Candlestick Reversal Patterns

Hammer -- a candlestick with a long lower shadow and small real body. The shadow should be at least twice the length of the real body, and there should be no or very little upper shadow . The body may be either black or white, but the key is that this candlestick must occur within the context of a downtrend to be considered a hammer. The market may be "hammering" out a bottom.

Hanging Man -- identical in appearance to the hammer, but appears within the context of an uptrend.

Engulfing Patterns -- Bullish -- when a white, real body totally covers, "engulfs" the prior day's real body. The market should be in a definable trend, not chopping around sideways. The shadows of the prior candlestick do not need to be engulfed.

Bearish -- when a black, real body totally covers, "engulfs" the prior day's real body. The market should be in a definable trend, not chopping around sideways. The shadows of the prior candlestick do not need to be engulfed.

Dark-Cloud Cover(bearish) -- a top reversal formation where the first day of the pattern consists of a strong white, real body. The second day's price opens above the top of the upper shadow of the prior candlestick, but the close is at or near the low of the day, and well into the prior white, real body.

Piercing Pattern (bullish) -- opposite of the dark-cloud cover. Occurs within a downtrend. The first candlestick having a black, real body, and the second has a long, white, real body. The white day opens sharply lower, under the low of the prior black day. Then, prices close above the 50% point of the prior day's black real body.

Morning Star -- this is a bullish bottom reversal pattern. The formation is comprised of 3 candlesticks. The first candlestick is a tall black real body followed by the second, a small real body, which gaps (opens), lower (a star pattern). The third candlestick is a white real body that moves well into the first period's black real body. This is similar to an island pattern on standard bar charts.

Evening Star -- a bearish top reversal pattern and counterpart to the Morning Star. Three candlesticks compose the evening star, the first being long and white. The second forms a star, followed by the third, which has a black real body that moves sharply into the first white candlestick.

Doji Stars -- When a doji gaps above a real body in an uptrend, or gaps under a real body in a falling market, that particular doji is called a doji star. Two popular doji stars are the evening star and the morning star.

Evening Doji Star -- a doji star in an uptrend followed by a long, black real body that closed well into the prior white real body. If the candlestick after the doji star is white and gapped higher, the bearishness of the doji is invalidated.

Morning Doji Star -- a doji star in a downtrend followed by a long, white real body that closes well into the prior black real body. If the candlestick after the doji star is black and gapped lower, the bullishness of the doji is invalidated.

Shooting Star -- a small real body near the lower end of the trading range, with a long upper shadow. The color of the body is not critical. Not usually considered a major reversal sign, only a warning.

Inverted Hammer-- not really a star, but does look like a shooting star. When occurring within a downtrend, may be a turning signal. Body color is not critical.

NOTE (from Getting Started in Swing Trading):

- Candlesticks accompanied by strong volume is strong signal *

- Candlesticks signal SHOULD be confirmed by the next stick after the signal *

- Narrow range day -> promising indicator

- Combined with high volume -> strong indicator confirming end of trend

- spike + high volume / preceding price gap / big news -> power spike

- power spike -> start of new trend

- gap -> start of new trend / end of old trend