Classic Candlestick Patterns

Shape reveals the mood of buyers and sellers

Hammer, shooting star, engulfing, doji, morning star… one or a few candles record who won that stretch of time.

Location and confirmation matter more than shape

The same hammer only means something at support at the end of a decline, and even then you wait for the next candle to confirm the direction.

Wait for confirmation, set a stop

A pattern is only a hint: wait for the next candle to close beyond the pattern before acting, and put your stop-loss on the other side of the pattern's extreme. If that breaks, admit it failed and get out.

Key takeaways

• A hammer, with its long lower wick, appears after a decline and hints that buyers may be stepping in at the lows. A shooting star is the opposite.
• Engulfing pattern: the second body completely covers the first, suggesting short-term momentum may be reversing. A doji signals a standoff between buyers and sellers.
• Location matters more than shape: pay attention only when the pattern appears near key support or resistance and follows a prior trend.
• Patterns only tilt the odds; they guarantee nothing. Wait for the next candle to confirm, and place your stop beyond the pattern's extreme.

Try it yourself

You can do these exercises in this lesson's interactive simulation:

1. Choose "Hammer": where does it appear? In the zoom view, about how many times the body is the lower wick? Press ▶ to see the "Confirm" script.
2. Switch the script to "Fail" and play again: where did price go when the pattern failed? Where should the stop-loss go?
3. Turn on "Placed in the wrong spot": the same hammer in the middle of a range. What happened next?
4. Look at "Bullish engulfing," "Morning star" and "Doji" in turn: which one is the most indecisive on its own and needs the most confirmation?

Quiz and explanations

1. At the end of a decline, a candle appears with a long lower wick and a small body. It's called…

Answer: A hammer.The long lower wick shows the price was knocked down and then bought back up.

2. When are candlestick patterns more reliable?

Answer: When they appear at key support or resistance and are confirmed by the next candle.Location and confirmation matter more than the pattern itself.

3. A bullish engulfing pattern appears at support and you go long as planned, but the next candle closes below the pattern's low. What's the sensible move?

Answer: Accept that the pattern failed and exit at your planned stop.Breaking the pattern's low means the signal failed. That's exactly what a stop-loss is for.

Terms in this lesson

• doji (Doji): A candle whose open and close are almost the same, showing a standoff between buyers and sellers.
• engulfing pattern (Engulfing): A candle whose body completely covers the previous candle's body, signaling a shift in control.
• hammer (Hammer): A candle with a small body and a long lower wick; after a decline it hints at a possible bottom.
• morning star (Morning Star): A three-candle bottom pattern: a long bearish candle, a small body, then a long bullish candle.
• resistance (Resistance): A price level or zone where rising prices tend to stall because sellers cluster there.
• shooting star (Shooting Star): A candle with a small body and a long upper wick; after a rally it hints at a possible top.
• stop-loss (Stop Loss): Automatically closes a position when price moves against you to a preset level, capping your maximum loss.
• support (Support): A price level or zone where falling prices tend to stop because buyers cluster there.