Japanese Candlesticks

1. What are japanese candlestick patterns?
2. Basic candlestick patterns
3. Bullish candlestick patterns
4. Bearish candlestick patterns
5. Frequently asked questions about candlestick patterns
6. A guide to japanese candlestick patterns

What are japanese candlestick patterns?

Japanese candlestick patterns are formations that appear on trading charts. Technical traders believe these patterns can be used to predict future price action, making them useful tools for identifying new trading opportunities.

In technical analysis, the only factor you consider when studying the market is its price chart. By observing recent movements, you try to analyze current market sentiment and predict future behavior.

Chart patterns offer one method of finding trades using technical analysis. Each pattern is essentially a signal that has historically preceded a new trend, reversal, or continuation. When you spot a pattern on a chart, you can estimate whether this price action is likely to repeat.

If you believe it will, you can open a new position and attempt to profit from the trade.

Basic candlestick patterns

Before we explore key bearish and bullish chart patterns, let’s look at two that frequently appear and often form the foundation of larger price moves: Doji and Spinning Tops.

Doji

A doji occurs when the market’s opening and closing prices for a given period are approximately (or exactly) the same. Regardless of the price action during that period, buyers and sellers end up in balance.

To spot a doji, look for a candle with a very thin body—usually less than 5% of the total range for that period.

Then, look at the wick to determine what type of doji it is:

• If there is an upper wick above the body, it’s a Gravestone Doji.
  
  

• If the wick is below the body, it’s a Dragonfly Doji.
  
  

• If the wick is long on both sides, it’s a Long-Legged Doji.
  
  

• If there is no wick at all, it’s a Four-Price Doji.

A doji on its own might not tell you much, but when analyzed in context, it can be very useful.

For example, let’s say you spot a Gravestone Doji during an uptrend. The long upper wick suggests that the bullish trend may have continued early on, but the small body indicates that sellers took control before the trading session closed. This could signal that a trend reversal is on the horizon.

Spinning tops

Spinning tops look very similar to long-legged doji, but they have a slightly wider body.

The long upper and lower wicks in a spinning top indicate that the market experienced significant volatility during the session. Buyers pushed the market up; sellers pushed it down. However, neither side ultimately gained the upper hand.

The color of the candlestick doesn't matter – all you need is a long wick and a short body.

A spinning top is often a sign that the existing trend is showing signs of weakening. For example, in a prolonged downtrend, sellers may have near-complete control of the market. However, in a spinning top, this control has significantly weakened.

Bullish candlestick patterns

Bullish candlestick patterns indicate that the market is preparing for an upward movement. They appear in two main variations: reversal patterns and continuation patterns.

Reversal patterns suggest that a market in a downtrend may shift back into an uptrend. On the other hand, continuation patterns occur during an uptrend and indicate that the bullish momentum is still strong.

When trading any candlestick pattern, it is always advisable to wait for confirmation before opening a position. Patterns do not guarantee future price movements, so waiting for confirmation can help reduce the risk of loss if the trend reversal or continuation fails.

There are several ways to confirm a pattern before trading. For example, you can wait for the resulting trend or continuation to begin before entering a trade. Alternatively, you can analyze a short-term chart to get a clearer view of the current price action.

Bullish candlestick patterns

Technical traders use bullish reversal patterns to predict when a downtrend may end and when a potential rally could begin. These patterns typically appear in two scenarios: at the end of a downtrend or during a consolidation phase following a decline.

As always, it is best to confirm the pattern before executing a trade. A simple confirmation method is to check whether an upward movement is starting to form. This could be in the form of a bullish green candlestick or a breakout above a resistance level.

Let’s explore some of the key bullish reversal patterns.

1. Hammer

The hammer is a single candlestick pattern characterized by a short body, a long lower wick, and little to no upper wick. It is considered a sign of a potential bullish reversal, meaning that if it appears during a downtrend, the market may be preparing to move back upward.

The hammer indicates a bullish reversal because sellers pushed the price to new lows during the session but failed to maintain it there. Instead, buyers stepped in, forcing the market to close near its opening price.

