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Top 10 Candlestick Patterns : Learn & Earn With Candlesticks [2024]

top 10 candlestick patterns
Top 10 Candlestick Patterns for Trading

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Top 10 candlestick patterns are very important candlestick patterns every trader should know about.

As a trader I’ve always been fascinated by their names and when I started incorporating them into my trading strategy, I discovered many fascinating facts, such as the fact that Munehisa Homma, a rice trader, was the first person to invent them. In fact, these candlesticks were first used in the rice trade in the 18th century.

However, Steve Nison introduced these candlesticks to modern trading when he first published his well-known book- Japanese’s candlesticks charting techniques in 1991.Since that time, these candlesticks have a bigger influence on technical analysis and are still highly helpful trading tools.

In this post, we will go through the top 10 candlestick patterns that are frequently appear in any financial market. These patterns are being used as trading strategies by many traders.

What Are The Japanese Candlestick Patterns?

Japanese candlesticks are a common technical analysis technique used by traders to evaluate price movements and forecast future price direction. Japanese Candlesticks are used to describe price action over a specific period of time.

Candlestick patterns appear frequently during price changes, and it is clear that whenever these patterns appear, they tend to follow a specific price action, which we will discuss in detail in this article.

However, keep in mind that in order to use candlestick patterns properly, you must first understand price movement as well as support and resistance levels, which will be useful for price analysis.

How To Interpret Japanese Candlestick Patterns ?

Japanese candlesticks have three essential components:

Real body – Which illustrates the area between open and close.

Shadow – Often known as “wick”, which represents the high and low during the time interval.

Colour-Displays the market movement’s direction. A green (or white) body denotes a bullish candlestick, whereas a red (or black) body indicates a bearish candlestick.

A trader can determine the highs and lows, as well as the opening and closing prices of an asset, by observing candlestick behavior over a specific time period.

A bullish candlestick (represented by the green colour) is formed when the closing price is higher than the opening price.

A bearish candlestick (displayed by red colour) is formed when the closing price is lower than the opening price.

Formation of Candlestick Patterns:

Single candlesticks, double candlesticks, and triple candlesticks can be used to create candlestick patterns.

  • A single candlestick pattern is a pattern that arises from just one candlestick.
  • Double candlestick patterns are those that are formed by using two candlesticks.
  • Triple candlestick patterns are formed by using three candlesticks.

Such patterns are simple to identify, and when combined with other technical tools like Support and Resistance, Trend Lines, or Fibonacci Retracement levels, they can help you spot potential opportunities.

Top 10 Most Powerful Candlestick Patterns:

You might come across many candlestick patterns, but do understand the context of candlesticks.

The main goal of candlestick patterns is to gauge the broader market sentiments.

Here is the list of 10 most powerful and common candlestick patterns which can help traders in identifying trading opportunities:

1. Spinning Top

2. Hammer

3. Doji

4. Shooting Star

5. Bullish Engulfing

6. Bearish engulfing

7. Evening Star

8. Morning Star

9. Three White Soldiers

10. Three Black Crows

Top 10 Candlestick Patterns Explained With Examples

In this section you will now look at the best 10 candlestick patterns, which will definitely improve your trading, try to grasp the main idea behind each candlestick pattern and make sense with price action.

1. Spinning Top:

Spinning tops are Japanese candlesticks with a single pattern that reflect market indecision and uncertainty.

How to Recognize:

Spinning top candlesticks feature a long upper shadow, a long lower shadow, and a small real body in the center.

spinning top candlestick pattern
Spinning Top Candlestick Patterns Explained

Interpretation:

The appearance of a spinning top during a trend usually signals a loss of momentum and that a trend reversal is approaching.

In an uptrend, a spinning top candlestick suggests a possible bearish market reversal.

Likewise, in a downtrend, a spinning top candlestick indicates a bullish market reversal.

