Key Candlestick Patterns Every Trader Should Know
Learn to read Doji, Hammer, Engulfing, and Morning/Evening Star patterns. Understand what they signal and when to act.
Candlestick patterns are the language of the market. Each candle tells a story about the battle between buyers and sellers. Learning to read these patterns won't make you psychic — but it will give you an edge in understanding what might happen next.
Anatomy of a Candlestick
Every candlestick has four data points: open, close, high, and low.
The thick part is the "body." If the close is above the open, the candle is green (bullish). If the close is below the open, it's red (bearish). The thin lines above and below are "wicks" or "shadows" — they show the highest and lowest prices reached during that period.
A long body means strong conviction. A short body means indecision. Long wicks mean the price was rejected at those levels.
The Doji — Indecision
A Doji forms when the open and close are virtually the same — the body is just a thin line. It looks like a cross or plus sign.
What it means: Neither buyers nor sellers won the session. The market is undecided. On its own, a Doji is neutral. But after a strong uptrend or downtrend, it can signal that momentum is fading.
How to trade it: Don't trade a Doji alone. Wait for the next candle to confirm direction. A Doji after a big green rally followed by a red candle? That's a potential reversal.
The Hammer — Bullish Reversal
A Hammer has a small body at the top and a long lower wick — at least twice the length of the body. It appears at the bottom of a downtrend.
What it means: Sellers pushed the price down hard during the session, but buyers fought back and closed near the open. The long lower wick shows rejection of lower prices.
Real example: Imagine Lloyds Banking Group shares falling for five straight days. On day six, you see a Hammer on the daily chart. The next day opens higher and closes strongly green. That Hammer was your early warning of a reversal.
Engulfing Patterns
A Bullish Engulfing is when a small red candle is followed by a larger green candle that completely "engulfs" the previous candle's body. It signals buyers have overwhelmed sellers.
A Bearish Engulfing is the opposite — a small green candle followed by a larger red candle. Sellers have taken control.
Engulfing patterns are most powerful at key support or resistance levels. A Bullish Engulfing at a major support zone? That's a strong buy signal. A Bearish Engulfing at resistance? Consider exiting or shorting.
Morning Star & Evening Star
These are three-candle reversal patterns and among the most reliable signals in technical analysis.
Morning Star (bullish): A long red candle, followed by a small-bodied candle (the "star" — showing indecision), followed by a long green candle that closes well into the first candle's body. This appears at the bottom of downtrends.
Evening Star (bearish): The mirror image. A long green candle, a small star, then a long red candle. This appears at the top of uptrends and warns that a selloff is coming.
The Golden Rule of Candlestick Patterns
Never trade a pattern in isolation. Always check: Where is it forming? (At support or resistance?) What's the trend? What does volume look like? Combine candlestick patterns with other indicators for much higher-probability trades.
Risk Warning
Trading and investing carry significant risk. You can lose more than your initial deposit when trading leveraged products. Past performance is not indicative of future results. The content on TradeLearn is for educational purposes only and should not be considered financial advice. Always do your own research and consider seeking advice from a qualified financial adviser before making investment decisions.