• If the hammer is red, it means the market closed slightly below its opening price.

• If the hammer is green, it means the market closed above its opening price, making the bullish signal even stronger.

To identify a hammer, compare the body length to the wick. The lower wick should be at least two to three times longer than the candlestick’s body.

2. Inverted hammer

The inverted hammer is an upside-down version of the hammer. It features a short body, a long upper wick, and little to no lower wick. This pattern signals that an upward reversal may occur following a downtrend.

3. Bullish engulfing

The bullish engulfing pattern consists of two candlesticks:

• The first candlestick is red, appearing within a downtrend or a consolidation phase after a decline.

• The second candlestick is green and completely engulfs the first one, meaning that the market opened lower but then rose above the previous session’s high.

This pattern suggests that buyers have taken control, and the market may be preparing for an upward reversal.

Although the trading session starts unfavorably, with the market opening below the previous close, the second candlestick in the bullish engulfing pattern signals strong buying pressure. The upper or lower wick is minimal, as the market closes at or near the top of the period, only slightly dropping below the previous low.

Technical traders believe that this renewed buying pressure could lead to the formation of a new upward trend.

4. Piercing line

Similar to the bullish engulfing pattern, the piercing line consists of two candlesticks, signaling a potential trend reversal to the upside. The first candlestick is red, and the second one is green.

However, unlike the bullish engulfing pattern, the red candlestick in this pattern has a long body and is not fully engulfed by the following green candlestick. Instead, the market opens lower between the close of the red candlestick and the open of the green one, but then bounces back, closing above the midpoint of the previous trading session, forming the piercing line.

It is still a market reversal, but in this case, bears dominated most of the session. Only in the second half of the session did bulls take control, triggering a strong upward movement.

5. Tweezer bottom

The tweezer bottom consists of two candlesticks that are visually almost identical, with the first candlestick being red and the second one green. Both candlesticks should have relatively small bodies and a significantly longer lower wick.

The two identical lower wicks signal that sellers tried to push the price lower in both sessions. However, in both cases, buyers managed to reverse the decline and push the price back up. During the second session, buyers took control, causing the price to close above the opening value, indicating that buying sentiment is outweighing selling pressure.

The tweezer bottom is easy to identify because its appearance resembles tweezers. However, this pattern does not appear as frequently as some other formations listed here.

6. Morning star

The morning star formation consists of three candlesticks, clearly indicating a shift in market sentiment.

• The first candlestick is long and red, signaling the continuation of a bearish trend.

• The second candlestick has a small body, indicating indecision in the market and a weakening of the previous trend.

• The third candlestick is long and green, confirming the reversal and signaling the start of a bullish move.

The key candlestick in this pattern is positioned exactly in the middle. It is usually a doji, which signals that the downtrend is nearing its end. If the middle candlestick is a doji, the reversal signal becomes even stronger.

To confirm that it is a morning star, it is important to check if the third candlestick closes above the middle price of the first candlestick.

7. Three white soldiers

The three white soldiers pattern appears after a significant downtrend, and technical traders consider it one of the strongest reversal signals.

This pattern consists of three consecutive green candlesticks that follow a long red candlestick.

• The first green candlestick should close around 50% of the range of the previous red candlestick.

• The second green candlestick should close above the opening price of the red candlestick.

• The third candlestick is a long green candlestick, confirming that the bullish trend is now firmly established.

Each of the "soldiers" should have a progressively longer body than the previous one, indicating increasing buying momentum and a growing strength of the bulls in the market.

Bullish continuation patterns 

Bullish continuation patterns help traders confirm that the ongoing uptrend is maintaining its momentum.

For example, imagine you are planning to buy the EUR/USD currency pair, which is in an uptrend, but you are concerned about a possible reversal. A continuation pattern can signal that the trend is still intact and has not yet ended.

Here are some useful examples:

1. Bullish marubozu candle

One of the easiest indicators of a strong bullish trend is the green Marubozu candlestick.

These candlesticks are easily recognizable because they have no wicks on either end. This means that the market opened at the lowest point of the session and closed near its high, signaling strong upward momentum. This is why the pattern is called Marubozu, which means "bald" in Japanese, referring to the lack of wicks.

