7 candlestick reversal patterns
Single- and multi-session candlestick reversals: hammer, engulfing, morning star, piercing line and three white soldiers, with what each one demonstrates.
What candlestick reversal patterns have in common
Candlestick patterns read the shape of one to three sessions rather than a structure spanning months. A long lower wick says the market sold off during the day and buyers took it all back before the close; an engulfing body says one side comprehensively overwhelmed the other. The vocabulary comes from Japanese rice traders and was popularised in the West by Steve Nison, and it is best understood as a way of describing a session, not a way of predicting the next one.
- Each is defined by the relationship between open, high, low and close over one to three sessions
- All of them depend entirely on context, because the identical candle means opposite things after an advance and after a decline
- Volume is not part of the classical definition but separates the convincing examples from the common ones
- None of them is confirmed until a subsequent session follows through
What these patterns are telling you
Candlestick patterns fire constantly. A hammer, an engulfing bar or a doji appears somewhere in almost every liquid stock every week, and the great majority mean nothing at all. Their value comes almost entirely from where they occur: at a tested support level, after an extended run, on unusual volume. That is why PatternGrade weights the surrounding structure heavily rather than grading the candle in isolation.
PatternGrade grades what it finds and publishes how each grade has performed. It is not a financial advisor and does not give buy or sell recommendations.
Every candlestick reversal pattern PatternGrade scans
Rescanned across ~4,500 US stocks end-of-day, after every close.
Hammer ReversalA long lower wick with a small body at the top, after a decline: the classic rejection candle. Scanned after every close across every liquid US stock.
Morning StarA three-candle bottoming reversal: a decline, a small indecisive bar, then a strong recovery. Scanned across every liquid US stock.
Bullish EngulfingAn up candle whose body fully engulfs the prior down candle's body. PatternGrade scans every liquid US stock for engulfing reversals after every close.
Piercing LineAn up candle that opens below the prior low and closes above the midpoint of the prior down candle. Scanned after every close across US stocks.
Three White SoldiersThree consecutive strong up candles, each closing near its high. PatternGrade scans every liquid US stock for this reversal after each close.
Dragonfly DojiA doji with a long lower wick and virtually no upper wick, with open and close both near the high. Scanned after every close across every liquid US stock.
Shooting StarA long upper wick with a small body at the bottom, after an advance: rejection of higher prices. Scanned across every liquid US stock.
Candlestick reversal patterns FAQ
Are candlestick patterns reliable?
Individually, and without context, no. They are too common. A single session is thin evidence for a reversal, and the same shape means opposite things depending on what preceded it. They become useful as a timing input at a level that already matters for a structural reason, which is how PatternGrade grades them.
What is the difference between a hammer and a hanging man?
Nothing about the candle itself. The two are identical in shape. A hammer appears after a decline and is read as bullish; a hanging man appears after an advance and is read as bearish. It is the clearest example in the whole vocabulary of context, not geometry, carrying the meaning.
Do candlestick patterns need confirmation?
In practice yes. The conventional approach is to wait for the following session to close beyond the pattern's extreme before treating it as real. PatternGrade reports the pattern when it forms and draws the structural invalidation level; whether to wait for confirmation is your decision.
How many candles make a valid pattern?
One to three, depending on the pattern. A hammer or doji is a single session; engulfing and piercing line are two; morning star, evening star and three white soldiers are three. Longer sequences exist but are increasingly rare and increasingly likely to be coincidence.
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