Candlestick Patterns Cheat Sheet: 20 Patterns Every Trader Needs
Candlestick patterns are the language of the market. Developed in 18th century Japan, these visual patterns reveal the battle between buyers and sellers in a way no indicator can match. This cheat sheet covers the 20 most reliable patterns for trading Indian stocks.
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Single Candle Patterns: Hammer & Shooting Star
The Hammer appears at the bottom of a downtrend — small body at the top, long lower shadow (2x body size), little to no upper shadow. It signals buyers stepped in aggressively at lower prices. The Shooting Star is the inverse — appears at the top of an uptrend with a long upper shadow, signaling sellers rejected higher prices.
Engulfing Patterns: The Most Reliable Reversal Signal
A Bullish Engulfing pattern occurs when a green candle completely engulfs the previous red candle at a support level. This is one of the highest-probability reversal patterns, especially on daily and weekly charts. Bearish Engulfing is the opposite — a red candle engulfs a green candle at resistance.
Doji: The Indecision Candle
A Doji has nearly identical open and close prices, creating a cross or plus sign shape. Alone, it signals indecision. But at key support/resistance levels or after extended trends, it becomes a powerful reversal signal. The Dragonfly Doji at support is extremely bullish; the Gravestone Doji at resistance is extremely bearish.
Three-Candle Patterns: Morning Star & Evening Star
The Morning Star is a three-candle bullish reversal: red candle → small-bodied candle (gap down) → green candle that closes above midpoint of first candle. Found at support levels, it signals a powerful trend reversal. The Evening Star is the bearish counterpart at resistance.
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Continuation Patterns: Three White Soldiers & Three Black Crows
Three White Soldiers = three consecutive green candles with progressively higher closes, each opening within the previous body. Signals strong bullish momentum. Three Black Crows = three consecutive red candles, signaling strong bearish momentum. These work best after consolidation periods.
How to Trade Candlestick Patterns in Indian Stocks
Never trade patterns in isolation. Always combine with: 1) Support/resistance levels, 2) Volume confirmation, 3) Overall trend direction. A hammer at a weekly support level with above-average volume is a high-probability setup. The same hammer in the middle of nowhere is meaningless. Context is everything in candlestick trading.
Frequently Asked Questions
Which candlestick pattern is most reliable?
The Bullish and Bearish Engulfing patterns at key support/resistance levels have the highest win rate, typically 60-65% when combined with volume confirmation.
Do candlestick patterns work on all timeframes?
Yes, but higher timeframes (daily, weekly) produce more reliable signals. Intraday patterns on 5-minute charts have lower reliability.
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