Basic Candlestick Patterns

1. Single Candlestick Patterns:

o Doji: The open and close prices are almost the same. Indicates indecision in the market.
o Hammer: A small body at the top and a long lower wick. Signals potential bullish reversal.
o Shooting Star: A small body at the bottom and a long upper wick. Signals potential bearish reversal.
2. Double Candlestick Patterns:
o Engulfing:
 Bullish: A green candle completely engulfs the previous red candle.
 Bearish: A red candle completely engulfs the previous green candle.
o Piercing Line: A red candle is followed by a green candle that closes above the midpoint of the red one (bullish signal).
3. Triple Candlestick Patterns:
o Morning Star (Bullish): A red candle, a small-bodied candle (indecision), followed by a green candle.
o Evening Star (Bearish): A green candle, a small-bodied candle, followed by a red candle.
o Three White Soldiers: Three consecutive long green candles indicate strong bullish momentum.
o Three Black Crows: Three consecutive long red candles indicate strong bearish momentum.

Tips for Trading with Candlesticks

1. Combine with Indicators: Use candlesticks alongside other indicators like moving averages, RSI (Relative Strength Index), or MACD for confirmation.
2. Support and Resistance: Candlesticks are most effective near key support or resistance levels.
3. Volume Confirmation: A pattern backed by high trading volume is more reliable.
4. Practice Pattern Recognition: Use demo accounts or back-testing tools to get familiar with identifying patterns.
5. Avoid Overtrading: Not all patterns are equally reliable. Wait for confirmation before entering trades.
Bullish reversal candlestick patterns
1) Hammer
2) Piercing Pattern
3) Bullish Engulfing
4) The Morning Star
5) Three White Soldiers
6) White Marubozu
7) Three Inside Up
8) Bullish Harami
9) Tweezer Bottom
10) Inverted Hammer
11) Three Outside Up
12) On-Neck Pattern

Key Points about These Patterns

1. Reversal Patterns:
o Hammer: Signals the end of a downtrend.
o Piercing Pattern: Indicates strong buying interest after a bearish session.
o Bullish Engulfing: Marks a shift from selling to buying momentum.
o Morning Star: A three-candle formation indicating the reversal of a downtrend.
o Inverted Hammer: A potential reversal when at the bottom of a downtrend.
o Tweezer Bottom: A strong support level where price rebounds.
2. Momentum Continuation Patterns:
o Three White Soldiers: Indicates sustained upward momentum.
o White Marubozu: Confirms a strong bullish sentiment without resistance.
o Three Inside Up: A confirmed reversal with gradual upward movement.
3. Indecision to Bullish Reversal:
o Bullish Harami: Signals weakening bearish momentum and potential reversal.
o On-Neck Pattern: A weak reversal or continuation depending on volume and context.
4. Volume and Context:
o These patterns are more reliable when supported by high trading volumes and key levels like support zones or moving averages.
 o

S
r Pattern Name Definition/Description Explanation Signal Tips to Find in Chart
#
Hammer Small body at the top, long lower
wick.  This pattern indicates that
bulls have resisted the
As a rule, you’ll find the
selling pressure during a
hammer at the bottom of a
given period, and have
1. downtrend.
pushed the price back up. Bullish reversal after a
Look for it at the bottom of a
downtrend.
downtrend near support
 Sellers pushed prices lower,
levels.
but buyers regained control.

Piercing Pattern

Long Red candle followed by a long

green candle closing above the
midpoint of the red one.

Appears near the bottom of

2. Shift in sentiment from bearish
Buyers gaining control. a downtrend with high
to bullish.
volume.

Bullish Engulfing  A small bearish candle followed

by a larger bullish candle that
engulfs the previous one,
signaling a shift in control.

 Green candle completely engulfs

the previous red candle.
3. Strong buying pressure Look for a large green candle
Bullish reversal.
reversing a bearish trend. after a smaller red one.

4. The Morning Star  Red candle, small Doji candle,  The morning star pattern Bullish reversal after Found at the end of a
and green candle. suggests that the first indecision. downtrend, often near
period’s selling pressure is support zones.
 The morning star pattern is more fading, and a bull market is
 complex because it comprises forming.
three candlesticks: a long red
candle, followed by a short-  Represents indecision
bodied candle and a long green followed by a bullish
one. reversal.

Three White Soldiers Three consecutive long green

candles with small/no wicks.

