What Are Candlestick Patterns?
Candlestick charts are the most popular way to visualize price action in stock markets. Each "candle" represents a time period (1 day, 1 hour, etc.) and shows four data points: Open, High, Low, and Close (OHLC).
- Green/Bullish candle — Close is higher than Open (buyers won)
- Red/Bearish candle — Close is lower than Open (sellers won)
- Body — The thick part between Open and Close
- Wicks/Shadows — The thin lines above and below the body (High and Low)
Single Candle Patterns
1. Doji
A Doji forms when the Open and Close are almost equal, creating a very small body with wicks on both sides. It signals indecision — neither buyers nor sellers are in control.
What to watch: A Doji after a strong uptrend or downtrend often signals a potential reversal. Don't trade a Doji alone — wait for the next candle to confirm direction.
2. Hammer
A Hammer has a small body at the top and a long lower wick (at least 2x the body). It appears at the bottom of a downtrend.
What it means: Sellers pushed the price down during the session, but buyers fought back and closed near the open. This is a bullish reversal signal.
Example: If Tata Motors has been falling for 5 days and forms a Hammer near a support level like 700, it could signal a bounce.
3. Shooting Star
The opposite of a Hammer — small body at the bottom with a long upper wick. Appears at the top of an uptrend.
What it means: Buyers pushed the price up but sellers took over and closed near the open. This is a bearish reversal signal.
4. Marubozu
A candle with no wicks at all — the Open is the Low and the Close is the High (bullish), or vice versa. It shows strong conviction in one direction.
Green Marubozu = aggressive buying, likely continuation upward. Red Marubozu = aggressive selling, likely continuation downward.
Two-Candle Patterns
5. Bullish Engulfing
A small red candle followed by a larger green candle that completely "engulfs" the previous candle's body. Found at the bottom of a downtrend.
Signal: Strong bullish reversal. The bigger the engulfing candle, the stronger the signal. Volume confirmation makes it more reliable.
6. Bearish Engulfing
A small green candle followed by a larger red candle that engulfs it. Found at the top of an uptrend.
Signal: Strong bearish reversal. If you see this near a resistance level with high volume, it's a strong sell signal.
7. Tweezer Tops and Bottoms
Two candles with matching highs (Tweezer Top) or matching lows (Tweezer Bottom). The first candle moves with the trend, the second reverses.
Tweezer Bottom at support = bullish reversal. Tweezer Top at resistance = bearish reversal.
Three-Candle Patterns
8. Morning Star
A three-candle bullish reversal pattern:
- Large red candle (downtrend continues)
- Small-bodied candle (indecision — can be a Doji)
- Large green candle (buyers take over)
Found at the bottom of a downtrend. Very reliable when the third candle closes above the midpoint of the first candle.
9. Evening Star
The bearish counterpart of Morning Star:
- Large green candle
- Small-bodied candle
- Large red candle
Found at the top of an uptrend. Signals that the rally is exhausting.
10. Three White Soldiers / Three Black Crows
- Three White Soldiers: Three consecutive green candles with higher closes — strong bullish momentum.
- Three Black Crows: Three consecutive red candles with lower closes — strong bearish momentum.
Caution: After three strong candles in one direction, the stock might be overextended. Watch for pullback.
How to Use Candlestick Patterns in Indian Markets
- Always use context — A Hammer at a key support level (e.g., Nifty 22,000) is much more meaningful than a random Hammer.
- Confirm with volume — High volume on the reversal candle adds confidence.
- Combine with other indicators — Use RSI, moving averages, or VWAP alongside candlestick patterns.
- Timeframe matters — Daily candles are more reliable than 5-minute candles for swing trading.
- Don't trade every pattern — Wait for patterns that align with the broader trend and support/resistance levels.
Common Mistakes
- Trading a single Doji without waiting for confirmation
- Ignoring the overall trend (a Hammer in a strong downtrend might just be a pause, not a reversal)
- Over-relying on patterns without risk management
- Using patterns on very low-volume stocks where price action is noisy
Candlestick patterns are a starting point, not a complete strategy. Combine them with proper risk management and you'll have a solid foundation for technical analysis.
Disclaimer: This article is for educational purposes only and does not constitute investment advice. Always do your own research before making trading decisions.