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Candlestick charts are a way of displaying price that shows the open, high, low and close for each period. They let you see at a glance who controlled the session, buyers or sellers, and how strongly. Candlestick patterns such as the hammer, the bullish engulfing or the doji help you spot potential reversals, but they only work when you read them together with the trend, the price level and a confirmation.
The 30-second summary
- What they are: each candle sums up four prices (OHLC) in a body and two wicks.
- Origin: Japan’s rice markets; Munehisa Homma (1724–1803) is the most cited figure, and Steve Nison brought them to the West in 1991.
- Key patterns: hammer, shooting star, doji, engulfing, harami, morning and evening star, three white soldiers, three black crows and tweezers.
- Evidence: mixed. A study of Dow Jones stocks (1992–2002) found no predictive value; others, on the S&P 500 and in Taiwan, did.
- In practice: the pattern is the trigger, not the strategy. The stop goes beyond the wick and the size comes from the account’s loss limit.
History of candlestick charts: from Homma to Nison
The name that shows up in almost every textbook is Munehisa Homma (1724–1803), a merchant from Sakata who traded on the Dojima rice exchange in Osaka and is credited with observations on market psychology. That needs a caveat: Steve Nison himself argues that the candlestick chart as we know it was probably developed after 1850.
What is documented is how they reached the West: Nison, a Merrill Lynch analyst, published Japanese Candlestick Charting Techniques in 1991, the book that made them popular outside Japan.
How to read candlesticks: body, wicks and OHLC
Each candle covers the period you choose (1 minute, 5 minutes, 1 hour, a day) and records four prices: open, high, low and close.
- Body: the rectangle between the open and the close. Bullish (green) if it closes above the open; bearish (red) if it closes below.
- Wicks or shadows: the lines reaching the high and the low. A long lower wick means price dropped and was rejected.
What matters is not the color but where price closed relative to the candle’s range: a long body with short wicks signals control; a tiny body, indecision.
The 14 most useful candlestick patterns
Every reversal pattern has one precondition: there has to be a trend to reverse.
Hammer and hanging man
Same shape: a small body at the top, a lower wick at least twice the size of the body and almost no upper wick. The hammer appears after a decline and shows rejection of lower prices. The hanging man appears after a rally and needs more confirmation: a following candle that closes below its body.
Inverted hammer and shooting star
A small body at the bottom and a long upper wick. After a decline it’s an inverted hammer, a weak bullish signal. After a rally it’s a shooting star: price was rejected higher up. At resistance it’s one of the clearest bearish signals.
Doji and its variations
A doji opens and closes at almost the same price: indecision, not direction. The long-legged doji has long wicks on both sides; the dragonfly doji only a lower wick (rejection of lows); the gravestone doji only an upper wick (rejection of highs).
Bullish engulfing and bearish engulfing
In a bullish engulfing, after a decline, the body of a bullish candle completely covers the previous bearish body. The bearish engulfing is the opposite. The bigger the second candle and the closer it closes to its extreme, the stronger the signal.
Harami, piercing line and dark cloud cover
The harami is a large candle followed by a small one contained within its body: momentum has stalled, and you trade the break of the mother candle’s range. In a piercing line, after a long bearish candle, the next one closes above the midpoint of its body; dark cloud cover is the bearish version. Both are weaker variants of the engulfing patterns.
Morning star and evening star
Three candles: a long bearish one, one with a small body or a doji, and a bullish one that closes above the midpoint of the first (morning star). The evening star is the bearish version. The classic definition calls for a gap on the middle candle; in forex and intraday futures there are hardly any gaps, so it’s accepted without one.
Three white soldiers and three black crows
Three wide bullish candles closing near their highs (three white soldiers) or three bearish candles closing near their lows (three black crows). They show a sustained shift in control, but the logical stop tends to be far away.
Tweezer top and tweezer bottom
Two or more candles with virtually identical highs (tweezer top) or lows (tweezer bottom). They mark a level defended twice and make it easy to place your stop just beyond it.
