Japanese rice farmers invented candlesticks in the 18th century to predict price fluctuations in the rice market using intraday highs and lows and depicting the direction of change. Today, candlestick patterns are an indispensable charting tool used to analyze market sentiment and visualize price action.
By utilizing candlestick charts, traders can make smarter short-term trading decisions, identifying trends, reversals, and potential exit points at an advantage.
Read on to learn the anatomy of a candlestick and find out how to spot the most common candlestick patterns.
Our candlestick patterns cheat sheet will introduce you to some of the most crucial stock patterns and advise you on how to respond to them when trading. All these different patterns can seem overwhelming at first, but with a little bit of study, you’ll find that you understand the market better and make more profitable trades.

WHAT DO CANDLESTICK CHARTS DEPICT?

Candlesticks show four specific price points for a given time period, often one day. These price points are the open, close, high, and low. Together, these price points give traders a snapshot of whether price movement is trending positive or negative, and how strong that momentum is.
Several candlestick chart patterns have emerged as clear indicators of a price reversal or continuation. Traders that memorize the candle pattern can spot them and get ahead of a trend for more favorable trading outcomes. These charts are versatile, with Forex and crypto candlestick charts being just as common as using them for options and swing trades.

Basic Components of Candlesticks

Body

The body represents the open-close price range during that time period. A larger body suggests a significant price movement during that period, indicating strong buying or selling pressure. Conversely, a smaller body suggests a relatively smaller price range between the opening and closing prices. This indicates less price movement and potentially lower market conviction during that period.

Color

The color of a candlestick shows the direction of price movement during the specified time period. Green or white bodies represent a higher closing price than the opening price for a given period. Red or black bodies represent a lower closing price than the opening price. This makes it easy to know if the price increased or decreased that day in one glance.

Wick

The upper wick represents the highest price reached during the period, while the lower wick represents the lowest price. The length of the wicks provides valuable information about the price volatility and the market’s ability to move beyond the opening and closing prices.
Candle patterns are spotted using all three components and groupings of multiple candlesticks. Combinations of different patterns can signal a price reversal or continuation, as well as to what degree.

HOW TO READ CANDLESTICKS

Assuming a daily chart, each candlestick represents a day’s price spread, directional change, and volatility. Learning how to read candlesticks requires the ability to understand what these factors mean in relation to each other. The use of an accurate trading journal software can also help with reading these types of charts.
Here are a few conclusions one can draw when reading candlesticks:

TYPES OF CANDLESTICKS AND THEIR MEANINGS

Bullish Candlestick Patterns

It’s more practical to learn with real-world examples. We’re going to start with the best candlestick patterns that every trader should be able to recognize and move on to the more complex ones. You’ll notice most candlesticks are named after their shape or the Japanese equivalent. Candlesticks are usually split into bullish and bearish categories:
Bullish candlestick patterns usually occur at the end of a downtrend and indicate potential upward price movement. They indicate that buyers have gained control or are exerting more influence over sellers. Traders look for these signals as a sign to buy and profit off of this price increase. Note that experienced traders often wait to see other confirmation signals to be more confident in a position before entering.
Here are a few conclusions one can draw when reading candlesticks:

TYPES OF CANDLESTICKS AND THEIR MEANINGS

Bullish Candlestick Patterns

It’s more practical to learn with real-world examples. We’re going to start with the best candlestick patterns that every trader should be able to recognize and move on to the more complex ones. You’ll notice most candlesticks are named after their shape or the Japanese equivalent. Candlesticks are usually split into bullish and bearish categories:
It’s more practical to learn with real-world examples. We’re going to start with the best candlestick patterns that every trader should be able to recognize and move on to the more complex ones. You’ll notice most candlesticks are named after their shape or the Japanese equivalent. Candlesticks are usually split into bullish and bearish categories:

Piercing Line

The Piercing Line is a bullish reversal pattern indicating the end of a downward trend:
The Piercing Line suggests that selling pressure has weakened and buyers are stepping in.

Bullish Hammer

The Bullish Hammer resembles an actual hammer and signifies the end of sellers driving prices down. This pattern is widely known, used in crypto candle charts and stock charts alike.

Inverse Hammer

The Inverse Hammer or inverted hammer indicates the reversal of a downward trend. This reversal candle stick pattern has:

Bullish Harami

The Bullish Harami is a two-candle pattern that occurs during a downtrend.

Morning Star

The Morning Star candle suggests that selling pressure is weakening, and buyers are gaining control. This candlestick is bullish and indicates a potential upward trend reversal.

Bearish Candlesticks Patterns

Bearish candlestick patterns indicate a price decrease; sellers are taking control and causing prices to decline. Many of these patterns have a bullish counterpart, often flipped to indicate the exact opposite.

Bear Flag

The Bear Flag pattern predicts that a bearish downtrend will persist after a temporary price reversal known as a pullback. The flag pole, which is the sharp downward movement preceding the pullback, and the flag itself symbolize the retracement that takes place during the temporary reversal.

Bearish Evening Star

The Bearish Evening Star is the opposite of the bullish Morning Star. It consists of:

Hanging Man

The Hanging Man Candlestick happens under two conditions.
How does this differ from the hammer? The hanging man is a bearish candle and forms within a short uptrend. The hammer candlestick pattern forms within a short downtrend.
graphic of stock pattern for hanging man

Shooting Star Candlestick

The Shooting Star Candlestick is a bearish candlestick pattern that occurs when a trend is losing momentum. This pattern is a key indicator of potential trend reversals in candlestick stocks.

Abandoned Baby Candlestick

The Abandoned Baby Candlestick signals the end of a downtrend. Of the bearish candlestick patterns, it’s rare and pretty trustworthy that a reversal is coming.

