Candlestick Patterns Every Trader Should Know

Once you know how to read a single candlestick, the next step is recognizing the handful of shapes and combinations that traders watch for over and over. A hammer forms when price sells off hard during a session but buyers push it back up, leaving a small body near the top and a long lower wick; it often appears after a decline and hints that selling pressure is fading. A doji has almost no body at all, meaning the open and close were nearly identical, which signals indecision between buyers and sellers rather than a clear winner.

Engulfing patterns involve two candles instead of one. A bullish engulfing candle fully swallows the body of the prior down candle with a larger up candle, suggesting buyers have overwhelmed sellers in a single session. A bearish engulfing candle does the opposite, a large down candle that consumes the previous up candle's body, warning that sellers just took control. These two-candle reversals tend to carry more weight than a single candle alone because they show a real shift in who is winning the fight between buyers and sellers.

Morning star and evening star patterns extend the idea to three candles. A morning star starts with a long down candle, followed by a small-bodied candle that gaps or drifts lower, then finishes with a strong up candle that closes back into the first candle's range, marking a potential bottom. An evening star is the mirror image at the top of a move, a long up candle, a small indecisive candle, then a strong down candle, warning that the rally may be running out of steam.

None of these patterns work in isolation. A hammer at a random point on the chart means far less than a hammer forming exactly at a support level you already identified, and the same goes for engulfing candles near resistance. Traders combine these shapes with the broader trend and key levels covered elsewhere in this course, using the pattern as a trigger rather than a standalone signal.