Foundation
Candlesticks
A candlestick records the open, high, low, and close of one period. Named shapes describe who won that period. They do not, by themselves, predict the next one.
On this page
Candlestick charts are a Japanese method of plotting price, traditionally linked to rice trading and later popularized in English by Steve Nison. You do not need the legend to use the chart. You need the four prices, and you need to stop treating a name as a signal.
Section 01
The four prices
Each candle is one period. The period might be one minute or one month. The open is the first trade. The high is the highest trade. The low is the lowest trade. The close is the last trade. If the period is still forming, the close is just the latest trade, and the candle will change.
Two candles, four prices
The left candle closed below its open, so the body is bearish. The right candle closed above its open, so the body is bullish. On both, the high and the low sit outside the body. Those thin extensions are the shadows. The numbers are a drawing, not a quote.
The real body runs from open to close. A close above the open is bullish. A close below the open is bearish. The upper shadow runs from the top of the body to the high. The lower shadow runs from the bottom of the body to the low. This manual paints a rising close green and a falling close red. Some charts use hollow and filled bodies instead. Read the legend. The prices outrank the paint.
Section 02
Doji
A doji has an open and a close that are almost equal. The body is a line. It means the period ended in a draw. Traders love to call a draw a reversal. A draw is a draw. It matters more after a long, one-sided move, because the side that had been in control failed to extend. It matters little in the middle of a quiet range, where draws are normal.
Four doji shapes
Small doji
Long-legged
Dragonfly
Gravestone
A doji has an open and a close that are nearly the same. Top left is a small doji. Top right is long-legged, with tall shadows on both sides. Bottom left is a dragonfly: the open and close sit near the high, and the lower shadow is long. Bottom right is a gravestone: the open and close sit near the low, and the upper shadow is long. None of these is a trade by itself.
- A long-legged doji has tall shadows on both sides. Price explored up and down and finished near the open.
- A dragonfly has the open and close near the high, and a long lower shadow. Sellers pushed, and the close recovered.
- A gravestone has the open and close near the low, and a long upper shadow. Buyers pushed, and the close gave it back.
Section 03
Hammer and hanging man
Both have a small real body near the top of the range and a lower shadow at least about twice the body. The upper shadow is small or missing. The body may be either color. After a decline, the name is hammer. After an advance, the name is hanging man. Steve Nison treats the hanging man as the weaker of the two and looks for a later bearish close before taking it seriously. That confirmation step is a discipline, not physics.
Same shape, different place
Hammer, after a decline
Hanging man, after an advance
Both highlighted candles have a small body near the high and a lower shadow at least twice as tall as the body. After a decline, that shape is called a hammer. After an advance, the same shape is called a hanging man. Location is the whole difference. Many traders wait for the next close to confirm a direction. That wait is a rule you choose. It is not a law.
Section 04
Inverted hammer and shooting star
Flip the shadow. A small body sits near the low, and the upper shadow is long. After a decline, the name is inverted hammer. After an advance, the name is shooting star. The upper shadow records a rejection of higher prices during that period. Rejection during one period is not a plan for the next.
Long upper shadow, two locations
Inverted hammer
Shooting star
An inverted hammer comes after a decline: a small body near the low, and a long upper shadow. A shooting star is that shape after an advance. The upper shadow shows that the period traded well above the close and gave much of that gain back. It does not prove the next period will reverse.
Section 05
Marubozu and spinning top
A full body, and a small one
Bullish marubozu
Spinning top
A marubozu has almost no shadow. The period opened at one extreme and closed at the other. It shows one-sided trade during that single period. A spinning top has a small body and shadows on both sides. It shows a fight that ended near where it started. Place either one in a trend before you give it a story.
A marubozu has little or no shadow. The period opened near one extreme and closed near the other. A spinning top has a small body and shadows on both sides. The period fought and settled near where it started. Use the two as anchors when a chart feels noisy. Everything else on this page is a variation on who pushed, who answered, and where the period settled.