ADVANCED CANDLESTICK PATTERNS

While common patterns and reversal candles are accurate enough to learn and use, they may give false signals and need to be confirmed using multiple other sources.
Advanced candlestick patterns provide more reliability, but are harder to pinpoint and confirm. Advanced traders who’ve known how to read candle charts using sophisticated technical analysis can identify these signals quickly.

Continuation Candlestick Patterns

1. Falling Three Methods

It consists of a long bearish candle followed by three smaller bullish candles that are contained within the range of the first candle, and it concludes with another long bearish candle that closes below the low of the initial bearish candle.

2. Rising Three Methods

This bullish continuation pattern indicates a prolonged uptrend in candlestick stocks: The pattern is characterized by a long bullish candle followed by three smaller bearish candles that are contained within the range of the first candle, and it concludes with another long bullish candle that closes above the high of the initial bullish candle.

3. Mat Hold

The Mat Hold indicates the continuation of a preceding bullish or bearish move. The first candle is a long bullish, followed by three small-bodies bearish candles contained within the range of the first bullish candle. The final candle is another long bullish candle that closes above the high of the first bullish candle, indicating the resumption of the uptrend.

4. Three-Line Strike

This trend-continuation candlestick pattern consists of four candles. The heights and positioning can support either a bullish or a bearish trend. It’s one of the best candlestick patterns for continuation prediction.

4. Three-Line Strike

This trend-continuation candlestick pattern consists of four candles. The heights and positioning can support either a bullish or a bearish trend. It’s one of the best candlestick patterns for continuation prediction.

Candlestick Reversal Patterns

1. Bullish and Bearish Engulfing

This powerful pattern is relatively easy to spot. It has a small bullish candlestick followed by a large bearish candle that engulfs the first one. This pattern indicates lower prices may be coming.

2. Three Inside Up/Down

Formed by three consecutive candles, this pattern indicates a loss of momentum in the current trend and suggests a potential shift in the opposite direction.

3. Three White Soldiers

This candle pattern is characterized by three back-to-back long bullish candles. Each candle opens within the body of the previous candle, preferably above its midpoint. The closing price of each candle should be near its highest point; reversal candles indicate potential bullish strength.

USING CANDLESTICK CHARTS FOR FOREX AND CRYPTO

Yes, Forex and crypto traders can also use the candlestick methods to spot buy and sell signals. The same rules apply when using technical analysis.
Because crypto markets are open 24/7 and Forex markets have different clocks, traders may use different time frames and settings to find signals. Traders may set up a Forex candlestick chart or Bitcoin BTC) candlestick chart using the minute or hourly time frames because of the nature of the market.

TRADING COMPUTERS FOR EVERY CANDLESTICK TRADER

Whether trading stocks using candlestick patterns or any other indicator, every trader needs a high-speed, multiscreen setup to make the best comparisons and analyze multiple factors at once.

DESKTOPS

Our desktop trading computers are designed for chart pattern analysis.
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In our search for just the right balance between cost and fast performance, we designed the P-32 to create a best bang-for-the-buck trading computer with a lot of power. The P-32 is used by our customers who trade on the floor of the exchanges.

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Best in Class

More than ten years ago, we introduced the remarkably popular F-37X model to the world. Now the torch carries on with the F-37GT. With CPU speeds of up to 5.1.0GHz (using the latest Intel processor) there are few computers sold today that can compete with it for performance and dependability.

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THE PERFECT LAPTOP FOR TRADING VIEW utilizing the new Intel Core Ultra 7 H processor.  This light-weight, mobile friendly laptop is perfect for web-based trading, crypto-trading, or generally observing the market while you’re travelling.  This model also features longer battery times that our previous models, thanks to the Intel Arc graphics built right into the CPU.

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The Mobile Desktop

The Falcon F-30 trading laptop, equipped with the 14th generation Intel processor, is a high-speed, ultra-efficient mobile computing device. This processor makes it even more powerful than its predecessors, rendering it an unstoppable trading dynamo. If you need to run multiple programs simultaneously for day trading, this laptop is your ultimate solution.

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Best And Most Popular Trading Laptop

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As one of the most favored choices for professional traders worldwide, our Falcon F-15 trading laptop is designed for premium trading experiences. Sporting the largest screen size available, expect nothing less than a superior laptop trading experience.

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BUNDLES

TODD GORDON F-37GT TRADING BUNDLE

Todd Gordon F-37GT Trading Bundle is a 4-monitor bundle including the F-37GT computer, extra long cables, speakers, a mouse, keyboard, and surge suppressor. Candlestick types will be just one of many indicators you can view with a breeze.

RICK SADDLER F-52GT TRADING BUNDLE

Named after one of the best trading coaches out there, our Rick Saddler F-52GT Trading Bundle comes with the F-52GT Desktop, four monitors, and accessories mentioned in the bundle above. Trading with candlesticks will be a walk in the park with this superior setup.

TOM GRISAFI F-37GT TRADING BUNDLE

Tom Grisafi is a 20-year trading veteran. We’ve named the Tom Grisafi F-37GT Trading Bundle after him because it gives you everything needed to dominate the market. With 6-8 monitors included, trades can view candlestick stock patterns, support and resistance levels, and timeframe consistencies seamlessly.

KEY TAKEAWAYS

Candlestick patterns are vital tools for assessing market sentiment and price action. Understanding the components of a candlestick, body, color, and wick, helps traders interpret price movements and volatility to better pinpoint entry and exit points.

Candlestick patterns are vital tools for assessing market sentiment and price action. Understanding the components of a candlestick, body, color, and wick, helps traders interpret price movements and volatility to better pinpoint entry and exit points.