Candlestick Patterns Every Trader Should Know
By Doji Works
Japanese candlesticks were developed by rice traders in 18th century Japan. Today they are the default chart type for most traders. Understanding them is not optional. It is the baseline.
What a candle tells you
Each candle covers one time period (1 minute, 1 hour, 1 day, etc.) and shows four things: the open, the close, the high, and the low.
- The body is the distance between open and close
- A green (or white) body means the close was above the open: buyers won
- A red (or black) body means the close was below the open: sellers won
- The wicks (shadows) show how far price moved beyond the body before being rejected
That rejection is the information. A long wick means someone pushed price there, found no follow-through, and got reversed.
The patterns that matter
Doji
The open and close are almost equal. The body is tiny or nonexistent. It means neither buyers nor sellers were in control. A doji after a strong trend is a warning that momentum is fading.
Hammer and Inverted Hammer
A hammer has a small body near the top of the candle and a long lower wick. It appears at the bottom of a downtrend. The lower wick shows sellers pushed price down hard, but buyers stepped in and drove it back up. That reclaim is the signal.
The inverted hammer is the mirror: small body at the bottom, long upper wick. Less reliable on its own but watch for confirmation on the next candle.
Shooting Star and Hanging Man
The shooting star is a hammer flipped upside down at the top of an uptrend: small body, long upper wick. Buyers pushed up, sellers rejected them. Bearish signal.
The hanging man looks like a hammer but appears at the top of an uptrend. The same shape means something different depending on context.
Engulfing patterns
A bullish engulfing occurs when a green candle's body completely covers the previous red candle's body. It signals that buyers overwhelmed the prior selling session and is one of the stronger single-pattern signals.
A bearish engulfing is the reverse: a red candle that fully covers the prior green body.
Both patterns carry more weight when they form at key levels: support, resistance, order blocks, or after a liquidity sweep.
Morning Star and Evening Star
These are three-candle patterns.
A morning star: a large red candle, followed by a small-bodied indecision candle, followed by a large green candle. Marks a potential bottom.
An evening star is the opposite and marks a potential top.
What context changes everything
A hammer at a random point in a trend means nothing. A hammer directly at a weekly support level, after a liquidity sweep below a swing low, means a lot. The candle is not the signal. The candle at the right location is the signal.
Combine candlestick patterns with:
- Key levels: support, resistance, previous highs and lows
- Structure: is price in an uptrend, downtrend, or range?
- Volume: is the rejection candle accompanied by increased volume?
- Higher timeframe context: what is the daily or weekly chart saying?
Common mistakes
Trading patterns in isolation. A shooting star in the middle of a range on a 1-minute chart is noise.
Ignoring the wick. The body gets attention but the wick is often where the real story is. A candle that wicks below a key level and closes back above it is a rejection. That matters.
Looking for perfection. Real-world candles are rarely textbook. A slightly imperfect hammer at the right level beats a perfect hammer in the wrong place.
The takeaway
Candlesticks are a language. Each candle is a sentence. A pattern is a paragraph. You need the full chapter, which is the trend, structure, and context, to know what it means.
Start with the basic reversal patterns: hammer, shooting star, engulfing. Learn to spot them at key levels. Build from there.