In the green Marubozu, the bulls had almost complete control over the market throughout the session. The longer the candlestick body, the stronger the dominance of buyers and the more significant the upward pressure on the price.

2. Bullish harami

The bullish harami is a pattern consisting of two candlesticks:

• The first is a long red candlestick, signaling persistent selling pressure.

• The second is a short green candlestick, fully contained within the body of the previous red candlestick, indicating a weakening of the downtrend and a potential reversal to the upside.

If the bullish harami appears during a downtrend, it can signal a potential reversal. However, if it occurs during an uptrend, it is considered a continuation pattern.

In this pattern, there is a weakening of the strong selling pressure indicated by the first candlestick, creating space for buyers to enter the market. While these buyers may not yet be able to significantly push the price higher, they stop the further decline. If the bullish sentiment continues to increase, it may lead to the resumption or continuation of the uptrend.

3. Rising three methods

The rising three methods pattern is a bit more complex and consists of five candlesticks that might initially resemble a trend reversal.

In this pattern, after a long green candlestick, there are three smaller red candlesticks. These three red candles must remain within the opening and closing range of the first green candlestick, indicating a temporary correction within the uptrend. Finally, the fifth candlestick, which is green again, breaks above the closing price of the first candlestick, confirming the continuation of the upward trend.

Although sellers took control during the three consecutive sessions, their pressure was weak and could not erase the gains made by the first strong green candlestick. When buyers return to the market, they easily overcome the selling pressure and reinvigorate the original uptrend.

Bearish candlestick patterns

Bearish candlestick patterns indicate that a downturn in the market is likely.

Just like their bullish counterparts, bearish patterns are divided into two main types: reversal patterns and continuation patterns. However, in this case, reversal patterns signal the end of an uptrend and the beginning of a downtrend, while continuation patterns suggest that the ongoing bearish trend has not yet finished and may continue.

Before opening a position based on a bearish pattern, it is crucial to wait for confirmation. One way to confirm is to watch for a strong red candlestick immediately after the pattern, or to wait for a break below a key support level, which would confirm further downward movement.

Bearish Reversal Patterns

One advantage of candlestick patterns is that they often have their mirror counterparts. A reversed version of a bullish reversal pattern typically signals a bearish reversal, and vice versa.

Now, let’s look at the bearish equivalents of some of the bullish patterns mentioned earlier.

Hanging man

The hanging man looks identical to the hammer, but it appears at the top of an uptrend. Just like the hammer, it signals a potential reversal, but in this case, it indicates that the bullish trend may soon end and the market could shift into a downward movement.

During the trading session, sellers pushed the price of the asset lower, but buyers managed to stop the decline and push the price back up. However, they failed to restore the uptrend, suggesting that buying momentum is weakening, and the market may soon reverse downward.

 Falling star

What does it mean when an inverted hammer appears during a bullish trend?
This pattern is called the falling star and is another signal of a potential reversal of the bullish trend. The price action is similar to the inverted hammer—the trading session begins with upward movement, but sellers eventually take control and push the price lower.

Since this pattern appears at the top of an uptrend, it often signals that the market may reverse and follow with a downward move.

As with any reversal pattern, it is advisable to wait for confirmation before entering a trade. Watching for additional red candlesticks after the falling star pattern can help confirm that a new downward trend is indeed beginning, reducing the risk of a false signal.

Bearish engulfing

The bearish engulfing pattern consists of two candlesticks:

• The first candlestick is green, indicating the continuation of a bullish trend.

• The second candlestick is red and completely engulfs the previous one—it opens above the closing price of the green candlestick and closes below its opening price.

This pattern signals a sudden shift in market sentiment, where sellers take control, and a downtrend may follow.

During the second trading session, there was a rapid shift in market sentiment—the price opened higher, but then sharply declined as bears took control. With the increasing selling pressure, supply rises and demand weakens, signaling the potential beginning of a new downtrend.

