The Advance Guide to
Candle Stick Chart Pattern
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Here’s the thing:
There are many ways to read a chart.
You can use Japanese Candlestick Patterns, Renko, Bar, Line, Heikin Ashi, Point & Figure, and
etc.
You’re probably wondering:
“Which one should I use?”
Well…
If you ask me, the most popular approach is…
Candlestick Patterns.
Why?
Because it’s easy to learn — and it works.
That’s why I’ve created this monster guide to teach you everything you need to know about
candlestick patterns (and how to trade it like a pro).
Here’s what you’ll learn:
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
1. What is a candlestick pattern and how to read it correctly
2. Bullish reversal candlestick patterns
3. How to find high probability bullish reversal setups
4. Bearish reversal candlestick patterns
5. How to find high probability bearish reversal setups
6. Indecision candlestick patterns
7. Trend continuation candlestick patterns
8. How to find high probability trend continuation setups
9. Candlestick cheat sheet: How to understand any candlestick pattern without memorizing a
single one
Now…
This is an extensive guide on candlestick patterns (with 3781 words).
So, take your time to digest the materials and come back to it whenever you need a refresher.
Now let’s begin!
What is a candlestick pattern?
Japanese candlestick patterns originated from a Japanese rice trader called, Munehisa Homma
during the 1700s.
Almost 300 years later:
It was introduced to the western world by Steve Nison, in his book called, Japanese Candlestick
Charting Techniques.
Now, it’s likely the original ideas have been modified which now results in the candlestick patterns
you use today.
Anyway, that’s the brief history behind Japanese candlestick patterns.
Moving on…
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Let’s learn how to read a candlestick chart…
So, how do you read a Japanese candlestick chart?
Now, every candlestick pattern has 4 data points:
Open – The opening price
High – The highest price over a fixed time period
Low – The lowest price over a fixed time period
Close – The closing price
Here’s what I mean:
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Remember…
For a Bullish candle, the open is always BELOW the close.
For a Bearish candle, the open is always ABOVE the close.
Bullish reversal candlestick patterns
Bullish reversal candlestick patterns signify that buyers are momentarily in control.
However, it doesn’t mean you should go long immediately when you spot such a pattern because it
doesn’t offer you an “edge” in the markets.
Instead, you want to combine candlestick patterns with other tools so you can find a high
probability trading setup (more on that later).
For now, these are 5 bullish reversal candlestick patterns you should know:
Hammer
Bullish Engulfing Pattern
Piercing Pattern
Tweezer Bottom
Morning Star
Let me explain…
Hammer
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
A Hammer is a (1- candle) bullish reversal pattern that forms after a decline in price.
Here’s how to recognize it:
Little to no upper shadow
The price closes at the top ¼ of the range
The lower shadow is about 2 or 3 times the length of the body
And this is what a Hammer means…
1. When the market opens, the sellers took control and pushed price lower
2. At the selling climax, huge buying pressure stepped in and pushed price higher
3. The buying pressure is so strong that it closed above the opening price
In short, a hammer is a bullish reversal candlestick pattern that shows rejection of lower prices.
Now, just because you see a Hammer doesn’t mean the trend will reverse immediately.
You’ll need more “confirmation” to increase the odds of the trade working out and I’ll cover that in
details later.
Moving on…
Bullish Engul ng Pattern
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
A Bullish Engulfing Pattern is a (2-candle) bullish reversal candlestick pattern that forms after a
decline in price.
Here’s how to recognize it:
The first candle has a bearish close
The body of the second candle completely “covers” the body first candle (without taking into
consideration the shadow)
The second candle closes bullish
And this is what a Bullish Engulfing Pattern means…
1. On the first candle, the sellers are in control as they closed lower for the period
2. On the second candle, strong buying pressure stepped in and closed above the previous
candle’s high — which tells you the buyers have won the battle for now
In essence, a Bullish Engulfing Pattern tells you the buyers have overwhelmed the sellers and are
now in control.
And lastly, a Hammer is usually a Bullish Engulfing Pattern on the lower timeframe because of the
way candlesticks are formed on multiple timeframes.
If you’re not sure how it works, then go watch this video below…
Next…
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Piercing Pattern
A Piercing Pattern is a (2-candle) reversal candlestick pattern that forms after a decline in price.
Unlike the Bullish Engulfing Pattern which closes above the previous open, the Piercing Pattern
closes within the body of the previous candle.
Thus in terms of strength, the Piercing Pattern isn’t as strong as the Bullish Engulfing pattern.