The primary condition is that

 Consistent buying
the three consecutive greens
pressure driving prices
have to open and close higher
5. higher. Look for three strong green
than the previous period. This
candles after a downtrend.
pattern is regarded as a strong
 Sustained upward
bullish signal that shows up
momentum.
after a downtrend.

White Marubozu

 Bullish Momentum
Continuation
 Green candle with no wicks, only
a full body.  shows strong buying
 Strong bullish
pressure throughout
6. sentiment. Appears during uptrends or
 A white marubozu is a bullish the trading session and
near reversal zones.
candlestick with no wicks, which suggests a continuation of
 Shows no rejection of
opens at its low and closes at its the uptrend.
price; strong buyer
high.
dominance.

7. Three Inside Up Red candle, smaller green candle Confirmation of a bullish  Bullish Momentum Look for three candles
inside, and a third green candle reversal. Continuation forming at the end of a
 closing higher.  Confirmed bullish downtrend.
reversal.

Bullish Harami

 This suggests that selling

pressure is weakening, and
 Signals weakening
buyers may be gaining
selling pressure.
control.
8. Small green candle within the body Look for it near key support
Or
of a previous red candle.  Signals weakening bearish levels in a downtrend.
momentum and potential
 Weakening bearish
reversal.
momentum.

Tweezer Bottom

 Two candles with almost

identical lows.
It indicates that downtrend has
Found at the bottom of a
9.  It consists of two candlesticks, found a strong support level, Strong support and
downtrend, confirming a
the first one being bearish and and a potential reversal to the reversal.
strong support level.
the second one being bullish upside could follow.
candlestick.

10. Inverted Hammer  Small body at the bottom, long  This indicates that buyers  Shows buyers Look for it at the bottom of a
upper wick. attempted to push the price attempting to push downtrend near support.
higher but met resistance; prices higher.
 The inverted hammer is similar the following bullish
 candlestick confirms the
reversal.

to the standard hammer pattern,  This pattern suggests

but it has a much longer upper buying pressure, followed  Potential bullish
shadow, while the lower wick is by bears’ failed attempts to reversal.
very short. drag the price down. As a
result, buyers come back
with even stronger pression,
pushing prices higher.

Three Outside Up

 Red candle, bullish engulfing

candle, and a third green candle.  Confirms bullish momentum
with increasing strength.
 The three-outside-up pattern Found at the bottom of a
11. Confirmed bullish
consists of a bearish candlestick,  This pattern confirms a downtrend with strong
momentum.
followed by a larger bullish bullish reversal and volume.
candlestick that engulfs the suggests a continuation of
previous one and another bullish the uptrend.
candlestick that closes higher.

On-Neck Pattern  Red candle followed by a green  Weak reversal or Weak bullish reversal. Look for it during a
candle closing slightly above the continuation based on downtrend with low or
red one. volume. moderate volume.

 The on-neck pattern is a bullish  This pattern suggests that

continuation pattern formed by a the selling pressure is
bearish candlestick followed by a weakening, and the uptrend
smaller bullish candlestick that is likely to continue.
closes at or near the low of the
12. previous candlestick.
Bearish Candlestick Pattern

1) Hanging man
2) Dark cloud cover
3) Bearish Engulfing
4) The Evening Star
5) Three Black Crows
6) Black Marubozu
7) Three Inside Down
8) Bearish Harami
9) Shooting Star
10) Tweezer Top
11) Three Outside Down

General Tips for Trading Bearish Patterns:

 Volume Confirmation: A strong bearish move is often confirmed when volume increases during the bearish candle.
 Trend Context: These patterns are more reliable when they appear at the end of an uptrend, as they suggest a reversal or a pullback.
 Risk Management: Always use stop-loss orders to protect against unexpected market movements, and consider risk/reward ratios before entering a trade.
Sr.# Pattern Name Definition/Description Explanation Signal Tips to Find in Chart
Hanging Man A small body at the top with a long  It typically appears at Appears after an uptrend, Look for the pattern after
lower shadow. the end of an uptrend indicating potential an uptrend. Confirm with a
and suggests a reversal. bearish candle or close
considerable sell-off is below the pattern.
coming, but bulls could Suggests that bulls failed to
temporarily push prices push prices higher, and
higher, after which bears may be taking
1 they’ll lose control. control.

 The following bearish

candlestick confirms the
reversal.

