iChartPRO  
 
 
  Subscription
Information
FREE 1 WEEK TRIAL
Candlestick Pattern Glossary  
Candlestick chart patterns are a very popular, and some argue very effective, chart pattern recognition technique. Besides viewing charts with candlesticks for targeted securities, users may also take advantage of a pattern scan module which will scan North American markets for stocks displaying known candlestick patterns. On all chart modules, users can toggle between line, bar and candlestick chart view.
Chart Indicator Glossary Chart Scan Indicators

Candlestick charts (patterns) are on record as being the oldest type of charts used for price prediction. They date back to the 1700's, when they were used for predicting rice prices. In fact, during this era in Japan, Munehisa Homma become a legendary rice trader and gained a huge fortune using candlestick analysis. The candlesticks themselves and the formations they shape were given colorful names by the Japanese traders. Due in part to the military environment of the Japanese feudal system during this era, candlestick formations developed names such as the "advancing three soldiers".

Candlestick charts are much more visually appealing than a standard two-dimensional bar chart. As in a standard bar chart, there are four elements necessary to construct a candlestick chart, the OPEN, HIGH, LOW and CLOSING price for a given time period. Below are examples of candlesticks and a definition for each candlestick component:

  • The body of the candlestick is called the real body, and represents the range between the open and closing prices.
  • A black or filled-in body represents that the close during that time period was lower than the open, (normally considered bearish) and when the body is open or white, that means the close was higher than the open (normally bullish).
  • The thin vertical line above and/or below the real body is called the upper/lower shadow, representing the high/low price extremes for the period.
Basic Patterns Some text courtesy of candlestickchart.com
 
Long Days  

The Long Days indicate the great difference between the open price and the close price for a trading day. The shadow lines are much shorter than the real body.

  
Short Days  

The Short Days indicate the small difference between the open price and the close price for a trading day. Both the body and the shadow lines are very short.

  
Marubozu Marubozu means there are no shadows from the bodies.
A White Marubozu is a long white body with no shadows which indicates a bullish trend. It usually becomes the first part of a bullish continuation or a bullish reversal pattern.
 
A Black Marubozu is a long black body with no shadows. It usually implies bearish continuation or bearish reversal.
Spinning Tops  

The Spinning Tops have longer shadow than the real body. The color of the real bodies are not very important. The pattern indicates the indecision between the bullish and bearish trends.

  
Stars and Rain Drops  

A Star appears when a small body gaps ABOVE the previous day's long body. Stars are part of more complicated candlestick patterns, especially the reversal patterns.
 
A Rain Drop appears when a small body gaps BELOW the previous day's long body. Rain Drops are part of the more complicated patterns, especially the reversal patterns.
Reversal Patterns
 
Dark Cloud Cover  
In an uptrend the market gaps open, but loses ground to fall below the midpoint of the previous day. The Dark Cloud Cover pattern suggests an opportunity for the shorts to capitalize on the next day’s open: a warning sign to bullish investors. The Dark Cloud Cover pattern is the opposite of the Piercing Line pattern.
  • A white body followed by a black body.
  • The black body passes the midpoint of the prior white body.
  • Occurs in an uptrend.
   Trend: Bearish

Reliability: High
Engulfing  
Occurring in a downtrend, the Engulfing depicts an opening at a new low, followed by a high buy-in that closes at or above the previous day’s open. This signifies that the downtrend has lost momentum and the bulls may be gaining strength.
  • The first day's color indicates the trend of the trading day.
  • The second real body should have the opposite color of the first real body.
  • The second day's body should completely engulf the previous day's body.
   Trend: Bearish

Reliability: Moderate
Occurring in an uptrend, the Engulfing depicts an opening at a new high, followed by a high volume sell-off that closes at or below the previous day’s open. This signifies that the uptrend has been hurt and the bears may be gaining strength.
  • The first day's color indicates the trend of the trading day.
  • The second real body should have the opposite color of the first real body.
  • The second day's body should completely engulf the previous day's body.
   Trend: Bullish

Reliability: Moderate
Evening Star  
In an uptrend, the market builds strength on a long white day and gaps open on the second day. However, the second day trades within a small range and closes at or near its open. This scenario generally shows an erosion of confidence in the current trend. Confirmation of the trend reversal is the black third day.
  • The first day is a long white day.
  • The second day gap higher from the first day.
  • The third day is a long black day and close below the midpoint of the first white day.
   Trend: Bearish

Reliability: High
Harami  
After a long white day at the high end of an uptrend, a black candlestick opens lower than the previous day’s close. Trading is typically light and the day ends with a close lower than the open and within body of the first day; a signal that the current uptrend is losing strength. The Harami indicator should be confirmed with the next trading day’s candlestick following the reversal trend.
  • A long body followed by a shot body with opposite color.
  • A short body is completely within the prior day's long body.
  • The color of the second candle ( the baby) is not important.
   Trend: Bearish

Reliability: Low
After a long black day at the low end of a downtrend, a white candlestick opens higher than the previous day’s close. The price is driven up, as many shorts are covered, which encourages further buy-ins. The Harami indicator should be confirmed with the next trading day’s candlestick following the reversal trend.
  • A long body followed by a shot body with opposite color.
  • A short body is completely within the prior day's long body.
  • The color of the second candle ( the baby) is not important.
   Trend: Bullish