Here’s how to recognize it:
The first candle has a bearish close
The body of the second candle closes beyond the halfway mark of the first candle
The second candle closes bullish
And this is what a Piercing Pattern means…
1. On the first candle, the sellers are in control as they closed lower for the period
2. On the second candle, buying pressure stepped in and it closed bullishly (more than 50% of
the previous body) — which tells you there are buying pressure around
Next…
Tweezer Bottom
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
When I mean Tweezer, I don’t mean the tool you use to pick your nose hair (although it sure looks
like it). Instead…
A Tweezer Bottom is a (2-candle) reversal candlestick pattern that occurs after a decline in price.
Here’s how to recognize it:
The first candle shows rejection of lower prices
The second candle re-tests the low of the previous candle and closes higher
And this is what a Tweezer Bottom means…
1. On the first candle, the sellers pushed price lower and were met with some buying pressure
2. On the second candle, the sellers again tried to push price lower but failed, and was finally
overwhelmed by strong buying pressure
In short, a Tweezer Bottom tells you the market has difficulty trading lower (after two attempts)
and it’s likely to head higher.
Morning Star
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
A Morning Star is a (3-candle) bullish reversal candlestick pattern that forms after a decline in
price.
Here’s how to recognize it:
The first candle has a bearish close
The second candle has a small range
The third candle closes aggressively higher (more than 50% of the first candle)
And this is what a Morning Star means…
1. On the first candle shows, the sellers are in control as the price closes lower
2. On the second candle, there is indecision in the markets as both the selling and buying
pressure are in equilibrium (that’s why the range of the candle is small)
3. On the third candle, the buyers won the battle and the price closes higher
In short, a Morning Star tells you the sellers are exhausted and the buyers are momentarily in
control.
Moving on…
How to nd high probability bullish reversal
setups
Great!
You’ve learned the different bullish reversal candlestick patterns.
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Now, let’s take it a step further and learn how to identify high probability trading setups with it.
Recall:
You don’t want to trade any candlestick patterns in isolation because it doesn’t offer an “edge” in
the markets.
So here’s how you do it…
1. If the market is trending higher, then wait for a pullback towards Support
2. If the price makes a pullback towards Support, then wait for a bullish reversal candlestick
pattern
3. If there’s a bullish reversal candlestick pattern, then make sure the size of it is larger than the
earlier candles (signalling strong rejection)
Here are a few cherry-picked examples:
Morning Star:
Bullish Engulfing Pattern:
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Bullish Engulfing Pattern:
Note: There will be losing trades as well and this is not the “holy grail”.
Now, let’s move on…
Bearish reversal candlestick patterns
Bearish reversal candlestick patterns signify that sellers are momentarily in control.
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Likewise, it doesn’t mean you should go short immediately when you spot such a pattern because
it doesn’t offer you an “edge” in the markets.
Instead, you want to combine candlestick patterns with other tools so you can find a high
probability trading setup.
For now, these are 5 bearish reversal candlestick patterns you should know:
Shooting Star
Bearish Engulfing Pattern
Dark Cloud Cover
Tweezer Top
Evening Star
Let me explain…
Shooting Star
A Shooting Star is a (1- candle) bearish reversal pattern that forms after an advanced in price.
Here’s how to recognize it:
Little to no lower shadow
The price closes at the bottom ¼ of the range
The upper shadow is about 2 or 3 times the length of the body
And this is what a Shooting Star means…
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
1. When the market opens, the buyers took control and pushed price higher
2. At the buying climax, huge selling pressure stepped in and pushed price lower
3. The selling pressure is so strong that it closed below the opening price
In short, a Shooting Star is a bearish reversal candlestick pattern that shows rejection of higher
prices.
Now, just because you see a Shooting Star doesn’t mean the trend will reverse immediately.
You’ll need more “confirmation” to increase the odds of the trade working out and I’ll cover that in
details later.
Moving on…
Bearish Engul ng Pattern
A Bearish Engulfing Pattern is a (2-candle) bearish reversal candlestick pattern that forms after an
advanced in price.
Here’s how to recognize it:
The first candle has a bullish close
The body of the second candle completely “covers” the body first candle (without taking into
consideration the shadow)
The second candle closes bearish
And this is what a Bearish Engulfing Pattern means…
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
3. On the first candle, the buyers are in control as they closed higher for the period
4. On the second candle, strong selling pressure stepped in and closed below the previous
candle’s low — which tells you the sellers have won the battle for now
In essence, a Bearish Engulfing Pattern tells you the sellers have overwhelmed the buyers and are
now in control.