Candlestick patterns cheat sheet
If you were looking for a “candlestick patterns PDF” to keep as a reference, you can print this table or save it as a PDF from your browser.
| Pattern | Candles | Context | Suggests | Confirmation |
|---|---|---|---|---|
| Hammer | 1 | After a decline | Bullish reversal | Close above its high |
| Hanging man | 1 | After a rally | Bearish reversal | Close below its body |
| Inverted hammer | 1 | After a decline | Bullish reversal (weak) | Strong bullish candle |
| Shooting star | 1 | After a rally | Bearish reversal | Close below its low |
| Doji and variations | 1 | After an extended move | Indecision | Next candle |
| Bullish engulfing | 2 | After a decline | Bullish reversal | Follow-through above its high |
| Bearish engulfing | 2 | After a rally | Bearish reversal | Follow-through below its low |
| Harami | 2 | After a long candle | Pause | Break of the mother candle |
| Piercing line | 2 | After a decline | Bullish reversal | Close above the previous body |
| Dark cloud cover | 2 | After a rally | Bearish reversal | Close below the previous body |
| Morning star | 3 | After a decline | Bullish reversal | Built in |
| Evening star | 3 | After a rally | Bearish reversal | Built in |
| Three soldiers / three crows | 3 | After an opposite trend | Sustained shift | Pullback that holds the pattern |
| Tweezer top / bottom | 2+ | At highs or lows | Reversal | Break in the direction of the reversal |
Why a pattern on its own isn’t enough
A hammer in the middle of a range says almost nothing; at the previous day’s low, after three hours of selling, it does. Run four filters:
- Context: is there a clear prior trend?
- Level: does it form at support, resistance or a prior high or low? The level gives you the reason; the candle gives you the timing.
- Volume: in futures, above-average volume signals genuine participation. Spot forex has no centralized volume; tick volume is only an approximation.
- Confirmation: waiting for the next candle to close in your favor cuts false signals in exchange for a slightly worse entry.
To add levels and moving averages without cluttering your chart, see the most popular TradingView indicators. TradingView’s “All Candlestick Patterns” indicator flags patterns, but it doesn’t apply these filters.
Do candlestick patterns work? What the evidence says
| Study | Market and period | Finding |
|---|---|---|
| Caginalp and Laurent (1998), Applied Mathematical Finance | S&P 500 stocks, 1992–1996 | Three-candle reversal patterns with significant out-of-sample predictive power |
| Marshall, Young and Rose (2006), Journal of Banking & Finance | Dow Jones Industrial stocks, 1992–2002 | Using bootstrap tests, no signal showed predictive value |
| Lu, Shiu and Liu (2012), Review of Financial Economics | Taiwan Top 50, 2002–2008 | Three two-candle bullish reversal patterns were profitable |
| Lu (2014), Pacific-Basin Finance Journal | Taiwanese stocks, 1992–2009 | Four patterns profitable after transaction costs |
The honest read: applied mechanically to any asset, the patterns don’t guarantee an edge, and results change with the market, the period and the exit rule. That’s why it makes sense to use them as an entry trigger within a plan that already defines where to trade and how much to risk.
How to trade candlesticks with rules: MNQ and EUR/USD examples
Example 1: a hammer on MNQ (5-minute chart)
The Micro Nasdaq-100 (MNQ) is worth $2 per point. On a 50K Emerge Profit Futures Evaluation ($1,100 daily loss limit, $2,500 EOD drawdown, 60 micros maximum), at 10:15 a.m. New York time price tags the previous day’s low and forms a hammer on high volume.
- Entry: when the next candle closes above the hammer’s high.
- Stop: 2 points below the wick; total distance 20 points = $40 per contract.
- Size: $120 of risk (under 5% of the drawdown) → 3 MNQ. A 40-point target (1:2) = $240.
The 60-micro maximum is a ceiling, not a recommended size: with 60 MNQ that stop would cost $2,400, almost the entire drawdown.
Example 2: a bearish engulfing on EUR/USD (1-hour chart)
On EUR/USD a pip is worth $10 per standard lot, $1 per mini lot and $0.10 per micro lot. On a 25K EmergeFX Instant Funding account ($450 daily loss limit, $1,500 static drawdown), a bearish engulfing forms at a resistance level that has already stopped price twice this week.
- Stop: 3 pips above the engulfing candle’s high; a 15-pip distance.
- Size: $90 of risk → 90 / (15 × $1) = 6 mini lots (0.60 lots). A 30-pip target = $180.
Keep your size steady: Emerge’s Operational Consistency and Position Sizing Rule doesn’t allow sudden changes (for example, jumping from micros to minis with no transition), and every trade must last at least 10 seconds. To fit these entries into a complete system, see the breakout trading strategy for funded accounts.