Similar to the bullish engulfing, it’s important to watch the second candlestick—ideally, it should have minimal or no wicks at both ends, indicating strong dominance by sellers.

Tweezer tops

The tweezer tops pattern appears at the top of an uptrend and indicates a potential downward reversal.

This pattern consists of two candlesticks:

• The first is green, signaling the continuation of a bullish trend.

• The second is red, indicating a rejection of higher prices and a potential reversal.

Ideally, both candlesticks should have short bodies and long upper wicks, showing that while buyers pushed the price higher, sellers were able to halt the movement and push the price back down.

The buyers attempted twice to push the market to new highs, but in both cases, they failed. On the second attempt, the price fell back to the opening price of the first candlestick. This symmetry suggests that bullish momentum is weakening, and bearish pressure may soon take hold in the market.

Occasionally, you may observe tweezer tops even in periods when the market is not in a clear trend. While they still represent a bearish signal, their significance is weaker compared to when they appear at the top of an uptrend.

 Dark cloud cover

Similar to the piercing line, the dark cloud cover pattern also forms over two trading sessions and signals a potential reversal downward.

• The first candlestick is green, indicating strong bullish momentum.

• The second candlestick is red, opening above the close of the first candlestick but then falling below its midpoint.

This price action suggests that the initial optimism of the bulls was overshadowed by the strength of the sellers, creating the "dark cloud" effect from the name of the pattern. If further red candlesticks appear in subsequent sessions, it could confirm the start of a bearish trend.

The shorter the wicks on the second (red) candlestick, the stronger the dark cloud cover signal. Minimal or no wicks indicate that sellers took control right after the open and pushed the price down with little resistance from the buyers, increasing the likelihood of a downward trend beginning.

Evening star

The evening star is the bearish opposite of the morning star, signaling a potential downward reversal.

• The first candlestick is green, indicating the continuation of the uptrend.

• The second candlestick is a doji or spinning top, of any color, reflecting market indecision.

• The third candlestick is red, opening lower and closing even lower, confirming the entry of sellers and the start of a bearish trend.

This pattern suggests that bullish momentum is weakening, buyers are losing control, and sellers enter the market, potentially triggering a price decline.

The market rally continues during the first trading session, represented by a strong green candlestick. In the second session, indecision arises, expressed by a spinning top or doji, signaling that bullish momentum is weakening and the market could soon reverse.

In the third phase, a retracement occurs as more and more traders close their long positions, reducing the upward pressure on the price. At the same time, sellers enter, opening short positions, leading to the formation of a strong red candlestick, confirming the potential start of a downward trend.

Three black crows

The three black crows pattern is the bearish equivalent of the three white soldiers, signaling the potential start of a downward trend. This pattern consists of three consecutive red candlesticks that appear after a long green candlestick.

When identifying this pattern, the following rules apply:

• The first red candlestick should close around 50% of the range of the previous green candlestick.

• The second red candlestick should close below the opening price of the previous green candlestick.

• Each subsequent red candlestick should have a longer body than the previous one, indicating increasing selling strength.

This pattern indicates a gradual shift in control from the bulls to the bears, with the market losing its bullish momentum and beginning a stronger downward move.

If any of the above criteria are not met, it's likely not a three black crows pattern. For confirmation, it is important that:

• All three candlesticks are red and follow a bullish trend.

• Each candlestick closes lower than the previous one, with the body of each subsequent candlestick being longer.

• The second candlestick breaks below the opening price of the previous green candlestick, confirming strong bearish momentum.

If these conditions are not met, it might be a different bearish pattern, but not the three black crows, so caution is needed in interpreting the pattern.

Bearish continuation patterns

The last set of patterns we will go through signals the continuation of a downtrend. Just like with bullish continuation patterns, these are the exact opposites of their bullish counterparts that we have already analyzed.

These patterns indicate that the ongoing bearish trend has not yet finished and may continue further. Traders use these patterns to confirm that short-term buying moves are just temporary corrections, after which the market is likely to resume its downward movement.

Let’s look at some specific examples:

1.Bearish marubozu

The bearish marubozu is a red candlestick with no wicks, indicating strong selling pressure throughout the trading session.

