top

Candlestick lines that have small bodies with upper and lower shadows that exceed the length of the body. Spinning tops signal indecision.

Stars

A candlestick that gaps away from the previous candlestick is said to be in a star position. Depending on the previous candlestick, the star position candlestick gaps up or down and appears isolated from the previous price action.

Stick Sandwich

A bullish reversal pattern with two black bodies surrounding a white body. The closing prices of the two black bodies must be equal. A support price is apparent, and the probability for prices to reverse is high.

Three Black Crows

A bearish reversal pattern consists of three consecutive long black bodies where each day closes at or near its low and opens within the body of the previous day.

Three White Soldiers

A bullish reversal pattern consisting of three consecutive long white bodies. Each should open within the previous body, and the close should be near the high of the day.

Upside Gap Two Crows

A three-day bearish pattern that only happens in an uptrend. The first day is a long white body followed by a gap open with the small black body. The gap remains above the first day after the close. The third day is also a black candlestick with a body larger than the second day and engulfs it. The last day's close is still above the first long white day.

Upside Tasuki Gap

A continuation pattern with a long white body followed by another white body that has gapped above the first one. The third day is black and opens within the body of the second day, then closes in the gap between the first two days but does not close the gap.

Scanning for Charts With Candlestick Patterns

StockCharts.com maintains a list of stocks with common candlestick patterns on their charts in the area. To see these results, and scroll down until you see the Candlestick Patterns section. The results are updated throughout each trading day.

Additional Reading

ChartSchool:

What Is a Bullish Reversal Candlestick Pattern?

A bullish reversal candlestick pattern signals a potential change from a downtrend to an uptrend. It's a hint that the market's sentiment might be shifting from selling to buying.

Important Bullish Reversal Candlestick Patterns to Know

There are dozens of bullish reversal candlestick patterns. We have elected to narrow the field by selecting the most popular for detailed explanations. Below are some of the key bullish reversal patterns with the number of candlesticks required in parentheses.

• (2)

• (2)

• (2)

• (1)

The hammer and inverted hammer were covered in the article . This article will focus on the other six patterns. For a complete list of bullish (and bearish) reversal patterns, see Greg Morris' book, .

Before moving on to individual patterns, certain guidelines should be established:

• Most patterns require bullish confirmation.

• Bullish reversal patterns should form within a downtrend.

• Other aspects of technical analysis should be used as well.

How Do You Confirm a Bullish Reversal?

Patterns can form with one or more candlesticks; most require bullish confirmation. The actual reversal indicates that buyers overcame prior selling pressure, but it remains unclear whether new buyers will bid prices higher. Without confirmation, these patterns would be considered neutral and merely indicate a potential level at best. Bullish confirmation means further upside follow through and can come as a , long white candlestick or high volume advance. Because candlestick patterns are short-term and usually effective for only 1 or 2 weeks, bullish confirmation should come within 1 to 3 days after the pattern.

There Must Be an Existing Downtrend to Reverse

To be considered a bullish reversal, there should be an existing downtrend to reverse. A at new highs can hardly be considered a bullish reversal pattern. Such formations would indicate continued buying pressure and could be considered a continuation pattern.

In the Ciena example below, the pattern in the red oval looks like a bullish engulfing, but formed near after about a 30 point advance. The pattern shows strength, but is more likely a continuation at this point than a reversal pattern.

The existence of a downtrend can be determined by using , peak/trough analysis or . A security could be deemed in a downtrend based on one of the following:

• The security is trading below its 20-day exponential moving average ().

• Each reaction peak and trough is lower than the previous.

• The security is trading below its trend line.

These are just examples of possible guidelines to determine a downtrend. Some traders may prefer shorter downtrends and consider securities below the 10-day EMA. Defining criteria will depend on your trading style and personal preferences.

Key Bullish Reversal Candlestick Patterns

Bullish Engulfing

The bullish engulfing pattern consists of two candlesticks, the first black and the second white. The size of the black candlestick is not that important, but it should not be a which would be relatively easy to engulf. The second should be a long white candlestick – the bigger it is, the more bullish. The white body must totally engulf the body of the first black candlestick. Ideally, though not necessarily, the white body would engulf the shadows as well. Although shadows are permitted, they are usually small or nonexistent on both candlesticks.

