Candlestick Patterns

Candlestick patterns form the backbone of many technical trading strategies. These patterns are interpreted using either a single candle or a group of multiple candles. While single candlestick formations often indicate potential reversal signals, multi-candle setups may signal either reversals or continuation of trends. 

Traders pay close attention to price behaviour within these patterns, as it often hints at a shift in market sentiment. This potential shift is called a reversal. That said, not every reversal pattern leads to a complete trend change—sometimes, markets simply pause before continuing in the same direction. These patterns offer clues, not certainties, and must be used with caution and confirmation. 

Let’s now look at some widely followed single candlestick reversal patterns that traders rely on for identifying market turning points. 

Single Candlestick Reversal Patterns 

These are patterns where a single candle provides enough insight to anticipate a possible trend reversal. Here are some of the most common ones: 

Hammer & Hangman 

• A Hammer features a small body near the top and a long lower shadow. It forms during a downtrend and suggests a potential shift in momentum. 

The candle opens, dips sharply during the session, but rebounds to close near its opening price, indicating strong buying support. 

• A Hangman appears during an uptrend and resembles the hammer in structure but implies potential weakness. 
  It opens near the high, then sells off, and recovers to close near the high again. The next candle’s behavior confirms the validity of this pattern. 

Important conditions for both: 

• The real body should be close to the top 

• The lower shadow should be at least twice the body’s size 

• The upper shadow should be very small or non-existent 

• A green hammer is more bullish; a red hangman is more bearish 

Doji and Its Variants 

A Doji occurs when the open and close prices are the same or nearly the same, forming a cross or plus-shaped candle. It signifies market indecision—a battle between bulls and bears with no clear winner. 

• When a Doji follows a strong uptrend, it often signals a possible reversal 

• When it appears during a downtrend, it shows hesitation, but not necessarily a reversal 

Common Variants: 

• Long-Legged Doji: Characterised by long upper and lower wicks, it reflects high volatility and uncertainty. 
  Appearing after a downtrend, it may indicate a bullish reversal, After an uptrend, it  may indicate a bearish reversal. 

• Gravestone Doji: Opens and closes at the low of the day, with a long upper shadow. 
  This is considered strongly bearish, indicating a failed attempt by bulls to maintain control. 

Spinning Top & Bottom 

This pattern shows a small real body and both upper and lower shadows, symbolising market indecision. The appearance of a spinning top (or bottom) after a strong trend suggests the momentum is slowing down. 

Before making a trading decision, confirmation from the next candle is essential.

Bullish & Bearish Marubozu 

“Marubozu” means “shaved head” in Japanese, indicating no shadows on either end of the candle. 

• Bullish Marubozu: Opens at the low and closes at the high of the day. 
  It’s a strong candle that indicates momentum buying. 
  At the end of a downtrend, it may signal reversal; during an uptrend, it often shows continuation. 

• Bearish Marubozu: Opens at the high and closes at the low of the day. 
  At the top of a rally, this may point to a possible reversal. During a downtrend, it may confirm further weakness. 

Belt-Hold Lines (Yorikiri) 

Borrowed from sumo wrestling, the term Yorikiri describes a power move to push the opponent out of the ring. In candlestick analysis, this pattern reflects a similar dominance. 

• Bullish Belt-Hold: A long green candle that opens at the low and closes near the high, with no lower shadow. 
  When it appears after a downtrend, it could suggest a potential reversal. 

• Bearish Belt-Hold: A long red candle that opens at the high and closes near the low, with no upper shadow. 
  If this shows up after a rally, it may indicate a turn in momentu

  

Points to Remember 

• Single candlestick reversal patterns are powerful tools but must be used in context 

• Not every reversal candle leads to a trend change. Markets sometimes just pause or consolidate 

• Always wait for confirmation from the next candle before making a trade decision