Candlestick patterns: how to read candles and common patterns

How to read a stock candlestick chart

A candlestick chart draws one candle per period, and on a daily chart each candle is one trading session. Every candle is built from four prices: the open, the high, the low and the close. Before reading any shape, check the symbol, the date range and the price scale, because a candle that looks large on a three-month chart can look ordinary on a five-year one.

Open, high, low and close, often shortened to OHLC, are the first trade of the session, the highest and lowest prices traded, and the final price. A bar chart shows the same four numbers as a vertical line with two ticks, the open on the left and the close on the right. A candlestick turns the space between the open and the close into a body, so the direction of the session is visible at a glance.

1. Find the body. The thick part spans the open and the close.
2. Check the color. Most charts draw a candle hollow or green when the close is above the open and filled or red when it is below; confirm the convention of the chart you use.
3. Read the wicks. The thin lines above and below the body reach the session's high and low.
4. Compare the candle with its neighbors. Size and position mean little until you see the candles before it.

Body and wicks: where the session traded

The body shows how far price traveled from the open to the close, so a tall body means the session moved a long way and kept most of the move. The wicks, also called shadows, show prices that traded during the session but did not hold until the close. A long wick is a record of rejection: price reached that area and was pushed back before the session ended.

A long upper wick on a stock chart means buyers lifted price toward the high and sellers brought it back down before the close. After a strong advance or near a prior high it can point to supply; in the middle of a quiet range it often means little. The shooting star is the best-known candle built on a long upper wick.

A long lower wick means sellers drove price toward the low and buyers bid it back up. After a decline or at a support level it can point to demand. The hammer is a long lower wick with a small body near the top of the range, formed after a decline.

A single long wick is an observation about one session. It gains weight when it forms at a level that mattered before and when the following sessions move away from the rejected prices.

Bullish vs bearish candlesticks

A bullish candle closes above its own open and a bearish candle closes below it. The color compares the close with the same session's open, not with the previous close, so a stock can fall for the day and still print a bullish candle: it opens with a gap down and then climbs into the close. Read the color together with the change from the previous close before drawing a conclusion.

The candle with the long lower wick in the figure is an example. It closes $0.20 above its open, so it is bullish, yet its close of $48.95 is below the previous session's close of $49.89.

• Marubozu: a long body with no wicks, or almost none. A bullish marubozu opens at its low and closes at its high; a bearish marubozu opens at its high and closes at its low. One side controlled the session from the first trade to the last, and the candle often appears at the start of a move or at a breakout from a range.
• Spinning top: a small body with upper and lower wicks that are longer than the body. Both sides moved price during the session and neither kept its gains. After a long trend it can mark hesitation; inside a range it is ordinary.
• Long and short bodies: what counts as long depends on the stock. Compare a body with the bodies of the previous 10 to 20 sessions of the same stock rather than with a fixed dollar amount, because a quiet stock and a volatile one have very different normal ranges.

Doji candles: standard, long-legged, dragonfly and gravestone

A doji opens and closes at the same price or very close to it, so its body is a thin horizontal line. In stocks, a doji means the session ended where it began after trading in both directions, with buyers and sellers in balance by the close. It says the most after a clear trend, where it shows that the previous pressure has paused; in a sideways range doji are common and usually unremarkable.

• Standard doji: a cross with short wicks on both sides. The session was quiet as well as balanced.
• Long-legged doji: long upper and lower wicks with the open and close near the middle of the range. Price swung widely and finished unchanged, which after a strong run shows a market that has lost its direction.
• Dragonfly doji: the open, close and high sit at or near the top of the range, with a long lower wick. Sellers pushed price down and buyers took all of it back. After a decline it reads like a hammer without a body.
• Gravestone doji: the open, close and low sit at or near the bottom of the range, with a long upper wick. Buyers lifted price and sellers erased the whole advance. After an advance it reads like a shooting star without a body.

How small is small enough? Many chartists treat a body of about a tenth of the session's range or less as a doji. It is a convention rather than a rule; use one threshold consistently so your notes compare like with like.

Two-candle patterns: engulfing, piercing, harami and tweezers

Two-candle patterns compare a session with the one before it. The second candle either overpowers the first, pushes deep into it or stays contained within it, and each version describes a different degree of change. All of them are reversal patterns, so they need a prior trend to reverse.