Dark Cloud Cover
A Dark Cloud Cover is a (2-candle) reversal candlestick pattern that forms after an advanced in
price.
Unlike the Bearish Engulfing Pattern which closes below the previous open, the Dark Cloud Cover
closes within the body of the previous candle.
Thus in terms of strength, the Dark Cloud Cover isn’t as strong as the Bearish Engulfing pattern.
Here’s how to recognize it:
The first candle has a bullish close
The body of the second candle closes beyond the halfway mark of the first candle
The second candle closes bearish
And this is what a Dark Cloud Cover means…
1. On the first candle, the buyers are in control as they closed higher for the period
2. On the second candle, selling pressure stepped in and it closed bearishly (more than 50% of
the previous body) — which tells you there are selling pressure around
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Next…
Tweezer Top
A Tweezer Top is a (2-candle) reversal candlestick pattern that occurs after an advanced in price.
Here’s how to recognize it:
The first candle shows rejection of higher prices
The second candle re-tests the high of the previous candle and closes lower
And this is what a Tweezer Top means…
1. On the first candle, the buyers pushed the price higher and were met with some selling
pressure
2. On the second candle, the buyers again tried to push the price higher but failed, and was
finally overwhelmed by strong selling pressure
In short, a Tweezer Top tells you the market has difficulty trading higher (after two attempts) and
it’s likely to head lower.
Evening Star
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
An Evening Star is a (3-candle) bearish reversal candlestick pattern that forms after an advanced in
price.
Here’s how to recognize it:
The first candle has a bullish close
The second candle has a small range
The third candle closes aggressively lower (more than 50% of the first candle)
And this is what an Evening Star means…
1. On the first candle, it shows the buyers are in control as the price closes higher
2. On the second candle, there is indecision in the markets as both the selling and buying
pressure are in equilibrium (that’s why the range of the candle is small)
3. On the third candle, the sellers won the battle and the price closes lower
In short, an Evening Star tells you the buyers are exhausted and the sellers are momentarily in
control.
1.
Moving on…
How to nd high probability bearish reversal
setups
Awesome!
You’ve just learned the different bearish reversal candlestick patterns.
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Now, let’s take it a step further and learn how to identify high probability trading setups with it.
Here’s how you do it…
1. If the market is trending lower, then wait for a pullback towards Resistance
2. If the price pullback towards Resistance, then wait for a bearish reversal candlestick pattern
3. If there’s a bearish reversal candlestick pattern, then make sure the size of it is larger than the
earlier candles (signalling strong rejection)
4. If there’s a strong price rejection, then go short on next candle’s open
5. And vice versa for long setups
Here are a few cherry-picked examples:
Bearish Engulfing Pattern:
Bearish Engulfing Pattern:
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Shooting Star:
Note: There will be losing trades as well and this is not the “holy grail”.
Indecision candlestick patterns
Indecision candlestick patterns signify that both buying and selling pressure is in equilibrium.
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
And these are 2 indecision candlestick patterns you should know:
Spinning top
Doji
Let me explain…
Spinning top
A spinning top is an indecision candlestick pattern that where both buying and selling pressure is
fighting for control.
Here’s how to recognize it:
The candle has long upper and lower shadow
The candle has a small body
And here’s what a Spinning top means…
1. When the market opens, both the buyers and sellers aggressively tried to gain control (which
results in upper and lower shadows)
2. At the end of the session, neither has gained the upper hand (which results in a small body)
In short, a spinning top shows significant volatility in the market but with no clear winner.
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
And yes, it looks like the toy you played when you were young.
Moving on…
Doji
A Doji represents indecision in the markets as both buying and selling pressure are in equilibrium.
Here’s how to recognize it:
The candle’s open and close are around the middle of the range
The upper and lower shadows are short and about the same length
Although Doji is an indecision candlestick pattern, there are variations with different significance.
They are:
1. Dragonfly Doji
2. Gravestone Doji
I’ll explain…
1. Dragon y Doji
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Unlike a regular Doji which open and close near the middle of the range, the Dragonfly Doji open
and close near the highs of the range with long lower shadow.
This tells you there is a rejection of lower prices as buying pressure stepped in and pushed the
market higher towards the opening price.
2. Gravestone Doji
Unlike a regular Doji which open and close near the middle of the range, the Gravestone Doji
closes open and close near the lows of the range with long upper shadow.
