What is Candlestick Patterns?

Candlestick charting originated in 18th-century Japan, developed by rice trader Munehisa Homma. Each candlestick has a body (the range between open and close) and wicks or shadows (the range between the body and the high/low). A green or white body means the close was above the open (bullish); a red or black body means the close was below the open (bearish).

Single-candle patterns include the doji (open equals close, indicating indecision), hammer (small body at top with long lower wick, bullish reversal), shooting star (small body at bottom with long upper wick, bearish reversal), and marubozu (no wicks, indicating strong conviction). These patterns are more significant when they appear at key support or resistance levels.

Multi-candle patterns include engulfing patterns (a larger candle completely engulfs the prior candle's body), morning star and evening star (three-candle reversal patterns), and three white soldiers/three black crows (three consecutive strong candles indicating trend continuation). These are generally more reliable than single-candle patterns.

Candlestick patterns should never be used in isolation. Their reliability improves dramatically when confirmed by volume (high volume on reversal candles), occurring at key technical levels (support, resistance, Fibonacci), and aligned with broader trend analysis. Studies show that candlestick patterns alone have modest predictive power (55-60%), but combined with other analysis, they can be valuable timing tools.