Doji
A Doji candlestick forms when a security's open and close prices are virtually equal. This pattern signifies indecision in the market, as buyers and sellers are evenly matched. The Doji often appears as a cross or plus sign. There are several types of Doji candlesticks, including the Standard Doji, Long-Legged Doji, Dragonfly Doji, and Gravestone Doji, each with unique characteristics:
Standard Doji: Reflects a balance between supply and demand.
Long-Legged Doji: Features longer wicks, indicating a higher level of market indecision.
Dragonfly Doji: Has a long lower wick and no upper wick, often found at the bottom of downtrends, suggesting a potential bullish reversal.
Gravestone Doji: Has a long upper wick and no lower wick, typically seen at the top of uptrends, indicating a potential bearish reversal.
How to Trade: Wait for confirmation in the form of a subsequent candlestick that aligns with the anticipated market direction (bullish for Dragonfly Doji, bearish for Gravestone Doji). Enter the trade once confirmation is observed.
Win-rate range: 50%-55%
Hammer
The Hammer candlestick pattern appears after a downtrend and is characterized by a small body at the upper end of the trading range and a long lower wick. This pattern suggests that despite selling pressure, buyers managed to push prices back up, signaling a potential reversal to the upside. The lower wick should be at least twice the length of the body, and the color of the body is less important, though a green (bullish) body is more bullish than a red (bearish) one.
How to Trade: Enter a long position when a bullish candlestick confirms the reversal by closing above the hammer's close. Set a stop-loss below the hammer's low to manage risk.
Win-rate range: 60%-65%
Hanging Man
The Hanging Man is a bearish reversal pattern that forms after an uptrend. It looks similar to the Hammer but appears at the top of an uptrend. The pattern consists of a small body at the upper end of the trading range and a long lower wick. The long lower wick indicates that sellers pushed prices lower during the trading session, but buyers were able to recover some of the losses. However, the appearance of the Hanging Man suggests that the uptrend may be losing momentum and selling pressure is increasing.
How to Trade: Wait for a bearish candlestick to confirm the pattern by closing below the Hanging Man's body. Enter a short position at this point and place a stop-loss above the high of the Hanging Man.
Win-rate range: 55%-60%
Bullish Engulfing
The Bullish Engulfing pattern is a two-candle formation that signals a potential reversal to the upside. It occurs in a downtrend and consists of a small bearish candle followed by a larger bullish candle that completely engulfs the body of the previous candle. This pattern indicates that buying pressure has overwhelmed selling pressure.
How to Trade: Enter a long position once the bullish engulfing candle closes above the previous bearish candle. Place a stop-loss below the low of the bullish engulfing candle.
Win-rate range: 60%-65%
Bearish Engulfing
The Bearish Engulfing pattern is the opposite of the Bullish Engulfing pattern. It appears in an uptrend and consists of a small bullish candle followed by a larger bearish candle that completely engulfs the body of the previous candle. This pattern suggests that selling pressure has overcome buying pressure, indicating a potential reversal to the downside.
How to Trade: Enter a short position once the bearish engulfing candle closes below the previous bullish candle. Place a stop-loss above the high of the bearish engulfing candle.
Win-rate range: 60%-65%
Morning Star
The Morning Star is a bullish three-candle pattern that indicates a potential reversal from a downtrend. It consists of:
A long bearish candle.
A short-bodied candle (bullish or bearish) that gaps down from the previous candle.
A long bullish candle that closes well into the body of the first candle.
The first candle shows the continuation of the downtrend, the second candle indicates indecision, and the third candle signals a strong bullish reversal.
How to Trade: Enter a long position when the third bullish candle closes above the midpoint of the first bearish candle. Place a stop-loss below the low of the second candle.
Win-rate range: 65%-70%
Evening Star
The Evening Star is a bearish three-candle pattern that indicates a potential reversal from an uptrend. It consists of:
A long bullish candle.
A short-bodied candle (bullish or bearish) that gaps up from the previous candle.
A long bearish candle that closes well into the body of the first candle.
The first candle shows the continuation of the uptrend, the second candle indicates indecision, and the third candle signals a strong bearish reversal.
How to Trade: Enter a short position when the third bearish candle closes below the midpoint of the first bullish candle. Place a stop-loss above the high of the second candle.
Win-rate range: 65%-70%
Shooting Star
The Shooting Star is a bearish reversal pattern that appears after an uptrend. It has a small body near the lower end of the trading range, a long upper wick, and little to no lower wick. The long upper wick indicates that buyers pushed prices higher, but sellers were able to push prices back down, suggesting a potential reversal to the downside.
How to Trade: Enter a short position when a bearish candlestick confirms the reversal by closing below the Shooting Star's body. Place a stop-loss above the high of the Shooting Star.
Win-rate range: 55%-60%
Inverted Hammer
The Inverted Hammer is a bullish reversal pattern that forms after a downtrend. It has a small body at the lower end of the trading range, a long upper wick, and little to no lower wick. The long upper wick indicates that buyers attempted to push prices higher, but sellers managed to bring prices back down. However, the appearance of the Inverted Hammer suggests that buying interest is emerging, and a potential reversal to the upside may occur.
How to Trade: Enter a long position when a bullish candlestick confirms the reversal by closing above the Inverted Hammer's body. Place a stop-loss below the low of the Inverted Hammer.
Win-rate range: 55%-60%
Three White Soldiers
The Three White Soldiers pattern is a bullish reversal pattern that consists of three consecutive long bullish candles with short or no wicks. Each candle opens within the body of the previous candle and closes near its high, indicating strong buying pressure and a potential trend reversal. This pattern typically appears after a downtrend or a period of consolidation, signaling the start of a new uptrend.
How to Trade: Enter a long position at the close of the third bullish candle. Place a stop-loss below the low of the first candle in the pattern.
Win-rate range: 65%-70%
Three Black Crows
The Three Black Crows pattern is the opposite of the Three White Soldiers, a bearish reversal pattern that consists of three consecutive long bearish candles with short or no wicks. Each candle opens within the body of the previous candle and closes near its low, indicating strong selling pressure and a potential trend reversal. This pattern typically appears after a uptrend or a period of consolidation, signaling the start of a new downtrend.
How to Trade: Enter a short position at the close of the third bearish candle. Place a stop-loss above the high of the first candle in the pattern.
Win-rate range: 65%-70%