The third is a large bullish candle that recovers most of the first candle’s losses. Navigating the fast-paced world of day trading requires more than just capital; it demands a deep, functional understanding of market language. From the decisive reversal signal of the Hammer to the market indecision captured by the Doji, each pattern offers a unique window into the ongoing battle between buyers and sellers.
Bullish Harami: 55.2% Win Rate
All trading or investment decisions are fully on responsibility of the account owner and include but are not limited to any kind of loss of capital. These patterns work effectively across all markets and timeframes because they reflect universal market psychology. For detailed performance metrics and success rates, refer to our comprehensive backtesting data section.
Dojis
This pattern signals weakening buying pressure and increasing selling momentum over time. When the bearish tri-star forms at the top of an uptrend, it reflects market indecision and a possible loss of buying strength. The evening star candlestick pattern is similar to the evening star pattern but features a doji as the middle candlestick. It resembles a “U” shape, where prices gradually decline, consolidate, and then rise steadily, signaling a transition from bearish to bullish sentiment. The third candle is a small bullish or neutral candle, showing indecision in the market.
Types of Candlestick Patterns
- These 10 candlestick patterns have been tested across centuries and continue to guide traders toward better decisions today.
- Below are, first, an example of a bullish engulfing pattern and, next, how it foretold a change in trend.
- This pattern shows a significant shift in market sentiment from bullish to bearish.
- The upper and lower shadows are longer than the body, giving it a “spinning top” appearance.
This guide is designed to be your definitive resource for leveraging the most effective candlestick patterns for day trading. We will move beyond simple definitions and dive straight into actionable strategies. Instead, you’ll get a practical playbook detailing how to identify, interpret, and trade these powerful signals in real-world scenarios.
For instance, in late 2024, EURUSD formed a bullish engulfing near 1.05 support. The next few sessions saw the pair rally to 1.09, offering a clear and profitable trade opportunity for those who trusted the signal. The Inverted Hammer also appears in a downtrend, but its shape is flipped. This pattern suggests buyers attempted to rally the price but were pushed back by sellers. However, the fact that sellers couldn’t drive the price to a new low indicates their power is waning.
Risk-Reward
This indicates that sellers have countered the buying pressure, potentially leading to a reversal. Traders interpret this pattern as a sign of selling exhaustion and the possibility of a new upward move, making it a critical signal for those looking to catch a reversal in a downtrend. The final candle opens lower and closes higher, indicating that the bearish momentum has weakened, and a reversal might be on the horizon. This formation indicates that the market is experiencing indecision after a period of selling pressure. This indicates that buyers have countered the selling pressure, potentially leading to a reversal. Doji with long lower shadow and no upper shadow; indicates bullish reversal potential.
The doji candle is not a great entry candle for a trade because the trend can go either way. The Spinning Top pattern had an overall success rate of 55.9%, with an average return of 0.49% and a reward/risk ratio of 1.04. It was successful in 5,535 out of 9,894 trades, yielding an average win of 3.7%. Investors should take cognizance of the fact that there are risks involved in buying or selling any financial product. Past performance and/or forecast of a financial product is not necessarily indicative of future performance. The value of financial products can increase as well as decrease over time, depending on the value of the specific asset and market conditions.
While each candle makes a new high, they become progressively smaller, showing a decrease in upward momentum. A bullish spinning top is characterized by a small body and long wicks on both sides. Use it as a quick reference for you to focus on before diving into more patterns.
A doji at resistance carries more weight if it coincides with a volume spike. Japanese candlesticks have been part of trading for centuries, first developed by rice merchants in Japan to record price movement. Despite changes in technology, the principles behind them remain timeless because they reflect how markets behave at their core.
- The bullish forms occur regularly at a downtrend’s base and indicate a future price move in a positive direction.
- Three-candle pattern with middle candle as Doji; signals indecision followed by bearish reversal.
- The psychology behind it is that sellers tried to continue the downtrend, but buyers entered with enough strength to overwhelm them completely.
Identifying an Inverted Hammer
The bearish tri-star candlestick is another rare candlestick pattern that hints at a potential market reversal, but this time from an uptrend to a downtrend. There are dozens of candlestick patterns used in trading, each showing different price behaviors and market psychology. In total, analysts recognize over 40 patterns, divided into bullish and bearish categories. A bullish engulfing candle pattern is formed when a candle’s body (the difference between the open and close) is longer than the prior candle with both a lower open and top-4 best candlestick patterns for 2025 a higher close.
Three-candle pattern with gap up then down; indicates strong bearish reversal. Small bearish candle fully contained within prior bullish candle; suggests reversal or trend weakening. Single candlestick with small body at top and long lower shadow; indicates potential bearish reversal. Three consecutive Doji at bottom of downtrend signaling a strong bullish reversal.
We will explore the specific contexts in which each pattern is most reliable, how to confirm your trade entries, and where to place your stops to manage risk effectively. The bearish harami candlestick is a two-candlestick pattern indicating a potential reversal. It occurs when a small bearish candlestick forms within the body of a preceding large bullish candlestick. It consists of a small bearish candlestick followed by a larger bullish candlestick that completely engulfs the previous one. It occurs in a downtrend, with the first candlestick being bearish and followed by a bullish candlestick that opens lower but closes above the midpoint of the previous candlestick.
Top 10 Powerful Common Candlestick Patterns You Must Know in 2025
The percentage of Bearish Engulfing winning trades was 57% versus 43% losing trades, significantly higher than the 55.8% average performance across all candlestick types. The Max Drawdown was -39.7%, versus the stock’s drawdown of -59.3%, which shows less volatility than a buy-and-hold strategy. The percentage of Gravestone Doji winning trades was 57% versus 43% losing trades, higher than the 55.8% average performance across all candlestick types, in fact, third best. The Max Drawdown was -28.6%, versus the stock’s drawdown of -59.3%, which shows less volatility than a buy-and-hold strategy.
This signals that buyers attempted to push prices higher but faced resistance, leaving uncertainty at the close. Ultimately, candlestick patterns every trader must know are less about memorising shapes and more about interpreting them in context. Trading with Japanese candlesticks works best when combined with clear structure, momentum analysis, and disciplined risk management. When multiple candles form in sequence, they build recognisable stories of supply and demand. These recurring formations are what traders classify as reversal and continuation patterns. What makes candlesticks powerful is their ability to reveal psychology.