Reliability: Low
Morning Star Doji  
In a downtrend, the market bolsters the bearish trend with a long black day and gaps open on the second day. However, the second day trades within a small range and closes at or near its open. This scenario generally shows the potential for a rally, as many positions have been changed. Confirmation of the trend reversal is given by the white third day.
  • The first day is a black day which indicates the trend of the market.
  • The second day must be a Doji day.
  • The third day is a white day and supports the reversal of the trend.
   Trend: Bullish

Reliability: High
Piercing Line  
In a downtrend the market gaps open, but rallies strong to close above the previous days midpoint. This pattern suggests an opportunity for the bulls to enter the market and support the trend reversal. The Piercing Line pattern is the opposite of the Dark Cloud Cover.
  • A long black body followed by a white body.
  • The white body pierces the midpoint of the prior white body.
  • Occurs in a downtrend.
   Trend: Bullish

Reliability: Moderate
Three Black Crows  
In an uptrend three long black days occur with consecutively lower closes. This pattern suggests that the market has been at a high price for too long, and investors are beginning to compensate for it.
  • Three black days occur, each with a close below the previous day.
  • Each day opens within the body of the previous day.
  • Each day closes near or at the low of the day.
   Trend: Bearish

Reliability: High
Three White Soldiers  
In a downtrend three long white days occur with consecutively higher closes. Generally this suggests future market fortitude, as a reversal is in progress that is building on moderate upward steps.
  • Three long white days occur, each with a higher close than the previous day.
  • Each day opens within the body of the previous day.
  • Each day closes near or at the high of the day.
   Trend: Bullish

Reliability: High
Continuation Patterns
 
Falling Three Methods  
In a downtrend, a long black day occurs, following by three days of small real bodies that fall into a short uptrend. On the fifth day, the bears come in strong to close at a new low. This small uptrend, in between two long black days, is consistent with investors taking a break. The downward should continue.
  • The first day is a long black day.
  • The second, third, and fourth days have small real bodies and follow a brief uptrend pattern, but stay within the range of the first day.
  • The fifth day is a long black day that closes below the close of the first day.
   Trend: Bearish

Reliability: High
Rising Three Methods  
In an uptrend, a long white day occurs, following by three days of small real bodies that fall into a short downtrend. On the fifth day, the bulls come in strong to close at a new high. This small downtrend, in between two long white days, is consistent with investors taking a break. The upward trend should continue.
  • The first day is a long white day.
  • The second, third, and fourth days have small real bodies and follow a brief downtrend pattern, but stay within the range of the first day.
  • The fifth day is a long white day that closes above the close of the first day.
   Trend: Bullish

Reliability: High
Single Candle Patterns
 
Dragonfly Doji  
There is a sharp sell off after the market opens during an uptrend. However, by the end of the trading day, the market closes at or near its high for the day. This signifies the potential for further sell-offs. Since the certainty for a Hanging Man indicator is low, the trend reversal can be confirmed by a black candlestick or a large down gap on the next trading day accompanied by a lower close. If the open and the close are identical, the indicator is considered a Dragonfly Doji. The Dragonfly Doji has a higher reliability associated with it than a Hammer.
  • The long lower shadow is about two to three times of the real body.
  • Little or no upper shadow.
  • The real body is at the upper end of the trading range.
  • The color of the real body is not important.
   Trend: Bearish

Reliability: Moderate
Gravestone Doji  
As the market opens below the close of the previous day, the bulls rally briefly, but not enough to close above the previous day’s close. As this leaves shorts in a losing position, the Inverted Hammer presents the potential for an upcoming rally. Confirmation of the trend reversal would by an opening above the body of the Inverted Hammer on the next trading day. If the open and the close are identical, the indicator is considered a Gravestone Doji.
  • Small real body at the upper end of the trading range.
  • Upper shadow usually at least three times as long as the real body
  • No (or almost no) lower shadow
   Trend: Bullish

Reliability: Moderate
Hammer  
There is a sharp sell off after the market opens during a downtrend. However, by the end of the trading day, the market closes at or near its high for the day. This signifies a weakening of the previous bearish sentiment, especially if the real body is white (the close is higher than the open price). Since the certainty for a Hammer indicator is low, the trend reversal can be confirmed by a higher open and an even higher close on the next trading day. If the open and the close are identical, the indicator is considered a Dragonfly Doji.
  • The long lower shadow is about two to three times of the real body.
  • Little or no upper shadow.
  • The real body is at the upper end of the trading range.
  • The color of the real body is not important.
   Trend: Bullish

Reliability: Low/Moderate
Shooting Star  
The market gaps open above the previous day’s close in an uptrend. It rallies to a new high then loses strength and closes near its low: a bearish change of momentum. Confirmation of the trend reversal would by an opening below the body of the Shooting Star on the next trading day. If the open and the close are identical, the indicator is considered a Gravestone Doji. The Gravestone Doji has a higher reliability associated with it than a Shooting Star.
  • A very long upper shadow.
  • The small real body at the lower end of the price range.
  • The real body gaps away from the prior real body.
   Trend: Bearish

Reliability: Low/Moderate
Hollow Red Candles  
  • Stocks that have a red, hollow candlestick at the end of their daily chart.
  
Filled Black Candles  
  • Stocks that have a black, filled-in candlestick at the end of their daily chart.