• Bullish engulfing: after a decline, a bullish body that covers the whole body of the previous bearish candle. Bearish engulfing is the mirror image after an advance.
• Piercing line: after a decline, a bearish candle is followed by a bullish candle that opens below the first close, often below its low, and closes above the midpoint of the first body without reaching its open. It pushes deep into the prior candle without engulfing it.
• Dark cloud cover: the bearish counterpart after an advance. A bullish candle is followed by a bearish candle that opens above the first close, often above its high, and closes below the midpoint of the first body but not below its open.
• Bullish harami: after a decline, a long bearish candle is followed by a small body that sits inside the first body. Harami is Japanese for pregnant, and the small body is the child. It shows selling losing momentum rather than buyers taking over, a weaker statement than an engulfing pattern.
• Bearish harami: after an advance, a long bullish candle is followed by a small body inside it, a sign that the buying has stalled.
• Tweezer bottom and tweezer top: two or more neighboring candles with nearly the same low after a decline (a bottom) or nearly the same high after an advance (a top). The repeated price is a level that one side tested twice and could not break.

Inside bars and outside bars are the bar-chart relatives of these patterns, defined by the whole range instead of the body. An inside bar has a lower high and a higher low than the previous session: it traded entirely within the prior range, a contraction that often comes before a larger move in either direction. An outside bar has a higher high and a lower low than the previous session; it is an expansion, and its close shows which side finished in control. A harami is often an inside bar and an engulfing candle is often an outside bar, but neither has to be, because the candle patterns compare bodies and the bar patterns compare ranges.

Three-candle patterns: stars, soldiers and crows

Three-candle patterns take longer to form, and the third session already shows whether the turn continued. That makes them slower to appear than single candles but easier to judge.

• Morning star: after a decline, a long bearish candle, a small-bodied star that gaps below it, and a bullish candle that closes well into the first body.
• Evening star: the bearish counterpart after an advance. A long bullish candle is followed by a small-bodied star whose body gaps above the first body, then by a bearish candle that closes deep into the first body, commonly below its midpoint. It shows an advance stalling and turning within three sessions.
• Three white soldiers: three long bullish candles in a row, each opening within or near the previous body and closing near its high at a higher close. After a decline or a long base it shows steady buying. When the third candle shrinks or grows a long upper wick, the advance is losing pace.
• Three black crows: three long bearish candles in a row, each opening within or near the previous body and closing near its low at a lower close. After an advance it shows persistent selling. Late in a long decline the same candles can reflect exhausted sellers rather than a new trend.

Single-candle and multi-candle patterns compared

Single-candle patterns are quick to spot but say the least on their own. Multi-candle patterns take longer to form and already contain part of the follow-through. In every row of the table the bias assumes the prior trend shown; the same shape in another place means something else, or nothing.

Island reversals and diamonds are chart patterns rather than candle patterns. They are defined by gaps and swing points across several sessions, but they are read with the same questions about trend, location, volume and confirmation.

Candlestick patterns at support and resistance

Location decides how much attention a candle deserves. A hammer at a price where the stock has turned higher before shows buyers defending a level that already mattered; the same hammer in the middle of a range has nothing to defend. Mark the levels first and read the candles second, so the level is not chosen to fit the candle.

• Bullish patterns carry more information at support: a prior swing low, the bottom of a trading range, the top of an earlier gap, or a widely watched average such as the 50- or 200-session simple moving average.
• Bearish patterns carry more information at resistance: a prior swing high, the top of a range, or a former support level that broke and is now tested from below.
• A pattern that loses its level is a stronger statement than one that holds it. A hammer whose low gives way in the next sessions has failed at the very price it was defending.
• Several patterns at the same level, such as a hammer followed days later by a tweezer bottom, describe repeated defense of one price, which tells you more than a single candle.

See support, resistance and trendlines for how such levels are drawn and stock price gaps for gaps that later act as support or resistance. In TradeClever Stock Charts, simple moving average overlays can show the 50- and 200-session averages beside the candles.

Why candlestick patterns need confirmation

A candle pattern records one to three sessions. Until the next sessions agree with it, it is a hypothesis about who controls the stock, and many patterns form and then fail. Confirmation usually means the next close: for a bullish pattern a close above the pattern's close or high, for a bearish pattern a close below its close or low.

Waiting has a cost, because the confirming close is usually further from the pattern's invalidation level than the pattern itself. Acting early has a different cost: more of the patterns acted on turn out to be unconfirmed. Neither choice removes risk, which is why the invalidation level, usually the pattern's low for a bullish pattern and its high for a bearish one, belongs in your notes before the outcome is known.

1. Describe the prior trend in sessions and percent before naming the pattern.
2. Check the exact rule: body sizes, wick lengths, gaps and the number of candles.
3. Mark the nearest support or resistance level.
4. Compare the pattern's volume with the average of the previous 10 to 20 sessions.
5. Record the next close as confirmed, unconfirmed or invalidated.
6. Review the outcome later, including the patterns that failed.

TradeClever does not detect candlestick patterns. You read the candles yourself in Stock Charts, which shows daily candles with a volume pane, or side by side in Symbol Comparison, which shows up to twelve compact charts.