2. Doji:

Doji candlesticks indicate buyer and seller indecision. It is a neutral candlestick that shows that the previous movement has run its course.

Doji candlesticks are the most common and one of the best among top 10 candlestick patterns.

How to Recognize:

A Doji candlestick is formed when the difference between the opening and closing prices resembles a thin line rather than a solid body.

There are typically four types of Doji in charts:

types of doji candlestick patterns
Doji candlestick patterns Explained

Plus sign Doji / Standard Doji – Long upper shadow, long lower shadow, with a thin line (body) in between.

Dragonfly Doji – A thin line (body) lies on the upper shadow, which has a long lower shadow.

Gravestone Doji – Long upper shadow, and a thin line (body) lies on the lower shadow.

Four-Priced Doji – Open, high, low and close are all the same.

doji candlestick pattern
Doji candlestick pattern

Interpretation:

After several bullish candlesticks, the formation of a Doji indicates that buyers have been exhausted; however, further aggressive selling is required to confirm the reversal.

In a similar way, the formation of a Doji after following a series of bearish candlesticks indicates that the sellers are losing momentum. More buying pressure is required to confirm the reversal.

3. Hammer:

The hammer is a single candlestick – bullish reversal pattern that indicates a downtrend reversal into an uptrend.

How to Recognize:

A small real body is formed near the candlesticks’ top range.

The upper shadow is small or non-existent, whereas the bottom shadow is twice or three times the size of the body.

The body can be green or red, but the green hammer provides a stronger signal than the red one.

Hammer candlestick pattern
Hammer candlestick pattern

Interpretation:

A hammer appears during a downtrend, indicating that the trend will most likely reverse soon.

For additional confirmation, wait for the next candle to close above a hammer.

4. Shooting Star:

Shooting Star is a single candlestick-bearish reversal pattern that appears at the top of an uptrend.

How to Recognize:

A small real body is formed at the bottom of the candlestick’s range.

A long upper shadow is present.

There may or may not be a little lower shadow.

Although body color is unimportant, a red body is considered more significant than a green body.

Shooting star candlestick pattern
Shooting star candlestick pattern

Interpretation:

If a Shooting Star occurs at the top of a bullish trend, it is potential sign of trend reversal.

For additional confirmation, wait for the next candle to close below a shooting star.

5. Bullish Engulfing:

A Bullish Engulfing pattern is a two-chart candlestick pattern that appears at the bottom of a downtrend and indicates a bullish reversal.

How to Recognize:

The first candlestick is a bearish candle, indicating a recent downtrend.

The second candlestick is a bullish candle that completely engulfs the first bearish body.

Bullish engulfing candlestick pattern
Bullish engulfing candlestick pattern

Interpretation:

Following a strong downtrend, the appearance of a bullish engulfing pattern indicates that the bulls have regained control of the market, and the price is likely to rise even further.

6. Bearish Engulfing:

The opposite of the Bullish Engulfing pattern, the Bearish Engulfing pattern, consists of two candlesticks, forms during an uptrend, and indicates a bearish reversal signal.

How to Recognize:

A bullish candle in the first candlestick, which denotes the uptrend’s continuance.

The body of the first candle is entirely engulfed by the second candlestick, which is a long bearish candle.

Bearish engulfing candlestick
Bearish engulfing candlestick pattern

Interpretation:

A bearish engulfing pattern is typically observed at the peak of an uptrend, signaling that the bears have gained the upper hand over buyers and that the price will now continue to plummet.

7. Morning Star:

A bullish trend reversal is signaled by Morning Star, a triple candlestick pattern, that forms at the end of a downtrend.

How to Recognize:

The first candlestick is a bearish candle, indicating that the downtrend is continuing.

The second candlestick has a small body, indicating market indecision. Doji, Spinning Top, or Hammer are such possibilities.

The third candlestick confirms the bullish reversal by closing beyond the midway of the first candle and completely enveloping the second candle.