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
This tells you there is a rejection of higher prices as selling pressure stepped in and pushed the
market lower towards the opening price.
Moving on…
Continuation candlestick patterns
Continuation candlestick patterns signify the market is likely to continue trading in the same
direction.
And if you’re a trend trader, these candlestick patterns present some of the best trading
opportunities out there.
So here are 4 continuation patterns you should know:
Rising Three Method
Falling Three Method
Bullish Harami
Bearish Harami
Let me explain…
Rising Three Method
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
The Rising Three Method is a bullish trend continuation pattern that signals the market is likely to
continue trending higher.
Here’s how to recognize it:
The first candle is a large bullish candle
The second, third and fourth candle has a smaller range and body
The fifth candle is a large-bodied candle that closes above the highs of the first candle
And here’s what a Rising Three Method means…
1. On the first candle, it shows the buyers are in domination as they closed the session strongly
2. On the second, third, and fourth candle, buyers are taking profits which led to a slight
decline. However, it’s not a strong selloff as there are new buyers entering long at these
prices
3. On the fifth candle, the buyers regain control and pushed the price to new highs
Note: If you’re familiar with western charting, you’d realized the Bullish Flag and Rising Three
Method pretty much mean the same thing.
Falling Three Method
The Falling Three Method is a bearish trend continuation pattern that signals the market is likely to
continue trending lower.
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Here’s how to recognize it:
The first candle is a large bearish candle
The second, third and fourth candle has a smaller range and body
The fifth candle is a large-bodied candle that closes below the lows of the first candle
And here’s what a Falling Three Method means…
1. On the first candle, it shows the sellers are in domination as they closed the session strongly
lower
2. On the second, third, and fourth candle, sellers are taking profits which led to a slight
advanced. However, it’s not a strong rally as there are new sellers entering short at these
prices
3. On the fifth candle, the sellers regain control and pushed the price to new lows
Next…
Bullish Harami
Here’s the deal:
Most trading websites or books will tell you the Bullish Harami occurs after a decline in price.
But I can’t agree.
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
This is one of those things you must use common sense to filter out the BS out there.
Think about this:
A downtrend is created using the prices of the few hundred candlesticks.
Do you think it will reverse because a Bullish Harami is formed?
Unlikely.
Instead, the Bullish Harami works best as a continuation pattern in an uptrend.
It signals the buyers are “taking a break” and the price is likely to trade higher.
Moving on…
Here’s how you recognize a Bullish Harami:
The first candle is bullish and larger than the second candle
The second candle has a small body and range (it can be bullish or bearish)
And here’s what a Bullish Harami means…
1. On the first candle, it shows strong buying pressure as the candle closes bullishly
2. On the second candle, it shows indecision as both buying and selling pressure is similar
(likely because of traders taking profits and new traders entering long positions)
Note: You can treat the Harami as an Inside Bar. They mean the same thing and can be traded in a
similar context.
Bearish Harami
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
A bearish Harami works best as a continuation pattern in a downtrend.
It signals the sellers are “taking a break” and the price is likely to trade lower.
Here’s how you recognize a Bearish Harami:
The first candle is bearish and larger than the second candle
The second candle has a small body and range (it can be bullish or bearish)
And here’s what a Bearish Harami means…
1. On the first candle, it shows strong selling pressure as the candle closes bearishly
2. On the second candle, it shows indecision as both buying and selling pressure is similar
(likely because of traders taking profits and new traders entering short positions)
Let’s move on…
How to nd high probability trend continuation
setups
So…
You’ve learned what are continuation candlestick patterns and how it looks like.
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Now, I’ll teach you how to identify high probability trading setups with these patterns.
Here’s how to do it…
1. If the market is in a range, then wait for it to breakout out of Resistance
2. If the market breaks out of Resistance, then wait for it to form a continuation candlestick
pattern (like Rising Three Method or Bullish Harami)
3. If the market forms a continuation candlestick pattern, then go long on the break of the highs
4. And vice versa for short setups
Here are a few cherry-picked examples:
A variation of the Falling Three Method on USD/ZAR:
Rising Three Method and Bullish Harami on EUR/USD:
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
This is powerful stuff, right?
Great!
Let’s move on…
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Candlestick patterns cheat sheet: How to
understand any candlestick pattern without
memorizing a single one
You’re probably wondering:
“Gosh!”
“There are so many candlestick patterns. How do I remember all of them?”
Well, you don’t have to.
