Top 25 Candlestick Pattern in Stock Market Trading

25 Candlestick Patterns Every Stock Market Trader Should Know

Candlestick patterns are a key part of technical analysis that traders use to guess what might happen to stock prices in the future. These patterns show traders when prices might start moving in a new direction or keep going in the same way, helping them decide when to buy or sell. Whether you`re just starting out or have been trading for a while, learning about candlestick patterns can really help you do better in the markets.

In this post, we`ll explore 25 of the most widely recognized candlestick patterns and explain their significance in stock market trading.

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What Is a Candlestick Pattern?

A candlestick pattern is a charting method used in technical analysis to predict the future price movement of an asset, like stocks, commodities, or cryptocurrencies. Each candle on the chart represents a certain amount of time, such as minutes, hours, or days. Each candle shows the highest, lowest, opening, and closing prices during that time. The thick part of the candle shows the difference between the opening and closing prices, while the thin lines above and below, called wicks or shadows, show the highest and lowest prices reached. When several candles are put together, they can form shapes like "Doji," "Hammer," or "Engulfing," which might suggest that the market is about to change direction or continue moving in the same way.

Why Candlestick Patterns Are Important in Technical Analysis

Candlestick patterns are important in technical analysis because they give fast visual clues about how traders feel about a price and where it might go next. Each candle shows the highest, lowest, opening, and closing prices for a certain time, which helps traders see if buyers or sellers were more powerful during that period.

Here`s why they matter:

• Trend Reversal/Continuation Signals: Some chart patterns, like Head and Shoulders or Engulfing, can show when a trend might change or keep going, which helps traders find key turning points early on.
• Market Sentiment: Candlestick patterns show what traders are feeling and deciding, which helps tell if the market is positive, negative, or unsure.
• Timing Entries/Exits: Understanding candlestick patterns helps traders decide when to buy or sell by predicting how prices might move.
• Visual Simplicity: They let you see price changes quickly and easily, giving you useful information to help with both quick trades and longer-term plans.

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Best 25 Candlestick Pattern in Stock Market Trading

1. Doji

The Doji pattern is a key candlestick shape. It happens when the price starts and ends almost the same, making a tiny body and long shadows. The Doji shows that buyers and sellers are unsure, and it might mean the market could change direction or keep going as before.

• Bullish Doji: Occurs after a downtrend, suggesting a potential reversal.
• Bearish Doji: Occurs after an uptrend, signaling a potential reversal downward.

2. Engulfing Patterns

Engulfing patterns are signs that a trend might be changing. They involve two candles, and the second one completely covers the body of the first. These patterns can show either a bullish or bearish reversal, based on which direction the second candle moves.

• Bullish Engulfing: A small red candle is followed by a large green candle. This indicates a potential reversal to the upside.
• Bearish Engulfing: A small green candle is followed by a large red candle. This indicates a potential reversal to the downside.

3. Hammer & Hanging Man

The Hammer and Hanging Man both look alike in shape - they have a small body at the top of the candle and a long lower shadow. The main difference is where they appear in the trend.

• Hammer: Appears in a downtrend and suggests a reversal to the upside.
• Hanging Man: Appears in an uptrend and suggests a reversal to the downside.

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4. Morning Star & Evening Star

The Morning Star and Evening Star are three-candle patterns that signal potential reversals.

• Morning Star: A bullish reversal pattern occurs when there`s a long red candle, then a short-bodied candle showing traders are unsure, and finally a long green candle.
• Evening Star: A bearish reversal pattern formed by a long green candle, a short-bodied candle, followed by a long red candle.

5. Doji Star

The Doji Star pattern shows a Doji candlestick that comes after a strong price movement, either up or down. This pattern suggests that buyers and sellers are unsure about the direction of the market, and it usually signals that the trend might change soon.

• Bullish Doji Star: Appears after a downtrend, indicating potential reversal upward.
• Bearish Doji Star: Appears after an uptrend, indicating potential reversal downward.

6. Dark Cloud Cover

This bearish reversal pattern happens when there is a big green candle, and then a red candle comes after it. The red candle starts above the highest point of the green candle, but it ends up below the middle of the green candle.

7. Piercing Line

The Piercing Line is a pattern that signals the end of a downtrend. It happens when a red candle is followed by a green candle. The green candle opens below the lowest point of the red candle but ends up closing above the middle of the red candle.

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8. Tweezer Tops & Tweezer Bottoms

These patterns occur when two candlesticks have matching highs or lows.

• Tweezer Top: A bearish reversal pattern where two candles have the same high, signaling resistance.
• Tweezer Bottom: A bullish reversal pattern where two candles have the same low, signaling support.

9. Three White Soldiers

The Three White Soldiers is a powerful bullish reversal pattern made up of three straight long green candles in a row. It shows a strong upward movement in price.

10. Three Black Crows

The Three Black Crows is a strong bearish pattern made up of three straight red candles. It shows a strong downward movement in prices.

11. Rising Three Methods

This pattern happens during an upward trend. It starts with a long green candle, then three small red candles, and ends with another long green candle. This usually means the upward movement is probably going to keep going.

12. Falling Three Methods

The Falling Three Methods is the opposite of the Rising Three Methods. It happens when prices are falling and shows a long red candle, then three small green candles, and finally another long red candle, which means the downward trend is continuing.

13. Marubozu

A Marubozu candle has no wicks or shadows. The whole body of the candle shows how prices moved during that session. A Bullish Marubozu starts at the lowest price and ends at the highest, showing strong buying. A Bearish Marubozu starts at the highest price and ends at the lowest, showing strong selling.

14. Shark Fin

This rare pattern shows a single candlestick that has a long upper shadow and a small body. It usually means a big change in direction when it happens at the top of a rising trend or at the bottom of a falling trend.

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15. Inverted Hammer

An Inverted Hammer appears after a period of falling prices and looks like a hammer, but it has a long line above the body. It suggests a possible upward turn in the market if the next candle is bullish.

16. Shooting Star

A shooting star is the opposite of the inverted hammer. It appears after a period of rising prices and suggests a possible change to the downside. The candle has a small body near the bottom and a long shadow pointing upward.

17. Spinning Top

A spinning top is a small candle with long shadows on either side. This shape shows that the market is unsure or stuck, and what it means depends on where it appears in the overall trend.

18. Bullish & Bearish Harami

A Harami is a two-candle pattern. It occurs when a small candle forms inside the body of the previous larger candle.

• Bullish Harami: A small red candle follows a large green candle, signaling a potential reversal upward.
• Bearish Harami: A small green candle follows a large red candle, signaling a potential reversal downward.

19. Kicking Pattern

The Kicking Pattern is a clear sign that the market is changing direction. It happens when there`s a long green candle followed by a long red candle, or the other way around. This pattern shows a big shift in the market trend.

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20. On-Neck & In-Neck

These two patterns happen when a red candle is followed by a small green candle. They suggest that there might not be much strength in reversing the current trend, but if other signs support it, they could show that the trend might continue.

21. Abandoned Baby

The Abandoned Baby is a special candlestick pattern that happens when a Doji appears after a gap up from the previous candle. Then, another Doji comes in, but it gaps in the opposite direction. This pattern usually shows a strong change in the price direction, either up or down.

22. Breakaway

The Breakaway pattern shows the beginning of a new trend and happens when a series of candlesticks jump up or down, breaking past an old support or resistance level.

23. Bullish & Bearish Belt Hold

• Bullish Belt Hold: A long green candle opens at the low and closes near the high, signaling strong buying interest.
• Bearish Belt Hold: A long red candle opens at the high and closes near the low, signaling strong selling interest.