Candlestick patterns are particular shapes made by one, two or three candles that traders read as signs of a change in control between buyers and sellers. Some suggest a move may reverse; others suggest it may continue. They are popular because they are visual and quick to spot, and because they work on any chart: NIFTY, a stock, gold or a straddle.
If you are new to candles, read how to read a candlestick chart first. This guide assumes you know what the body and wicks are.
The golden rule: location and confirmation
A pattern is a story about one period. Whether it matters depends on where it appears:
- Trend before it. A bullish reversal pattern needs something to reverse: a clear fall beforehand. A "hammer" in the middle of a sideways range means little.
- Level. Patterns at a known support or resistance level, a moving average or a round number carry more weight.
- Volume. A pattern on above-average volume shows more participation.
- Confirmation. Many traders wait for the next candle: for a bullish pattern, a close above the pattern's high.
Single-candle patterns
| Pattern | Shape | Where it matters |
|---|---|---|
| Doji | Open and close almost equal; wicks either side | After a strong move: buyers and sellers now balanced |
| Hammer | Small body at the top, lower wick at least twice the body, little or no upper wick | After a fall: sellers pushed down, buyers took it back |
| Hanging man | Same shape as a hammer | After a rise: a warning that selling appeared during the day |
| Shooting star | Small body at the bottom, long upper wick | After a rise: buyers pushed up, sellers rejected it |
| Inverted hammer | Same shape as a shooting star | After a fall: an early sign buyers are testing higher |
| Marubozu | Long body with almost no wicks | Strong control by one side from open to close |
| Spinning top | Small body, wicks both sides | Indecision, a pause in the trend |
Notice that the hammer and hanging man are the same shape: only the trend before it changes the name and meaning. That is the clearest example of why location matters.
A worked example: a hammer at support
HDFC Bank falls from ₹2,050 to around ₹1,940 over two weeks. A previous swing low sits at ₹1,930. Today it opens at ₹1,945, falls to ₹1,905 by 11:00, then recovers to close at ₹1,948. The candle:
- Body: 1,948 − 1,945 = ₹3 (small, green)
- Lower wick: 1,945 − 1,905 = ₹40, more than ten times the body
- Upper wick: very small
It is a hammer, after a fall, at support. A trader waiting for confirmation would want the next day to close above the hammer's high, say ₹1,952. If it does, a common plan is a stop-loss just below the hammer's low at ₹1,905, a risk of about ₹47 per share from ₹1,952. If the first target is the recent swing high near ₹2,050, the potential reward is about ₹98, roughly twice the risk. The risk-reward guide explains why that ratio matters. If the next day instead closes below ₹1,905, the pattern has failed.
Two-candle patterns
- Bullish engulfing: a red candle followed by a larger green candle whose body completely covers the red body. After a fall, it shows buyers overpowering the previous day's sellers.
- Bearish engulfing: the mirror image after a rise: a large red body covering the previous green body.
- Bullish harami: a large red candle followed by a small green candle inside its body. Selling has paused; weaker than an engulfing.
- Bearish harami: a large green candle followed by a small red one inside it.
- Piercing line: after a fall, a green candle opens below the previous low and closes above the middle of the previous red body.
- Dark cloud cover: after a rise, a red candle opens above the previous high and closes below the middle of the previous green body.
In Indian markets, overnight gaps from global cues are common, so two-candle patterns that need a gap (piercing line, dark cloud cover) appear often on daily stock charts.
Three-candle patterns
- Morning star: a long red candle, then a small candle (often a doji) that gaps lower, then a long green candle closing well into the first candle's body. A three-step turn from selling to indecision to buying.
- Evening star: the bearish mirror image at the top of a rise.
- Three white soldiers: three long green candles in a row, each closing near its high. Strong buying, though after a long rally it can mark exhaustion.
- Three black crows: three long red candles in a row, each closing near its low.
A simple checklist before acting on a pattern
Experienced chart readers run through the same few questions every time, which keeps them from reacting to every shape they see:
- What came before? Is there a clear rise or fall for the pattern to reverse, or is the market going sideways?
- Where is it? Is the pattern at a swing high or low, a pivot level, a moving average or a round number?
- How big is it? Is the candle's range larger than recent candles, or a small shape in a quiet market?
- What did volume do? Was volume above the stock's recent average on the pattern day? See the volume guide.
- Did the next candle confirm? For a bullish pattern, did the following candle close above the pattern's high?
- Where am I wrong? Is the stop beyond the pattern's low or high, and is the possible reward at least as large as that risk?
A pattern that passes all six is still not a certainty, but it is a far better candidate than one spotted in isolation. Writing these answers in a trading journal also shows you, over time, which patterns actually work for the way you trade.
Live example: checking a pattern against the indicators
A pattern is more convincing when the indicators agree. Here are HDFC Bank's current readings:
Before trusting a bullish pattern on this stock, check the box: is the RSI coming up from a low reading, is the price near the S1 pivot or the 50-day average, and is Supertrend still pointing down (which would argue for caution)? Then open the stock's technicals page to see the latest candles. The scans page lists every NSE stock showing a hammer, doji, engulfing or marubozu candle today.
Common mistakes
- Pattern hunting without context. Hammers and dojis appear on almost every chart, every week. Without a prior trend and a level they are noise.
- Acting before the close. A candle can change shape completely in the last hour. On daily charts, wait for 15:30.
- Ignoring the size. A "bullish engulfing" made of two tiny candles in a quiet market is not the same as one on a big range day.
- No stop-loss. Patterns fail often. The pattern's high or low gives a natural place to admit being wrong.
- Believing win-rate claims. Published success rates for patterns vary widely by market, period and definition. Test your own rules with the backtest tool.
Candlestick patterns are a vocabulary for describing what buyers and sellers did. They make you a better reader of charts, and they work best as one piece of evidence alongside trend, levels and volume.