Because if you understand the 2 things I’m about to share with you, then you read any candlestick
patterns like a pro (think of it like a candlestick pattern cheat sheet).
Here’s what you must know…
1. Where did the price close relative to the range?
2. What’s the size of the pattern relative to the other candlestick patterns?
Let me explain…
1. Where did the price close relative to the range?
This question lets you know who’s in control momentarily.
Look at this candlestick pattern…
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Let me ask you…
Who’s in control?
Well, the price closed the near highs of the range which tells you the buyers are in control.
Now, look at this candlestick pattern…
Who’s in control?
Although it’s a bullish candle the sellers are actually the ones in control.
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Why?
Because the price closed near the lows of the range and it shows you rejection of higher prices.
So remember, if you want to know who’s in control, ask yourself…
Where did the price close relative to the range?
Next…
2. What’s the size of the pattern relative to the other
candlestick patterns?
This question lets you know if there’s any strength (or conviction) behind the move.
What you want to do is compare the size of the current candle to the earlier candles.
If the current candle is much larger (like 2 times or more), it tells you there’s strength behind the
move.
Here’s an example…
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
And if there’s no strength behind the move, the size of the current candle is about the same size as
the earlier ones.
An example…
Does it make sense?
Great!
Now you have what it takes to read any candlestick pattern without memorizing a single one.
Bonus: How to read candlestick chart and
“predict” market turning points with deadly
accuracy
Here’s the thing:
The market doesn’t move in one straight line.
Instead, it goes…
Up and down, up and down, up and down, right? (Something like that)
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
And you can classify this “up and down” pattern into:
Trending move
Retracement move
This is important, so let me explain…
Trending move
A trending move is the “stronger” leg of the trend.
You’ll notice larger-bodied candles that move in the direction of the trend.
An example:
Retracement move
A retracement move is the “weaker leg of the trend.
You’ll notice small-bodied candles that move against the trend (otherwise known as counter-trend).
An example:
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
You might be wondering:
“Why is this important?”
Because in a healthy trend, you’ll expect to see a trending move followed by a retracement move.
But when the trend is getting weak, the retracement move no longer has small-bodied candles, but
larger ones.
And when you combine this technique with market structure (like Support and Resistance,
Trendline, etc.), you can pinpoint market turning points with deadly accuracy.
Let me give you an example…
NZD/CAD Daily:
On the Daily timeframe, the price is at Resistance area and has a confluence of a downward
Trendline.
The price could reverse lower so let’s look for a shorting opportunity on the lower timeframe…
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
NZD/CAD 8-hour:
On the 8-hour timeframe, the selling pressure is coming in as you notice the candles of the
retracement moves getting bigger (a sign of strength from the sellers).
Also, the buying pressure is getting weak as the candles of the trending move get smaller.
One possible entry technique is to go short when the price breaks and close below Support…
This is powerful stuff, right?
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Frequently asked questions
#1: Is this guide applicable to all types of instruments or is it better suited to the Forex market?
The concepts in this guide can be applied to all markets with sufficient liquidity. This includes
stocks, futures, bonds, etc.
#2: Are the candlestick patterns that you’ve mentioned earlier best suited for certain timeframes?
There’s no best timeframe to trade the candlestick patterns, it all boils down to your trading
approach and the trading timeframe you’re on.
It doesn’t make sense to be looking at candlestick patterns on the daily timeframe if you’re a short-
term trader entering your charts on the 15-minutes timeframe.
#3: Do you look at the news when you trade?
I don’t take into account news when I trade.
Because I believe all the news out there has already been expressed in the price of the market. And
my trading strategy is developed ahead in time without accounting for news. If I were to follow the
news instead of my trading strategy, then I’m no longer following my trading plan.
Look, if you don’t follow your trading plan and instead get affected by the news, then your actions
are no longer consistent. And if you do not have a consistent set of actions, you’re not going to get
a consistent set of results.
So, what’s next?
You’ve just learned that candlestick patterns give you an insight into the markets (like who’s in
control, who’s losing, where did the price get rejected, and etc.).
However, you don’t want to trade candlestick patterns in isolation because they don’t offer an edge
in the markets.
The Advance Guide to Candlestick Patterns
The Advance Guide to Candlestick Patterns
Instead, use them as tools to “confirm” your bias so it can help you better time your entries &
exits.
Now… it’s time to put these techniques into practice.
The next step?
Click on the below video and Watch our weekly option strategy !!
Click To Watch This Video
The Advance Guide to Candlestick Patterns
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