Candlestick Patterns Every Trader Should Know
Candlestick charts pack more information into each bar than line or bar charts. Open, high, low, close. Four data points that tell you who controlled the session.
The anatomy of a candle
A green candle means price closed above where it opened. Buyers pushed higher. A red candle means price closed below the open. Sellers pushed lower. The body is the range between open and close. The wicks are the high and low extremes.
Long bodies with short wicks mean conviction. A long green body with no upper wick means buyers controlled the entire session. A long red body with no lower wick means sellers never let up.
Long wicks with small bodies mean indecision. Price explored far from the open but returned. Someone rejected the extreme.
Key single candle patterns
Doji. Open and close are nearly identical. The market could not decide. A doji after a long trend is a warning. Not a trade signal by itself, but a reason to check your stops.
Hammer. Small body at the top of the range, long lower wick. Found at the bottom of downtrends. Buyers rejected lower prices. Wait for confirmation the next session.
Shooting star. Small body at the bottom of the range, long upper wick. Found at the top of uptrends. Sellers rejected higher prices. Wait for confirmation.
Marubozu. A candle with no wicks. A green marubozu means buyers controlled from open to close without a single retracement. A red marubozu means sellers dominated. Strong continuation signal.
Two candle patterns
Engulfing. A candle whose body completely covers the previous candle's body. Bullish engulfing at support is a buy signal. Bearish engulfing at resistance is a sell signal. The larger the engulfing candle relative to the previous one, the stronger the signal.
Harami. A small candle inside the previous candle's body. The opposite of engulfing. Indicates the previous momentum is stalling. Less reliable than engulfing but worth noting at extremes.
Three candle patterns
Morning star. A red candle, then a small indecision candle, then a green candle that closes well into the first candle's body. Found at bottoms. One of the more reliable reversal patterns.
Evening star. The opposite. Green, indecision, red at the top of an uptrend. Early warning of a reversal.
Three white soldiers. Three consecutive green candles with higher closes. Each opens within the previous body. Strong continuation signal in uptrends.
Nordic application
Candlestick patterns work better on liquid Nordic names than illiquid ones. A hammer on Novo Nordisk with 500 million volume is information. A hammer on a small cap with 10,000 volume is noise.
Daily and weekly timeframes give the most reliable signals. Intraday candles have too much noise on mid cap Nordic names.
Always confirm with volume. A bullish engulfing on rising volume is a signal. The same pattern on declining volume is weaker.
Using patterns in a system
Candlestick patterns are confirmation tools. They do not replace your core strategy. If your system says enter at support and a bullish engulfing forms at that level, you have two signals agreeing. That is stronger than either alone.