It auto-detects trendlines, patterns, and candlesticks, backtests ideas, and lets you use AI to create unique strategies and launch trading bots—with no code. Utilize the shape of candlestick formations in stop-loss positioning. For instance, following a Bullish Engulfing, position your stop-loss below at the low price of the engulfer candle. In taking such a position, your loss will be kept in check in case your position is reversed in the marketplace.
It consists of a small bullish candlestick followed by a larger bearish candlestick that completely engulfs the previous one. The doji indicates indecision in the market, and the following bullish candlestick confirms the reversal. Below is an isolated example of a bearish engulfing pattern, followed by where I plucked it from in a chart. After conducting 8029 trades, on 548 years of data, we confirm the Doji Win Rate to be 0.52% per trade. The 0.52% win rate means that trading a Doji candle long will net you an average of 0.52% profit per trade if you sell after ten days. Conversely, short-selling a Doji candle, you should expect to lose 0.52% per trade.
- The Inverted Hammer shows the highest reliability with a % profit per trade at 1.12% and a 60.0% success rate.
- Place stops above the shooting star’s high and targets near recent support.
- Buyers were in control at first, then momentum paused, and finally, sellers stepped in with strength.
- Conversely, short-selling an Inverted Hammer, you should expect to lose 1.12% per trade.
Psychologically, this pattern shows that sellers are no longer fully in control. The long wick reveals buyers are testing strength, and if the following session confirms with a bullish candle, momentum can shift upward. Markets are not just numbers; they are living reflections of crowd psychology. Fear, greed, hesitation, and overconfidence play out every day, and candlestick formations make those emotions visible on a chart. A hammer signals rejection of lower prices, whether it appears on EURUSD, Tesla, or Bitcoin.
Bullish Counterattack Candlestick Pattern
Understanding candlestick patterns helps traders interpret price action and market sentiment with greater clarity. When used with trend, volume, and key support or resistance levels, these 41 patterns can improve trading consistency and decision-making. Let’s take a look at four of the most widely used candlestick patterns along with some actual stock chart examples. The four patterns we’ll look at here are the bullish engulfing pattern, the bearish engulfing pattern, umbrella lines, and dojis. Even if candlesticks aren’t your thing, almost everyone agrees the pattern names are vivid. Thanks to this research, we have proof that candlestick patterns work.
Bullish Harami Cross: 55.3% Win Rate
- Forex – the foreign exchange market also known as FOREX or FX is the biggest and the most profits but is also a very risky endeavor.
- The Max Drawdown was -29.6%, versus the stock’s drawdown of -59.4%, which shows less volatility than a buy-and-hold strategy.
- A bullish pattern followed by a surge in trading volume can indicate genuine buying interest, whereas low volume may suggest the pattern is less reliable.
By combining such patterns with sound trading techniques, investors can make smarter trading choices and maximize trading performance. The following day confirmed the reversal with a red close, leading to a sharp decline. Traders who acted on the signal locked in profits, while others held through losses. In early 2024, gold futures formed a morning star at $1,850 after weeks of decline. Within days, the price rallied toward $1,950, validating the pattern. Traders who acted after the third candle closed captured the reversal early.
Bullish Engulfing
The bullish engulfing pattern occurs when a large bullish candle fully covers the previous bearish one. The Evening Star is a classic three-candle bearish reversal pattern that every day trader should recognize. It acts as a potent warning signal at the peak of an uptrend, indicating that bullish momentum is fading and sellers are poised to take control.
This kind of candle looks like a gravestone, with a tall wick on the top. It indicates that buyers failed to push the prices up, and the sellers were able to bring them back down to around the opening price at the end of the trading session. The dark cloud cover is a two-candlestick sell signal and a signal of a downtrend reversal.
What is the best software for candle pattern trading?
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you can afford to take the high risk of losing your money. For example, a hammer forming randomly in the middle of a sideways chart may not mean much. But a hammer appearing at a strong support zone, confirmed by RSI divergence and higher volume, carries significant weight. Similarly, three white soldiers forming after a healthy pullback signal strong continuation, while the same pattern appearing after an extended rally may warn of exhaustion.
Small body at the lower end with a long upper shadow; signals a possible bullish reversal after a downtrend. Reading one candlestick helps traders understand the balance between buyers and sellers in a given session. The Inverted Hammer is the most profitable candle pattern, with a 1.12% profit per trade.
By recognizing individual candlestick formations and multi-candle patterns, you can interpret potential price movements, confirm trends, and make more informed trading decisions. Candlesticks are formed by showing a candle “body,” a solid area between the open and close price, and “wicks,” which represent the high and low. Candles (the terms “candles” and “candlesticks” are used interchangeably) are often colored to indicate whether it indicates an up move or a down move.
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The three black crows is the bearish version of the three white soldiers. It features three consecutive bearish candles, each closing near its lows and opening within the prior candle’s range. This pattern is most reliable when it appears after consolidation or declines, not after steep rallies.
What are the Types of Assets that can be traded with Candlesticks?
It starts with a bearish candlestick followed by a bullish candlestick that opens above the previous close and continues to move higher. top-4 best candlestick patterns for 2025 The hammer candlestick pattern is a bullish reversal pattern that forms after a downtrend. It is characterized by a small body near the top of the candlestick with a long lower wick. Many chart watchers believe specific shapes of individual candles or candlestick patterns can offer clues about the prevailing mood of a market. While candlestick patterns can be a reliable tool for identifying potential market trends, their effectiveness increases when used alongside other technical indicators and market context. The most profitable candlestick signals for trading are the Inverted Hammer (60% success rate), Bearish Marubozu (56.1%), Gravestone Doji (57%), and Bearish Engulfing (57%).
The Morning Star appears at the bottom of a downtrend, painting a vivid picture of a market battle. The second, small-bodied candle (the star, which can be red or green) indicates that the bears are losing momentum. The final, strong green candle confirms the bulls have won, reversing the prior negative sentiment. A Doji appearing after a strong uptrend or downtrend suggests that the dominant force (buyers or sellers) is becoming exhausted.
Psychologically, it reflects that buyers tried to keep pushing prices up but failed. For example, Apple stock showed an inverted hammer near $160 in late 2024. The next candle was a strong bullish close, confirming the pattern and driving a rally toward $175.
Two or more candles with matching lows indicating a potential bullish reversal. A single candlestick with a small body and long lower shadow, indicating potential trend reversal upward. The dark cloud cover begins above the prior close but ends below its midpoint, hinting at bearish pressure. Each type offers traders specific insights into potential market movements, especially when analyzed in context with trend direction and volume. Candlestick signals carry the same risks as any other form of technical analysis. As such, practicing due diligence and research is important before entering a trade.
