Candlestick Patterns — Trading Wiki

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What Candlestick Patterns means

Candlestick patterns are names for formations built from opening, high, low and closing prices. Traders use them to describe price action; a formation alone does not establish a reliable reversal or continuation.

In depth

Candlestick patterns describe visual arrangements of one or more candles, each showing an interval's open, high, low and close. Each individual candlestick encodes four data points — open, high, low, and close — for a specific time period, with the body representing the range between open and close, and the wicks (shadows) showing the extreme high and low. The visual encoding makes candlestick charts far more information-dense than line charts or bar charts. Candlestick analysis originated in 18th-century Japan, where rice trader Munehisa Homma used these patterns to analyze rice futures markets in Osaka.

The methodology was brought to the Western financial world by Steve Nison in his 1991 book 'Japanese Candlestick Charting Techniques,' and has since become the default charting method for traders globally. Single-candle patterns include the Doji (open equals close, indicating indecision), the Hammer (small body with long lower wick at support, bullish), the Shooting Star (small body with long upper wick at resistance, bearish), and the Marubozu (large body with no wicks, strong momentum). Multi-candle reversal patterns include the Engulfing Pattern (second candle body completely engulfs the first, often interpreted as a possible reversal), the Morning Star (three-candle bullish reversal at bottoms), the Evening Star (three-candle bearish reversal at tops), and the Three White Soldiers / Three Black Crows (three consecutive strong candles signaling strong momentum).

Context is paramount in candlestick analysis. A hammer describes a candle shape. Its interpretation depends on the surrounding prices and chosen timeframe; the shape does not establish a reversal. Volume can be recorded alongside the candle pattern, but a multiple of average volume does not establish a success probability.

Key points

• Single-candle: doji, hammer, shooting star, engulfing
• Multi-candle: morning star, evening star, three white soldiers
• Context changes a pattern description but does not establish its success rate

Why it matters when you are learning

Candlesticks are the language of the market. Learning to read them transforms a confusing chart into a narrative of buyer vs. seller battles.

Practising Candlestick Patterns on the simulator

Use the simulator as an observation exercise for Candlestick Patterns. The main feature to identify is: Single-candle: doji, hammer, shooting star, engulfing. A second feature to compare is: Multi-candle: morning star, evening star, three white soldiers. A third feature to note is: Context changes a pattern description but does not establish its success rate. The presence of the concept is not a prediction or a trade signal. Educational simulation only — not financial advice.