Candlestick Pattern: Doji, Hammer, Engulfing — When to Buy and Sell

Three candlestick patterns account for over 70% of my trade entries: Doji, Hammer, and Engulfing. These patterns are simple to learn, easy to spot, and when combined with context, incredibly powerful for timing entries and exits.

The Hammer: Buying Dip Like a Pro

A Hammer at a support level is a buy signal. The long lower wick shows buyers aggressively stepped in at lower prices. Entry: Above the hammer’s high. Stop Loss: Below the hammer’s low. Target: Previous resistance level. Works best on daily charts at major support with above-average volume.

The Engulfing Pattern: The Strongest Reversal Signal

A Bullish Engulfing at support: large green candle completely covers the prior red candle. Entry above the engulfing candle’s high, stop below its low. A Bearish Engulfing at resistance is the sell signal. This pattern shows a complete shift in control from sellers to buyers (or vice versa) within one session.

The Doji: The Decision Point

A Doji (tiny body, long wicks) signals indecision — the battle between buyers and sellers is at a stalemate. Alone, it means nothing. But at key levels, a Doji followed by a directional candle is a powerful signal. Bullish setup: Doji at support → next candle green → buy above the green candle’s high.

Context Is Everything: When NOT to Trade These Patterns

A hammer in the middle of a range means nothing. An engulfing pattern against the weekly trend will likely fail. A Doji on a 1-minute chart is noise. For these patterns to work, they must appear: 1) at a significant support/resistance level, 2) in alignment with the higher timeframe trend, 3) with volume confirmation.

Combining Multiple Candlestick Signals

The most powerful setups involve pattern clusters. Example: Doji at support (Day 1) → Hammer (Day 2) → Bullish Engulfing (Day 3). This three-day sequence shows progressively stronger buying interest at a key level. The engulfing day becomes your entry with the Doji’s low as your stop.

Real Indian Stock Examples

Reliance at ₹2,400 support showing a hammer on daily chart → entry at ₹2,420, SL at ₹2,380, target ₹2,520. HDFC Bank bearish engulfing at ₹1,700 resistance → short entry ₹1,685, SL ₹1,710, target ₹1,620. These setups repeat across all major Indian stocks.

Frequently Asked Questions

Which single candlestick pattern is most reliable?

The Engulfing pattern at a key support/resistance level with volume confirmation has the highest win rate among single/double candlestick patterns.