• The opening price was the highest point of the trading day.

• The closing price was the lowest point, meaning that sellers had control from start to finish.

This pattern is a strong signal of a continuation of the bearish trend, as there is no sign of resistance from buyers. The longer the candlestick, the stronger the selling pressure, and the more likely the decline will continue.

During a downtrend, red Marubozu candlesticks are a strong indicator of continuing bearish momentum.

Since the candlestick has no wicks, it means that sellers dominated throughout the session and the market showed no significant attempt to move upwards. This pattern confirms that bears have full control, and the probability of the downtrend continuing is high.

2. Bearish harami

The bearish harami pattern signals the weakening of bullish momentum and the potential for a continuing decline.

• The first candlestick is long and green, indicating strong buying momentum in the previous trend.

• The second candlestick is smaller and red, and it is completely contained within the first candlestick, with its opening and closing prices lying within the range of the previous green candlestick.

This pattern suggests that buyers are losing control, and selling pressure is beginning to rise. If a red candlestick follows this pattern, it confirms the continuation of the bearish trend.

During the second candlestick, there was a battle between bulls and bears for control of the market. Neither side managed to maintain the momentum. Instead, sellers pushed the price lower, although they did not manage to move it significantly down.

Just like its bullish counterpart, the bearish Harami is considered a warning signal of a potential decline.

• If this pattern appears in a downtrend, it signals continuation.

• If it appears in an uptrend, it signals a potential reversal downward.

To confirm the trend, it’s advisable to look for the following red candlestick or a break below a key support level.

3. Falling three methods

The falling three methods pattern is a continuation signal in a downtrend, suggesting that the market will keep moving downward after a temporary correction.

This pattern consists of five candlesticks:

• The first is a long red candlestick.

• The next three smaller green candlesticks all stay within the range of the first red candlestick.

• Finally, a long red candlestick appears, signaling the resumption of the bearish trend.

This pattern indicates both selling pressure and the momentum that the downward move is likely to continue, confirming the resumption of the bearish trend.

In this pattern, sellers temporarily retreat, allowing the market to recover. They regain control over the next three sessions, but their power is limited—they fail to push the price back to the opening price of the first red candlestick.

This temporary bounce creates false hope for a reversal, but when sellers re-enter the market, they quickly push the price down and resume the original downtrend.

The falling three methods pattern confirms that bearish momentum remains strong, and the upward corrective movements are only temporary.

Frequently asked questions about candlestick patterns

Which candlestick pattern is the most reliable?

There is no single universally most reliable candlestick pattern, but some patterns have a higher success rate in predicting price movement. Among the patterns we’ve covered, three white soldiers and three black crows are often considered some of the most reliable.

It's easy to understand why—both patterns represent strong and sustained price changes, and the resulting trend is already well-established by the time the pattern is completed.

Do candlestick patterns work?

Yes, candlestick patterns can work, but not always. Some are more reliable than others, so it is essential to confirm the move before entering a trade.

Regardless of the specific pattern you're trading, it is recommended to:

• Use confirmation—for example, by watching additional candlesticks or waiting for a break of a key support/resistance level.

• Set a stop loss to minimize losses if the pattern fails.

How many different candlestick patterns exist?

In this guide, we’ve covered 22 candlestick patterns, but there are many more. Different technical traders prefer different patterns, and new variations continue to emerge.

If you're a beginner, it’s recommended to start with the basic and most commonly used patterns and gradually expand your knowledge.

💡 Tip: Use a demo account to practice trading with different patterns before risking real capital. This allows you to test various strategies and find what works best for you.

How are candlestick patterns used in day trading?

Candlestick patterns in day trading are used in the same way as in other types of trading:

• Identify the pattern on the market.

• Confirm the price move (e.g., by watching additional candlesticks or breaks of support/resistance levels).

• Open a trade based on the signal provided.

Day traders typically use short-term time frames (e.g., 1-minute, 5-minute, or 15-minute charts) to look for trading opportunities, but the principle of candlestick pattern analysis remains the same.

Guide to japanese candlestick patterns