11 of the Best Candlestick Patterns

Candlestick patterns are a very important part of reading charts. Understanding the different candlestick patternsĀ  can help provide an insight into where the price of a stock may be heading next.

There are many different patterns, here we will look at the 11 I use and feel are most useful:

Doji – A Doji pattern is where the close price is the same as the opening price. It shows that buyers and sellers have fought it out and the battle has been a draw. A doji shows the there is indecision about where price may head next. Doji patterns can often occur at the top or bottom of a trend.
Hammer – A Hammer pattern is a bullish pattern where sellers of a stock push price lower, for it then to later close higher than its opening price. A hammer pattern shows a battle where the sellers initially take the lead, but the buyers eventually told hold and win. Hammer patterns sometimes happen when stop losses or buy orders are hit causing a sudden spike in price action.
Shooting Star – A shooting star pattern is the opposite of a Hammer. Price initially rises, then closes lower than the opening price.
Morning Star – This is a three way bullish pattern where the first bar shows price dropping significantly. The second bar is a small candle where price action keeps in a small range throughout the bar. This bar can either finish up or down. The third bar rises significantly. Evening star patterns are often good signs of a reversal of a trend. They show price falling significantly, then a period of uncertainty, then the change of direction.
Evening Star – An evening star is the opposite of the morning star pattern. Price rises significantly, then stays in a tight range, then falls.
Bearish Harami – This is a two bar pattern. The first bar rises sharply and the second bar fits into the range of the first bar and is the opposite color. In this pattern buyers have the upper hand initially but then sellers mount some pressure in the following bar.
Bullish Harami – This is a two bar pattern. It is the same as the Bearish Harami in reverse. The first bar falls, then the second bar rises within the range of the first bar.
Piercing – This is another two bar pattern. The first bar falls significantly, then the next bar rises significantly and closes at least half way up the first bar. On the first day of this pattern the sellers are in control causing a sell-off, but this is short lived as the buyers hit back with a vengeance. A piercing pattern is often a strong reversal signal.
Dark Cloud Cover – This is the opposite of a piercing pattern. The first bar is a strong white bar and the second bar is a strong black bar. This is also a strong reversal signal.
Bullish Engulfing – This pattern is a two bar pattern where the first bar is black and the second bar is white. The second white bar engulfs the black bar. This means it is a bigger bar from top to bottom. On the first day, the sellers have control of the stock. As the first candle is only small, this shows that the sellers only have a loose grip on the stock. The second bar shows a significant white candle showing that the buyers have taken control of the stock. This can often be a strong reversal signal.
Bearish Engulfing – As you can probably guess, this is the exact opposite to the bullish engulfing pattern. The first bar is a small white bar, the second bar is a big black bar.

It is important to be aware that candlestick patterns are of limited use when used on their own. They are best used in combination with other factors such as a good trading strategy, moving averages, trend lines or other forms of technical analysis.

These are my favorite 11 candlestick patterns. It is certainly worth the time to try and get yourself familiar with these before you start trading a live stock trading account.

You can spend time trading a simulated trading account to help learn these patterns on a simulated trading account before you trade live.