Candlestick Reversal Patterns

5.1 Anatomy of a candle

Before the patterns, be fluent in the language:

• Body — the filled rectangle from open to close. Long body = decisive session; small body = indecision
• Upper wick / shadow — thin line from body top to bar high. Long upper wick = buyers pushed up but got faded
• Lower wick / shadow — thin line from body bottom to bar low. Long lower wick = sellers pushed down but got faded
• Colour — green (bullish, close > open) or red (bearish, close < open). Some charts use white/black

The wick tells you where price went during the bar; the body tells you where it settled. The tension between the two is what candlestick patterns encode.

5.2 Single-candle reversal patterns

Hammer

Small body near the top of the bar with a long lower wick (at least 2× body size) and little to no upper wick. Colour matters less than shape. Appears after a downtrend and marks buyer rejection of lower prices — sellers pushed down, buyers absorbed and drove close back up.

• Context: after a defined downtrend, ideally at prior support
• Confirmation: next bar closes above the hammer's high
• Stop: below the hammer's low

Shooting Star

Mirror of the hammer — small body near the bottom, long upper wick, minimal lower wick. Appears after an uptrend and marks seller rejection of higher prices. The upper wick is where buyers pushed and got faded.

• Context: after a defined uptrend, at prior resistance
• Confirmation: next bar closes below the star's low

Inverted Hammer

Same shape as the shooting star (small body, long upper wick) but appears at a DOWNTREND bottom rather than an uptrend top. Signals early buying interest that failed but showed itself. Weaker than the standard hammer — always requires strong confirmation.

Hanging Man

Same shape as the hammer (small body, long lower wick) but appears at the top of an UPTREND. Warns of potential distribution — the same intra-bar selling that's bullish at a bottom is bearish at a top. Always requires next-bar confirmation.

Doji (indecision)

Open and close are essentially equal — the body is a thin horizontal line. Signals indecision: buyers and sellers ended the period at the same price. A doji at an extreme is a warning; a doji in a range is noise.

• Standard doji — wicks on both sides, roughly symmetric
• Dragonfly doji — long lower wick, no upper wick. Bullish reversal candidate at a support
• Gravestone doji — long upper wick, no lower wick. Bearish reversal candidate at a resistance
• Long-legged doji — very long wicks on both sides. Maximum indecision; often precedes a big move in either direction

Spinning Top

Small body with wicks on both sides (both wicks longer than the body). Less extreme than a doji but still indecision. Sequential spinning tops often mark consolidation before a breakout.

Marubozu

The opposite of indecision — a candle with a full body and no wicks (or negligible wicks). Bullish marubozu = green candle where open = low, close = high. Every second of the session was above the open. Signals extreme conviction.

5.3 Two-candle reversal patterns

Bullish Engulfing

Two-bar pattern: a small bearish bar followed by a large bullish bar whose body fully engulfs the prior bar's body. Signals a swift shift from selling to buying pressure.

• Ideal engulfing bar is at least 1.5× the size of the engulfed bar
• Best at oversold RSI or a well-tested support
• The engulfing bar's low should be the stop-loss level

Bearish Engulfing

Mirror image at a top — small bullish bar engulfed by a large bearish bar. Same rules in reverse.

Piercing Pattern

Bullish two-bar reversal at a downtrend bottom. First bar bearish; second bar opens with a gap down but reverses to close above the midpoint of the first bar's body. Weaker than a full engulfing but easier to spot.

Dark Cloud Cover

Bearish mirror at a top. First bar bullish; second bar opens with a gap up but reverses to close below the midpoint of the first bar's body.

Tweezer Top / Bottom

Two consecutive bars whose highs (tweezer top) or lows (tweezer bottom) are at nearly identical prices, marking rejection at a specific level. Simpler than engulfing but same idea — the market tried, failed, and reversed.

5.4 Three-candle reversal patterns (the star patterns)

Morning Star

Three-bar bullish reversal at a downtrend bottom:

1. Long bearish bar (downtrend continuing)
2. Small body with a gap down (indecision — sellers can't push further)
3. Long bullish bar that closes back inside the first bar's body (buyers take over)

The gap creates isolation — the middle bar sits alone. Extremely strong signal when all three components are present.

Evening Star

Mirror three-bar bearish reversal at an uptrend top. Long green → small isolated body → long red closing inside the first bar.

Three White Soldiers / Three Black Crows

Three consecutive strong bars in the same direction — three white soldiers (bullish, after a downtrend or consolidation) or three black crows (bearish, after an uptrend). Each successive bar's body is larger than or equal to the previous, and each closes near its high (or low).

Not really a reversal pattern in the classical sense — more of a trend initiation pattern. When three-white-soldiers prints out of a base, the following few weeks tend to be strong.

5.5 Continuation patterns

Rising Three Methods / Falling Three Methods

Five-bar continuation pattern. Rising: large bullish bar → three small bearish (or mixed) bars that consolidate inside the first bar's range → large bullish bar breaking out. The three consolidation bars are the market catching its breath before continuing.

Inside bar

A single bar whose high AND low are inside the previous bar's range. Signals contraction; often precedes an expansion in either direction. Used heavily in the "inside-bar breakout" scalping setup.

5.6 The chart

Two years of daily Nifty 50. Zoom in and scan for the patterns above at levels of prior support/resistance. Real markets rarely produce textbook patterns — you're learning to see the intent behind the shape, not to match a template exactly.

5.7 How to use candlestick patterns properly

1. Identify a meaningful level FIRST (support, resistance, EMA, previous high/low). No level = no signal
2. Wait for the pattern to form AT that level, not in the middle of nowhere
3. Wait for the NEXT bar to confirm (this halves your entry win rate but eliminates most false signals)
4. Stop goes beyond the pattern; target the next opposite level
5. Combine with at least one other confirmation (volume spike, RSI extreme, higher-timeframe agreement)