Morning star candlestick
Morning star candlestick pattern

Interpretation:

The formation of these three candles suggests that buying interest may persist in the coming sessions.

8. Evening Star:

The Evening Star pattern, which emerges at the top of an uptrend and indicates a bearish reversal, is the opposite of the Morning Star pattern.

How to Recognize:

A bullish candle on the first candlestick signifies that the uptrend is still present.

The second candlestick is identified by a small body, which represents market uncertainty. Possible options include a Shooting Star, Doji, or Spinning Top.

By closing beyond the first candle’s midpoint and totally engulfing the second candle, the third candlestick confirms the bearish reversal.

Evening star candlestick pattern
Evening star candlestick pattern

Interpretation:

The Evening Star Pattern predicts a significant reversal move to the downside once it appears at the uptrend’s peak.

For the next few trading sessions, the bears will keep driving prices further down.

9. Three White Soldiers:

Three White Soldiers are three consecutive bullish candlesticks that occur after an extended downtrend, indicating a bullish market reversal.

Three white soldiers are considered to be most reliable among top 10 candlestick patterns.

How to Recognize:

An extensive downtrend is followed by 3 consecutive bullish candles.

Each candle closes higher than the preceding one.

These candles’ bodies should be larger than or nearly equal to one another.

top 10 candlestick patterns -Three soldiers
Three soldiers candlestick patterns Explained

Interpretation:

Depending on their placement on the chart, the Three White Soldiers either act on continuation or trend reversals.

The probability of continuance is high if three soldiers occur in the direction of a prevalent trend.

However, if they appear to be deviating from the previous trend, a reversal may be on the way.

They are typically the ones that create significant reversals.

10. Three Black Crows:

Three Black Crows is the inverse of the Three White Soldiers candlestick pattern, which occurs when three bearish candles follow a strong uptrend, signaling a reversal indication.

How to Recognize:

Three successive bearish candles follow a prolonged uptrend.

Each candle closes lower than the one before it.

These candles’ bodies should be larger than or almost equal to one another.

Three black crows pattern
Three black crows candlestick pattern

Interpretation:

Three Black Crows works on trend continuation as well as trend reversals.

If Three Black Crows appear in the direction of an existing trend, the chances of continuation is considerable.

And, if they appear to be moving in the opposite direction of the recent trend, a reversal may be on the way.

Conclusion:

  • Candlesticks date back to the 18th century.
  • Because they are ineffective when used alone, they should be used in conjunction with other technical tools.
  • Back test the candlestick charts and try to spot these top 10 candlestick patterns so you can become better acquainted with them.
  • Aside from these patterns, there are other metrics that might assist you in identifying reversals.

Candlestick Patterns Frequently Asked Questions-

How to use candlestick patterns?

Candlestick patterns can be used in conjunction with support and resistance levels, as well as any indicator, to achieve the best price action results.

Who invented candlestick patterns?

Candlestick patterns were first invented by a Japanese rice trader named Munehisa Homma.

What is most successful candlestick pattern?

Doji candlestick pattern is by far most used and successful candlestick pattern other candlestick patterns with high reliability are bearish and bullish engulfing.

In which timeframe you should use candlestick patterns?

Candlestick patterns can be used on daily, 30 min, 15 min or even for 5 minutes timeframe.

Which indicator works best with candlestick patterns?

Support and resistance or pivot points along with Fibonacci retracement works best with candlestick patterns.

Author is Senior Technical Analyst
At Bulls Arena Trading
info@bullsarenatrading
New Delhi
India

Author

  • Yash Nagarkoti

    Yash brings extensive trading knowledge and expertise in technical analysis. Specializing in short-term to medium-term trading, his research spans the Forex market to global stock markets. Since 2016, Yash has been a member of the bulls arena trading Technical Analysis Research Team.

Candlestick Patterns Trading Course

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  1. Gal Jerman

    Top site ,.. amazaing post ! Just keep the work on !

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