Which timeframe to use with candlesticks
| Timeframe | Use | Pattern reliability |
|---|---|---|
| 1 minute | Fine-tuning the entry | Low: lots of noise |
| 5 and 15 minutes | Intraday futures and indices | Medium, if they line up with levels |
| 1 and 4 hours | Intraday and swing trading in forex | Medium to high |
| Daily | Trend and levels | The highest, with wide stops |
Define the trend and levels on the daily or 1-hour chart, and look for the pattern on a lower timeframe. The daily candle depends on the session: on CME index futures it runs from 6:00 p.m. to 5:00 p.m. New York time. To change the timeframe and chart type, follow the guide on how to use TradingView step by step.
Common mistakes when trading candlestick patterns
- Trading before the candle closes: a half-formed hammer can end up as a long bearish candle.
- Ignoring the prior trend: a “hammer” in the middle of a rally is a hanging man or noise.
- Stop inside the wick: it invites the market to tag it and then move your way.
- Sizing up on a “perfect” pattern: no pattern justifies breaking your risk per trade.
- Reading patterns during high-impact news: the wicks reflect the volatility of the release, not genuine rejection.
- Not logging results: after 50 logged trades you’ll know which patterns work for you in your market.
More reading errors in common mistakes when analyzing charts on TradingView. If you’re just starting out, read trading for beginners first.
Candlestick patterns on Emerge Profit accounts
Candles read the same on every Emerge Profit platform: Tradovate, NinjaTrader and TradingView for futures, and cTrader and DXtrade for EmergeFX. All accounts are simulated trading accounts, and your room for error is set by the account’s daily loss limit and drawdown, not by the pattern:
- Futures Evaluation (from $60): EOD drawdown, 5-day minimum and no activation fee; well suited to intraday patterns on MNQ or MES. Positions are closed before the end of each session.
- Futures Instant Funding (from $130): no evaluation, 5K to 250K, Classic and Flex options, EOD or static drawdown.
- EmergeFX Evaluation (from $68): 1-Step (10% target, 3% daily drawdown) or 2-Step (8% and 5%, 5% daily drawdown), on cTrader or DXtrade. Static drawdown and weekend holding allowed.
- EmergeFX Instant Funding (from $120): no evaluation, static drawdown, 1:100 equivalent margin and swing trading allowed, useful for patterns on the 4-hour or daily chart.
All of them have a 50% consistency rule and allow news trading; hedging is prohibited.
Candlestick patterns FAQ
What are candlesticks in trading?
They are a chart type in which each candle shows a period’s open, high, low and close. The body marks the distance between the open and the close, and the wicks mark the extremes.
What is the most reliable candlestick pattern?
None is reliable on its own. Engulfing patterns and morning and evening stars are considered strong because they include their own confirmation, but they depend on the level and the prior trend.
What’s the difference between a hammer and a hanging man?
They have the same shape. The hammer appears after a decline and suggests a bullish reversal; the hanging man appears after a rally and warns of a possible bearish reversal.
What does a doji mean?
That the open and close are almost the same: a balance between buyers and sellers. After an extended move it can signal a pause or a reversal, which the next candle confirms.
Where can I get a candlestick patterns PDF?
The cheat sheet table in this article works as a reference guide and you can save it as a PDF from your browser. To go deeper, the classic reference is Steve Nison’s Japanese Candlestick Charting Techniques.
Can I trade candlestick patterns on an Emerge Profit account?
Yes. There are no restrictions on the type of analysis; you need to respect the daily loss limit, the drawdown, the 50% consistency rule and the Operational Consistency and Position Sizing Rule.
Sources
- Marshall, Young and Rose – Candlestick technical trading strategies: Can they create value for investors?, Journal of Banking & Finance 30(8), 2006 (accessed November 2026).
- Lu, Shiu and Liu – Profitable candlestick trading strategies, Review of Financial Economics 21(2), 2012.
- Lu – The profitability of candlestick charting in the Taiwan stock market, Pacific-Basin Finance Journal 26, 2014.
- Caginalp and Laurent – The predictive power of price patterns, Applied Mathematical Finance 5(3-4), 1998.
- Society of Technical Analysts – Developments in technical analysis (Steve Nison and his 1991 book).
- Wikipedia – Honma Munehisa and Candlestick pattern (accessed November 2026).
- TradingView – New Candlestick Patterns, Now All in One Place (September 2020).
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