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6 Powerful Candlestick Patterns Every Trader Should Know!

Updated: Jan 18

Candlestick charts and their patterns are invented in Japan over 300 years ago, and it is the most popular chart pattern among traders and investors.


Both the bar chart and candlestick chart provide the same data. However, the candlestick chart is easier to read and visually more appealing.


Japanese Candlestick charting techniques are very popular among traders and allow for achieving more than average profits according to a 2014 study published about candlestick chart patterns.


Table of Contents


How to Read the Candlestick Chart?

Bullish Engulfing Pattern

Bearish Engulfing Pattern

Hammer Pattern

Hanging man Pattern

Bullish Harami

Bearish Harami

Candlestick Patterns for Day Trading

Other Important Candlestick Patterns

Doji

Morning Star

Evening Star

Best Books to Study Candlestick Patterns

Japanese Candlestick Charting Techniques

How to Make Money Trading with Candlestick Charts

Beginners Guide to Stock Market

Conclusion



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How to Read the Candlestick Chart?


A chart that has open, close, high, and low data in a candle form for any selected period is a candlestick chart.


Image 1 – Candlestick Chart Formation
Image 1 – Candlestick Chart Formation

Falling periods (when the closing price is lesser than the open price) will be represented by a red candlestick body called a Bearish candle.


Similarly, rising periods (when the closing price is greater than the open price) will be represented by a green candlestick body called a Bullish candle.


Image 2 – USD-AUD Candlestick chart (Daily Timeframe)
Image 2 – USD-AUD Candlestick chart (Daily Timeframe)

In a daily timeframe candlestick chart, a candle represents a day. Similarly, you can view the same candlestick chart for the smaller time frame (such as a 1-hour, 30 minutes chart) by changing the time frame settings.


If you observe candlestick charts over a period of time, some patterns occur repeatedly. If a trader develops the ability to identify these patterns and uses it correctly, it gives an extra edge in his trading.


Bullish Candlestick Patterns – Bullish Engulfing, Hammer, Bullish Harami are some of the examples.


Bearish Candlestick Patterns – Bearish Engulfing, Hanging man, Bearish Harami are some of the examples.


Reversal Candlestick Patterns – Spinning Top, Island Reversal Hammer are some of the examples.


There are thousands of candlesticks patterns present in the technical analysis world. Studying and memorizing all these patterns are practically impossible.


It is better to shortlist the patterns based on the “Impact” and “Repeated Occurrence.”

Because if a candlestick pattern has less impact, then it is not useful. Similarly, if a candlestick pattern is powerful, but if it rarely occurs, then again, it is of no use.


Considering these two parameters, below are some powerful patterns and occur very frequently in every timeframe.