After a decline, the second white candlestick begins to form when selling pressure causes the security to open below the previous close. Buyers step in after the open and push prices above the previous open for a strong finish and potential short-term reversal. Generally, the larger the white candlestick and the greater the engulfing, the more bullish the reversal. Further strength is required to provide bullish confirmation of this reversal pattern.

In January 2000, Sun Microsystems (SUNW) formed a pair of bullish engulfing patterns that foreshadowed two significant advances (see chart below). The first formed in early January after a sharp decline that took the stock well below its 20-day EMA. An immediate gap up confirmed the pattern as bullish, and the stock raced ahead to the mid-forties.

After correcting to , the second bullish engulfing pattern formed in late January. The stock declined below its 20-day EMA and found support from its earlier gap up. This also marked a 2/3 correction of the prior advance. A bullish engulfing pattern formed and was confirmed the next day with a strong follow-up advance.

Piercing Pattern

The piercing pattern comprises two candlesticks, the first black and the second white. Both candlesticks should have relatively large bodies, and the shadows are usually, but not necessarily, small or nonexistent. The white candlestick must open below the previous close and close above the midpoint of the black candlestick's body. A close below the midpoint might qualify as a reversal but would not be considered bullish.

Like the bullish engulfing pattern, selling pressure forces the security to open below the previous close, indicating that sellers still have the upper hand on the open. However, buyers step in after the open to push the security higher and it closes above the midpoint of the previous black candlestick's body. Further strength is required to provide bullish confirmation of this reversal pattern.

In late March and early April 2000, Ciena (CIEN) declined from above $80 to around $40. The stock first touched $40 in early April with a long lower shadow. After a bounce, the stock tested support around $40 again in mid-April and formed a piercing pattern. The piercing pattern was confirmed the next day with a strong advance above $50.

Even though there was a setback after confirmation, the stock remained above support and advanced above $70. Also, note the in late May.

Bullish Harami

The bullish harami is made up of two candlesticks. The first has a large body, while the second has a small body encompassed by the first. There are four possible combinations: white/white, white/black, black/white and black/black.

All harami look the same, whether they are bullish reversal or bearish reversal patterns. Their bullish or bearish nature depends on the preceding trend. Harami are considered potential bullish reversals after a decline and potential bearish reversals after an advance. No matter what the color of the first candlestick, the smaller the body of the second candlestick is, the more likely the reversal. If the small candlestick is a doji, the chances of a reversal increase.

In his book , Steve Nison asserts that any combination of colors can form a harami but that the most bullish are those that form with a white/black or white/white combination. Because the first candlestick has a large body, it implies that the bullish reversal pattern would be stronger if this body were white. The long white candlestick shows a sudden and sustained resurgence of buying pressure. The small candlestick afterward indicates consolidation. White/white and white/black bullish harami are likely to occur less often than black/black or black/white.

After a decline, a black/black or black/white combination can still be regarded as a bullish harami. The first long black candlestick signals that significant selling pressure remains, which could indicate capitulation. The small candlestick immediately following forms with a gap up on the open, indicating a sudden increase in buying pressure and potential reversal.

Micromuse (MUSE) declined to the mid-sixties in April 2000 and began to trade in a range bound by $33 and $50 over the next few weeks (see chart below). After a six-day decline back to support in late May, a bullish harami (red oval) formed. The first day formed a long white candlestick, while the second formed a small black candlestick that could be classified as a doji. The next day's advance provided bullish confirmation, and the stock rose to around $75.

Hammer

The hammer is made up of one candlestick, white or black, with a small body, long lower shadow, and small or nonexistent upper shadow. The size of the lower shadow should be at least twice the length of the body and the high/low range should be large relative to range over the last 10-20 days.

After a decline, the hammer's intraday low indicates that selling pressure remains. However, the strong close shows buyers are starting to become active again. Further strength is required to provide bullish confirmation of this reversal pattern.

Nike (NKE) declined from the low 50s to the mid-30s before starting to find support in late February. After a small reaction rally, the stock declined back to support in mid-March and formed a hammer. Bullish confirmation came two days later with a sharp advance.