Section 06
Engulfing
A bullish engulfing pattern comes after a decline. A bearish candle is followed by a bullish candle whose real body covers the prior real body. The bullish open is at or below the prior close, and the bullish close is at or above the prior open. Shadows do not have to be covered. That last sentence is where most screenshots on the internet go wrong.
Bearish engulfing is the mirror after an advance. A small prior body is easy to engulf, so size matters to the story: a wide second body says more than a tiny cover of a tiny candle. It still does not say the trend has ended.
The body has to cover the prior body
Bullish engulfing
Bearish engulfing
On the left, the bullish candle opens below the prior close and closes above the prior open. Its real body covers the prior real body. The prior lower shadow still sticks out, and that is allowed. Classic engulfing is about bodies, not the full high-to-low range. On the right, a bearish body covers the prior bullish body. The pattern is only discussed after a move in the opposite direction. An engulfing candle in the middle of a chop is just a wide bar.
Section 07
Piercing pattern, dark cloud, harami
A piercing pattern is a partial bullish answer. After a decline, the next candle opens below the prior close and closes above the midpoint of the prior body, but not above the prior open. If it closes above that open, you have an engulfing pattern, not a piercing pattern. Dark-cloud cover is the bearish mirror after an advance.
Through the midpoint, but not a full engulfing
Piercing pattern
Dark-cloud cover
A piercing pattern follows a decline. The bullish candle opens below the prior close and closes above the midpoint of the prior bearish body, without closing above that prior open. Dark-cloud cover is the mirror image after an advance: the bearish candle opens above the prior close and closes below the midpoint of the prior bullish body. If the second body covers the whole prior body, you are looking at an engulfing pattern instead.
A small body inside the prior body
Harami means pregnant. The second real body sits inside the first real body. Here a small bullish body is inside a long bearish body. The pattern says the prior push stalled. It does not say the stall will become a reversal. It is one of the weaker named combinations, which is useful to know so you do not treat every inside body as a signal.
Section 08
Morning star and evening star
Three-candle stars
Morning star
Evening star
A morning star follows a decline: a long bearish candle, a small body that gaps below it, then a bullish candle that closes well back into the first body. An evening star is the mirror after an advance. The gap is easy to see on a daily stock chart and often missing on a 24-hour market such as spot foreign exchange or many crypto pairs, because there is no daily close that shuts the book. Without the gap, you still have a three-candle stall, but you do not have the classic star.
Read the middle candle as the stall, and the third candle as evidence that the other side showed up. If you drop the requirement for a gap, you will see stars everywhere in markets that never close. Write the rule for the market you trade. Do not import a stock rule into a 24-hour book and pretend the pictures match.
Section 09
Three white soldiers and three black crows
Three in a row
Three white soldiers
Three black crows
Three white soldiers are three bullish candles, each closing higher, each opening inside or near the prior body, with relatively short upper shadows. Three black crows are the bearish version. The textbook reads them as steady pressure. If they show up after a long move that is already stretched, the same picture can be late buyers or late sellers, not a fresh trend. Context decides which reading you are allowed to test.
Look at the opens. In the clean version, each candle opens inside the prior body and closes near its own high, for soldiers, or near its own low, for crows. Long shadows or opens that gap far outside the prior body are a different pattern. Also ask whether the three candles are the start of a move or the exhaust of one. The name will not answer that. The chart to the left of them might.
Section 10
A routine that keeps the names honest
- Name the trend on the time frame above the one you are staring at. If you cannot, you are not ready to name a reversal.
- Name the candle only if it meets the definition, including location. A hammer in a range is a candle with a long lower shadow.
- Decide in advance what confirmation means. A common choice is a later close beyond the pattern's extreme. It will make you late. Late and defined beats early and improvised.
- Put the stop where the idea is wrong, not where the loss feels pleasant. Then size the position from that distance. The desk will do that division.
- Write the result in R, including the trades where the candle was beautiful and the result was not.
Check yourself
A bullish candle covers the prior bearish shadows but not the entire prior body. Is that a classic bullish engulfing pattern?