Dark Cloud Cover  The dark cloud cover pattern is like This pattern suggests that  Indicates a reversal after Look for the pattern after
the piercing line, but is its inverse. bears have taken control of an uptrend, with sellers an uptrend.
the market, pushing prices taking over.
 A large bullish candle followed by a lower. If the shadows of the
bearish candle that opens above candles are short, then  Shows the shift from
and closes below the midpoint of traders can expect a strong bullish to bearish control
the first. downtrend. in the market

The dark cloud cover is a two-

candlestick pattern, indicating a
bearish reversal. It occurs in an
uptrend where:
2
 the first candlestick is bullish
 followed by a bearish
candlestick that opens higher
but closes below the midpoint of
the previous candlestick
 Bearish Engulfing  A two-candle pattern where the This pattern comes at the Indicates a reversal from Look for the second candle
second candle completely engulfs peak of an uptrend and uptrend to downtrend. closing below the first
the body of the first, which is suggests a reversal. The candle's low for
bullish. lower the second candle confirmation.
continues, the more
 The bearish engulfing pattern is the momentum the bearish
inverted version of a bullish move will have.
3 engulfing, so the first candle has a
small green body and is completely
covered by the next long red
candle.

Evening Star The evening star is a three-candlestick  This pattern usually Signals a trend reversal Confirm with a close below
pattern that signals a bearish reversal. appears at the top of an after an uptrend, indicating the middle candle, which
It’s characterized by the following: uptrend and signals a that bears are taking signifies the reversal.
potential reversal. control.
 starts with a long, bullish
candlestick  The pattern shows
 followed by a small-bodied indecision followed by a
candlestick (the star) that gaps bearish reversal.
up
 and ends with a long, bearish
4 candlestick that closes near the
midpoint of the first candlestick

Three Black Crows  The three black crows pattern Indicates strong selling A strong signal of a Look for consistent bearish
consists of three consecutive long pressure and the start of a downtrend following an movement with each candle
bearish candlesticks with small or bearish trend. uptrend. closing lower. Strong
no wicks. volume confirms reliability.

 Three consecutive bearish candles

with short wicks, each opening
within the body of the previous.
5
 The three black crows pattern
comprises three long straight reds
with short or almost non-existent
shadows.

6 Black Marubozu  A single long bearish candle with no  A strong move showing Indicates strong bearish Look for the pattern after a
wicks. continuous selling momentum, especially after sustained uptrend, signaling
pressure. an uptrend. a continuation of the
  A black marubozu is a bearish downtrend.
candlestick with no wicks, which  This pattern shows
opens at its high and closes at its strong selling pressure
low. throughout the trading
session and suggests a
continuation of the
downtrend.

Three Inside Down A three-candle pattern: bullish, a small Indicates reversal after an Signals a potential shift Wait for the third candle to
bearish inside candle, followed by a uptrend with bearish from uptrend to downtrend. close below the low of the
bearish candle that closes below the control. first candle for confirmation.
first.

The three-inside-down pattern is a

bearish reversal signal formed
by three candlesticks.
7
 The first is a long, bullish
candlestick
 Followed by a smaller bearish
candlestick that forms within the
first one's body
 And a third bearish candlestick
that closes below the first one's
low

Bearish Harami A large bullish candle followed by a The bearish harami is a two-  Indicates a slow down or Look for a bearish candle
small bearish candle contained within candlestick pattern reversal after an after the harami pattern for
the body of the first. indicating a potential uptrend. confirmation.
reversal. It occurs when
a small bearish  Shows potential loss of
candlestick forms within bullish momentum and a
the body of a preceding possible reversal.
8 large bullish candlestick.

9 Shooting Star  A small body at the lower end of  Appears after an uptrend  The shooting star is a Confirm with a bearish close
the candlestick with a long and signals a potential bearish reversal on the next candle.
upper shadow. reversal. pattern that appears
 This indicates that after an uptrend
 The shooting star is the opposite buyers attempted to
of an inverted hammer. push the price higher but
met resistance. The
 It has a small body, a long upper following bearish
 wick, and little to no lower wick. candlestick confirms the
reversal.

Tweezer Top  Two candles with matching highs;  It indicates that the The price cannot rise Confirm with a close below
the second is bearish. uptrend has found a higher, signaling the start of the low of the second
strong resistance level, a downtrend. candle.
 Two candlesticks with matching and a potential reversal
highs, indicating strong resistance to the downside could
and a potential downward reversal. follow.