Morning Star

The morning star consists of three candlesticks:

1. A long black candlestick.

2. A small white or black candlestick that gaps below the close of the previous candlestick. This candlestick can also be a doji, in which case the pattern would be a morning doji star.

3. A long white candlestick.

The black candlestick confirms that the decline remains in force and selling dominates. When the second candlestick gaps down, it provides further evidence of selling pressure. However, the decline ceases or slows significantly after the gap, and a small candlestick forms. The small candlestick indicates indecision and a possible trend reversal. If the small candlestick is a doji, the chances of a reversal increase. The third long white candlestick provides bullish confirmation of the reversal.

After declining from above $180 to below $120, Broadcom (BRCM) formed a morning doji star and advanced above $160 in three days. These are strong reversal patterns and do not require further bullish confirmation beyond the long white candlestick on the third day. After the advance above $160, a two-week pullback followed, and the stock formed a piecing pattern (red arrow) that was confirmed with a large gap up.

Bullish Abandoned Baby

The bullish abandoned baby resembles the morning doji star and also consists of three candlesticks:

1. A long black candlestick.

2. A doji that gaps below the low of the previous candlestick.

3. A long white candlestick that gaps above the high of the doji.

The main difference between the morning doji star and the bullish abandoned baby is the gaps on either side of the Doji. The first gap down signals that selling pressure remains strong. However, selling pressure eases, and the security closes at or near the open, creating a doji. Following the doji, the gap up and long white candlestick indicate strong buying pressure, and the reversal is complete. Further bullish confirmation is not required.

In April, Genzyme (GENZ) declined below its 20-day EMA and began to find support in the low thirties (see chart below). The stock began forming a base as early as April 17, but a discernible reversal pattern failed to emerge until the end of May. The bullish abandoned baby formed with a long black candlestick, doji, and long white candlestick. The gaps on either side of the doji reinforced the bullish reversal.

Other Tools To Use With Bullish Reversal Patterns

Candlesticks provide an excellent means to identify short-term reversals but should not be used alone. Other aspects of technical analysis can and should be incorporated to increase reversal robustness. Below are three ideas on combining traditional technical analysis with candlestick analysis.

Support

To increase robustness, look for bullish reversals at support levels. Support levels can be identified with moving averages, previous , trend lines, or retracements.

Momentum

Use to confirm improving momentum with bullish reversals. Positive divergences in , , , , StochRSI, or would indicate improving momentum and increase the robustness behind a bullish reversal pattern.

Money Flow

Volume-based indicators can help identify buying and selling pressure. Candlesticks can be used with (OBV), (CMF), and the . Strength in any of these would increase the robustness of a reversal.

Want to take it one step further? Combine all three aspects for the ultimate signal. Look for a bullish candlestick reversal in securities trading near support with positive divergences and signs of buying pressure.

In the chart below, many signals came together for IBM in early October. After a steep decline since August, the stock formed a bullish engulfing pattern (red oval), confirmed by a strong advance three days later. The 10-day Slow Stochastic Oscillator formed a positive divergence and moved above its trigger line just before the stock advanced. Although not in the green yet, CMF showed constant improvement and moved into positive territory a week later.

The Bottom Line

We’ve outlined some of the most common bullish reversal candlestick patterns, their structures, and the market conditions needed for them to form and be considered valid. While these patterns are vital tools in predicting market turnarounds, it is essential to combine them with other technical analysis methods such as support and resistance levels, momentum oscillators, and volume-based indicators for more robust and reliable trading signals. When interpreted correctly, these patterns can provide excellent opportunities for you to enter the market at the initial stages of a new uptrend. However, as with any form of technical analysis, use these patterns cautiously and in conjunction with other tools and risk management strategies.

Bullish Reversal Candlestick Pattern FAQs

Finding Charts With CandleStick Patterns

StockCharts.com maintains a list of stocks that currently have common candlestick patterns on their charts in the area. To see these results, and then scroll down until you see the “Candlestick Patterns” section. The results are updated throughout each trading day.

Additional Reading

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Further Study

What Is a Bearish Reversal Candlestick Pattern?

A bearish reversal candlestick pattern is a sequence of price actions or a pattern, that signals a potential change from uptrend to downtrend. It's a hint that the market sentiment may be shifting from buying to selling.