Ultimate Candlestick & Chart Pattern Guide for Traders

Page 1: Introduction to Candlestick Charts

Candlestick charts are a popular way to visualize price movements in financial markets. Developed

in Japan centuries ago, they combine the open, high, low, and close prices in a single candlestick

that helps traders quickly understand market sentiment.

Compared to bar or line charts, candlesticks provide richer information and clearer signals, making

them a favorite for both beginners and professional traders.

Page 2: Anatomy of a Candlestick

A candlestick consists of:

Real Body: The area between the open and close price.

Upper Shadow (Wick): The line above the body showing the highest price.

Lower Shadow (Wick): The line below the body showing the lowest price.

A green (or white) candle means the close was higher than the open (bullish), and a red (or black)

candle means the close was lower than the open (bearish).

Page 3: Benefits of Candlestick Patterns

Candlestick patterns:

Provide clear visual cues of buying and selling pressure.

Offer entry, exit, and stop loss signals.

Are easy to interpret quickly, even on mobile screens.

Pages 410: 8 Single Candlestick Patterns

1. Hammer

A bullish reversal with a small body and long lower wick. Signals buyers stepped in after sellers

pushed price down.

Buy: After confirmation candle.

Stop Loss: Below the low.

2. Shooting Star

A bearish reversal with a small body and long upper wick, showing rejection of higher prices.

Sell: After confirmation.

Stop Loss: Above the high.

3. Doji

Indecision candle with open and close almost equal. Indicates market uncertainty.

Wait: For next candle confirmation.

4. Inverted Hammer

Bullish reversal after a downtrend, with a small body and long upper wick.

Buy: After confirmation.

Stop Loss: Below the low.

5. Hanging Man

Bearish reversal after an uptrend, small body with long lower wick.
Sell: After confirmation.

Stop Loss: Above the high.

6. Marubozu

Strong bullish or bearish candle with no shadows. Indicates strong momentum.

Buy/Sell: Follow trend.

Stop Loss: Below/above body.

7. Spinning Top

Small body with long shadows, indicates indecision.

Wait: Confirm next candle.

8. Long-Legged Doji

Extremely long shadows, indecision, possible reversal.

Wait: For confirmation.

Pages 1118: 10 Multi-Candlestick Patterns

1. Engulfing Pattern

Bullish or bearish reversal where the second candle completely engulfs the first.

Buy/Sell: On confirmation.

Stop Loss: Beyond pattern extremes.

2. Morning Star

Bullish 3-candle reversal pattern.

Buy: After third candle closes bullish.

Stop Loss: Below low of the star.

3. Evening Star
Bearish 3-candle reversal.

Sell: After confirmation.

Stop Loss: Above high of star.

4. Piercing Line

Bullish reversal where second candle closes above midpoint of first.

Buy: After confirmation.

Stop Loss: Below low.

5. Dark Cloud Cover

Bearish reversal; second candle closes below midpoint of first.

Sell: After confirmation.

Stop Loss: Above high.

6. Tweezer Tops and Bottoms

Two candles with matching highs (top) or lows (bottom), signaling reversal.

Buy/Sell: After confirmation.

Stop Loss: Beyond pattern extremes.

7. Three White Soldiers

Three consecutive bullish candles; strong uptrend signal.

Buy: On confirmation.

Stop Loss: Below first candle low.

8. Three Black Crows

Three consecutive bearish candles; strong downtrend.

Sell: On confirmation.

Stop Loss: Above first candle high.

9. Harami
Small candle inside previous large candle body, indicating reversal.

Wait: For confirmation.

10. Doji Star

Doji candle after a strong trend; potential reversal.

Wait: Confirm next candle.

Pages 1927: 15 Chart Patterns

1. Head and Shoulders

Bearish reversal pattern with three peaks; middle peak highest.

Sell: After neckline break.

Stop Loss: Above right shoulder.

2. Inverse Head and Shoulders

Bullish reversal mirror image.

Buy: After neckline break.

Stop Loss: Below right shoulder.

3. Double Top

Bearish reversal after two peaks at resistance level.

Sell: After support break.

Stop Loss: Above top.

4. Double Bottom

Bullish reversal after two lows at support.

Buy: After resistance break.

Stop Loss: Below bottom.

Bullish continuation with flat resistance and rising support.

Buy: On breakout above resistance.

Stop Loss: Below rising support.

6. Descending Triangle

Bearish continuation with flat support and falling resistance.

Sell: On breakdown below support.

Stop Loss: Above resistance.

7. Symmetrical Triangle

Indecision pattern, breakout direction defines trend.

Buy/Sell: On breakout.

Stop Loss: Opposite side of breakout.

8. Flag

Small rectangle pattern after sharp move; continuation expected.

Buy/Sell: On breakout direction.

Stop Loss: Opposite flag side.

9. Pennant

Small symmetrical triangle after sharp move.

Buy/Sell: On breakout.

Stop Loss: Opposite side.

10. Cup and Handle

Bullish continuation resembling a cup shape followed by a small handle.

Buy: After breakout above handle.

Stop Loss: Below handle low.

Consolidation between support and resistance.

Buy/Sell: On breakout or breakdown.

Stop Loss: Opposite side of breakout.

12. Rounding Bottom

Bullish reversal with a gradual curve.

Buy: On breakout above resistance.

Stop Loss: Below curve low.

13. Rising Wedge

Bearish reversal or continuation with converging upward trendlines.

Sell: On breakdown.

Stop Loss: Above wedge high.

14. Falling Wedge

Bullish reversal with converging downward trendlines.

Buy: On breakout.

Stop Loss: Below wedge low.

15. Broadening Formation

Uncertain pattern with expanding highs and lows.

Wait: For clear breakout.

Page 28: Trading Tactics

Always confirm patterns with volume.

Use stop losses to manage risk.

Avoid trading during low liquidity or major news events.

Page 29: Strategy & Risk Management

Only trade high-probability patterns.

Use a risk-reward ratio of at least 1:2.

Limit risk to 12% of your capital per trade.

Maintain a trading journal to review trades.

Page 30: Final Tips

Practice patterns on historical charts before live trading.

Be patient and wait for confirmation.

Avoid emotional trading decisions.

Keep learning and adapting your strategies.