 A tweezer top is a bearish reversal  Shows a potential

10 pattern formed by two candlesticks reversal at the top of an
with matching highs. uptrend.

Three Outside Down  A three-candle pattern: bullish  Indicates strong selling A strong reversal signal, Ensure the second and third
candle, followed by a bearish pressure and a reversal indicating that the bearish bearish candles close lower
candle closing below the first, then from an uptrend. trend has started. than the first. Look for
another large bearish candle. increased volume.
 This pattern confirms a
 The three-outside down pattern bearish reversal and
11 consists of a bullish candlestick, suggests a continuation
followed by a larger bearish of the downtrend.
candlestick that engulfs the
previous one and another bearish
candlestick that closes lower.
Continuation Candlestick Patterns

1. Spinning top
2. Falling three methods
3. Rising three methods
4. Upside Tasuki Gap
5. Downside Tasuki Gap
6. Mat-hold
Sr. Pattern Description Significance Context
#
Spinning Top

Signals a brief pause or Appears in both uptrends

A candlestick with a small body and long upper
consolidation before the and downtrends, suggesting
1 and lower shadows, indicating indecision in the
prevailing trend resumes in the a continuation after a
market.
same direction. period of indecision.

Falling Three Methods

Long bearish candle followed by three smaller
bullish candles within its range, and another long
bearish candle.
 Signals Bearish Continuation
The falling three methods is a bearish
continuation pattern. It consists of:  Occurs in a downtrend and Found in a downtrend,
indicates that the bearish confirming that the
 a long, bearish candlestick trend will continue after a brief downtrend will resume after
2
 followed by three smaller bullish consolidation or pullback. a brief retracement.
candlesticks that stay within the range of
the first candlestick  This pattern indicates a
 and then another long, bearish candlestick temporary pause in the
downtrend before it continues.
A long bearish candlestick followed by three
smaller bullish candlesticks within the range of
the first. It ends with a long bearish candlestick.

Rising Three Methods

Long bullish candle followed by three smaller
bearish candles within its range, and another
long bullish candle.

A long bullish candlestick followed by three  Signals Bullish Continuation

smaller bearish candlesticks within the range of
the first. It ends with a long bullish candlestick.  Occurs in an uptrend and
signals that the bullish trend Found in an uptrend,
The rising three methods is a bullish continuation will continue after a brief confirming that the uptrend
3
pattern. It consists of: consolidation or pullback. will resume after a brief
retracement.
 a long bullish candlestick  This pattern indicates a
 followed by three smaller bearish temporary pause in the
candlesticks that stay within the range of uptrend before it continues.
the first candlestick
 and then another long bullish candlestick

4 Upside Tasuki Gap  A bullish candlestick gaps up from the  The upside tasuki gap is a Appears in an uptrend; the
previous one, followed by a bearish bullish continuation pattern. gap up shows strong buying
 candlestick that partially fills the gap.

 It occurs in an uptrend where a bullish

candlestick gaps up from the previous one,  Suggests that the uptrend will
pressure, confirming the
followed by a bearish candlestick that partially continue after a brief
continuation upward.
fills the gap. retracement or pause.

 This pattern indicates that the uptrend is

likely to continue.

Downside Tasuki Gap

 A bearish candlestick gaps down from the

previous one, followed by a bullish candlestick
that partially fills the gap.  The downside Tasuki gap is a
bearish continuation pattern. Appears in a downtrend;
 It occurs in a downtrend where a bearish the gap down shows strong
5
candlestick gaps down from the previous one,  Suggests that the downtrend selling pressure, confirming
followed by a bullish candlestick that partially will continue after a brief the continuation downward.
fills the gap. retracement or pause.

