10 Candlestick Patterns for Price Action

This chapter overlaps with the Technical Analysis Ch 5 candlestick chapter. The TA chapter covers the pure pattern vocabulary. This chapter covers the same patterns as a price action reader — where the emphasis is not on pattern names but on the buyer/seller intent behind them.

4.1 Doji — the pause bar

Open and close are essentially the same price. The battle ended in a draw. As a price action reader, the doji itself is neutral — the meaning comes from where it appears.

• Doji at a trend extreme — indecision after a run of directional bars. Warning of trend pause or reversal
• Doji in a range — meaningless. Ranges are made of indecision
• Dragonfly doji (long lower wick only) at support — buyer rejection confirmed. Strong bullish setup with next-bar confirmation
• Gravestone doji (long upper wick only) at resistance — seller rejection confirmed. Strong bearish setup

4.2 Marubozu — the conviction bar

Full body, no wicks. From the first tick to the last, one side dominated. Bull marubozu = every price during the bar was above the open. Bear marubozu = the opposite.

• Bull marubozu after consolidation → breakout initiation, continuation likely
• Bear marubozu at resistance → sharp rejection, downside continuation likely
• A marubozu followed by a same-direction marubozu is one of the strongest continuation signals in the vocabulary

4.3 Harami — the inside-body pattern

Two-bar pattern: a large bar followed by a small bar whose entire body is contained inside the first bar's body (wicks can extend beyond). Signals a sudden slowdown after a directional push. Harami means "pregnant" in Japanese — the small bar is the "child" inside the "mother" bar.

• Bullish harami — big red bar followed by a small green bar inside. At support after a downtrend → possible reversal
• Bearish harami — mirror at resistance
• Confirmation required — never trade a harami without the next bar confirming (close in the reversal direction)
• Weaker than a full engulfing, but often signals the same turning point one bar earlier

4.4 Engulfing — the reversal-of-conviction

Two-bar pattern: a small bar followed by a large opposite-colour bar whose body completely engulfs the first bar's body. The market flipped from one side's control to the other's within a single bar.

• Bullish engulfing at support after downtrend — decisive shift to buyer control
• Bearish engulfing at resistance after uptrend — decisive shift to seller control
• Engulf ratio matters — the engulfing bar should be at least 1.5× the size of the engulfed bar for a strong signal
• Stop = low of the engulfing bar (bullish) or high of the engulfing bar (bearish)

4.5 Piercing Line / Dark Cloud Cover

Similar to engulfing but less complete. Two-bar reversal pattern where the second bar opens with a gap in the trend direction, but then reverses to close beyond the midpoint of the first bar's body — without fully engulfing.

• Piercing line (bullish) — red bar → red bar opens with gap-down but closes above the red bar's midpoint
• Dark cloud cover (bearish) — green bar → green bar opens with gap-up but closes below the green bar's midpoint
• Halfway between harami (weak) and engulfing (strong) in reliability

4.6 Hammer / Hanging Man

Same shape: small body near the top, long lower wick (2× body or more), minimal upper wick. Different name based on context.

• Hammer — this shape at the bottom of a downtrend. Buyer rejection of lower prices. Bullish
• Hanging man — same shape at the top of an uptrend. Warning of hidden selling pressure. Bearish (weaker signal than hammer; always requires next-bar confirmation)
• Colour of the body matters less than the shape. Green body is marginally more bullish for the hammer

4.7 Inverted Hammer / Shooting Star

Mirror of hammer/hanging man. Small body near the bottom, long upper wick, minimal lower wick.

• Inverted hammer — this shape at the bottom of a downtrend. Buyers pushed up and got faded, but the fact that they tried is bullish. Weaker than a regular hammer; requires strong confirmation
• Shooting star — same shape at the top of an uptrend. Buyer failure at resistance. Bearish, well-tested pattern

4.8 Morning Star / Evening Star

Three-bar reversal patterns. The middle bar is the "star" — a small-bodied bar with a gap on both sides (in the pure form) that isolates it from the surrounding bars.

• Morning star (bullish) — long red bar → small bar with gap down → long green bar closing inside the first red bar's body
• Evening star (bearish) — long green bar → small bar with gap up → long red bar closing inside the first green bar's body
• Strongest form — with true gaps on both sides of the middle bar. In Indian markets, intraday charts rarely gap, so the "star" is often just a small-body inside the trend bar's range
• Highest-reliability three-bar reversal when at a level with volume support

4.9 Three White Soldiers / Three Black Crows

Not a reversal pattern in the classical sense — a trend initiation pattern.

• Three white soldiers — three consecutive strong green bars, each opening within (or above) the previous bar's body, each closing near its high. After a base or downtrend, this signals a new bullish trend is starting
• Three black crows — mirror at a top or after a base. Three consecutive strong red bars marking a new bearish trend
• Trade — this pattern is typically the confirmation to hold or enter, not the entry itself. If you already own the position from an earlier setup, this pattern is a hold signal

4.10 Hikkake — the failed pattern trap

A false-breakout pattern that traps traders who anticipated a move. The classic setup: an inside bar forms; the next bar breaks the inside bar's high (triggering "buy" orders); then a subsequent bar closes below the inside bar's low. The false breakout traps buyers, then reverses.

• Bullish hikkake — inside bar → break below inside bar's low (trap) → reversal above the inside bar's high
• Bearish hikkake — mirror
• Entry — on break of the inside bar's opposite extreme (i.e., the direction opposite to the trap)
• Reliability — genuinely high on Indian intraday when the inside bar sits at a level

4.11 On the chart

4.12 Which candlestick patterns actually work in Indian markets

US-market pattern statistics don't translate cleanly. Indian markets have specific behaviours — pinning around option strikes, expiry-day volatility distortion, gap-driven open — that make some patterns more reliable and others less so than their US-textbook win rates suggest.

4.13 Multi-candle formations — where several patterns cluster

Real markets don't produce isolated single patterns as often as textbook examples suggest. What you see more often is clusters — 2 or 3 patterns firing within a few bars of each other at the same level. These clusters are far more reliable than any single component.

Three cluster archetypes to recognise:

• Rejection cluster at support — a hammer, then a doji, then a bullish engulfing over 3 consecutive daily bars, all with lows within a few points of each other. Signals institutional accumulation at that level. Enter on the engulfing bar's break with stop below the cluster
• Exhaustion cluster at resistance — a shooting star, then a spinning top, then a bearish engulfing. Signals distribution. Short on the engulfing bar's break with stop above the cluster
• Compression-then-expansion — 2 or 3 inside bars / small-body candles followed by a wide-body marubozu in either direction. The direction of the marubozu is the trade

Clusters take a few days to form on daily charts. Set price alerts at the levels you care about; check daily. Cluster trades are less about intraday adrenaline, more about waiting for the market to hand you an obvious setup.

4.14 Confirmation criteria — the extra bar that halves losses

The single most impactful discipline for candlestick traders is waiting one bar for confirmation before entering. Rules:

Waiting for confirmation costs you a slightly worse entry price. It saves you from ~40% of losing trades. On net, worth it every time.

4.15 Historical performance — the numbers behind the vocabulary

Multi-decade empirical research on candlestick reliability gives these directional stats. Interpret as "at a level, with confirmation":

Two data-driven conclusions:

• Location + confirmation = the single biggest edge. Every pattern gains 12-17 percentage points from these two disciplines combined
• Even the best pattern is 78%. No pattern is a lock. Reward-to-risk selection must still make the math work at 60-70% win rates, or the pattern edge doesn't matter