 Signals Bearish continuation

Mat-Hold

 The mat-hold is a bullish continuation pattern.  Indicates that after a

It starts with a long bullish candlestick, temporary pullback in a bullish
Found in an uptrend, where
followed by three smaller bearish trend, the price will continue
the price temporarily pulls
6 candlesticks that stay within the range of the upward.
back and then resumes its
first candlestick, and then another long bullish
upward movement.
candlestick that closes above the first one's  This pattern indicates a strong
high. continuation of the uptrend.
SMART MONEY CONCEPTS

Order
Blocks
S
r Description Definition Formula Significance / What It Indicates Tips
#
Indicates the profit allocated to each
Earnings Per outstanding share of stock. Reflects profitability per share, Look for consistent growth in EPS
1 Net Profit / No. of common shares
Share (EPS) Net profit = Total Earnings of a essential for investors. over time.
company
 Indicates how much price you
have to pay to earn Rs.1
Compare with industry average; low
 P/E indicates under or overvalued
P/E might indicate undervaluation.
Price-to- stocks
Compares a company's stock price to Market Price Per Share / Earnings Per
2 Earnings (P/E)  Compares different stocks and
its earnings per share. Share
Ratio indicates how much premium
you’re paying to earn the profit
 Indicates market expectations of
future earnings growth.
 Book value is Net worth of a
company after selling everything
and paying all the liabilities
 Represents the net asset value of
a company.
Assets = Liabilities + Equity
Equity = Assets - Liabilities

Book Value = Tangible Assets -  Measures the intrinsic value

Compare with market value to
3 Book Value Liabilities (net worth) of the company.
assess over/under valuation.

4 Price-to-Book Compares the market value to the Market Price Per Share / Book Value Per  Indicates how much investors are Lower P/B might suggest
(P/B) Ratio book value of the company. Share willing to pay premium for stock undervaluation. Compare within the
of a company. industry.
 P/B = 2.2 suggests that people in
the market are willing to pay 2.2
times higher for a stock.
Indicates overvaluation
 P/B between 0 to 1 = undervalue
P/B > 1 = overvalued
Useful for income-focused investors.

Annual Dividends Per Share / Market

Price Per Share × 100

Shows the return on investment in Look for companies with consistent

5 Dividend Yield
the form of dividends. or growing dividends.

Represents the percentage of net  Indicates overall profitability.

income earned from total revenue.
Higher is better; compare over time
and with competitors in the
industry.
Net Profit
6 Net Income / Revenue × 100
Margin
Look to 5-7 year charts and see if
the company is generating
Indicates that company is consistent profits.
converting 16.08 % of revenue into
profit.
Represents the percentage of
Gross Profit revenue that exceeds the cost of (Revenue - Cost of Goods Sold) / Measures operational efficiency Higher margins indicate better
7
Margin goods sold. Revenue × 100 before operating expenses. efficiency in producing goods.
Gross profit = Revenue – COGS
8 Price-to-Sales Compares a company’s stock price to Market Price Per Share / Revenue Per  Indicates how much investors are Lower P/S may indicate
(P/S) Ratio its revenues. Share paying for each unit of revenue. undervaluation; compare across the
 Investors can identify which industry.
company’s stock is costlier or
cheaper
 Used to identify stocks within
same sector

P/S = 5 means that investor is willing to

 pay or paying 5 times for every Rs 1
earned by company on sales

Compares the total debt of a

company to its shareholders' equity.  Shows financial leverage;
higher ratios indicate more
Lower ratios are safer; high ratios
Debt-to-Equity debt financing.
9 Total Liabilities / Shareholders' Equity might indicate risk.
(D/E) Ratio
Compare within the industry.
 Ideally D/E ratio should be less
than 1.

EBIT / Interest Expense

Measures the ability to cover interest

expenses.
Indicates financial stability and risk
of default.

1 Interest Higher values are better; a ratio <1

0 Coverage Ratio is a red flag.

Earning before interests and taxes

(EBIT) = operating profit

Measures liquidity to pay short-term  Ideal ratio is industry-

obligations. dependent;
 very high ratios might indicate
inefficiency.

 Indicates liquidity;
1  values >1 suggest the
Current Ratio Current Assets / Current Liabilities
1 company can cover short-term
liabilities.
 Shows the ability to meet short-term
1 Quick Ratio A stricter measure of liquidity than (Current Assets - Inventory) / Current Ideal ratio >1; useful for industries
obligations without relying on
2 (Acid Test) the current ratio. Liabilities with slow inventory turnover.
inventory.
Measures profitability relative to total Higher is better;
assets. consider comparing trends over
time.

 Profitability ratio
1 Return on Net Income or Profit / Total Assets ×
3 Assets (ROA) 100  Indicates how efficiently
assets generate profit.

Measures profitability relative to Indicates how effectively a company

shareholders' equity. uses equity to generate profit.
Higher ROE is generally better but
ensure it’s sustainable.

1 Return on Net Income or Profit / Shareholders'

4 Equity (ROE) Equity × 100