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Candlestick Cheat Sheet: Master the Art of Candlestick Trading

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Written by Timothy Sykes
Updated 5/16/2024 14 min read

Candlestick trading originated in Japan over 300 years ago and it’s only become more useful — it’s the bedrock of technical analysis across forex, commodities, and stock markets. The visualization of price movements through candlesticks offers a dynamic and intuitive method to gauge market sentiment and possible price directions. Candlestick patterns provide not only a vivid snapshot of trading action but also insights into potential future movements.

My candlestick cheat sheet will equip you with essential candlestick patterns that enhance your trading decisions by improving your market timing and pattern recognition skills.

I’ll answer the following questions:

  • What is the significance of candlestick patterns in trading?
  • How do candlestick patterns reflect psychological and market sentiments?
  • What are the benefits of using candlestick patterns for traders?
  • How can beginners practice reading candlestick patterns effectively?
  • Which tools and resources can help in practicing candlestick pattern recognition?
  • What are bullish and bearish candlestick patterns and their implications?
  • What do advanced candlestick patterns indicate?
  • How can traders use the candlestick cheat sheet in their daily trading routine?

Let’s get to the content!

Importance of Candlestick Patterns in Trading

Candlestick patterns are revered for their ability to distill complex market sentiments into understandable visual forms. Each candlestick formation reflects buyers’ and sellers’ psychological battle over a given timeframe, providing clues about potential future market movements. Recognizing these patterns helps traders anticipate possible price actions before they happen, offering a strategic advantage.

Benefits of using candlestick patterns include:

  • Improved prediction accuracy of future market movements.
  • Enhanced timing for entry and exit points in trades.
  • Ability to quickly assess the emotional undertone of the market.
  • Immediate visual cues about market consolidation or momentum shifts.

How Can Beginners Practice Reading Candlestick Patterns Effectively?

  1. Start with basic single candle patterns like the Doji and Hammer to build a foundation.
  2. Progress to multi-candle formations such as the Engulfing and Morning Star patterns.
  3. Finally, integrate complex patterns like the Evening Star and Hanging Man into your analysis.

Beginners should leverage simulation trading tools that replicate live market conditions without financial risk. Many online trading platforms and forex training courses offer these simulation environments.

Utilizing resources such as tutorial videos, interactive charts, and real-time trading scenarios can significantly enhance a novice’s ability to recognize and interpret candlestick patterns.

Learn how to leverage mobile trading tools to enhance your pattern recognition skills by checking out our article on How to Buy Stocks on iPhone, which offers tips and tricks for using apps to trade effectively.

Candlestick Cheat Sheet

The cheat sheet comprises essential candlestick patterns every trader should know:

  • Hammer and Inverted Hammer
  • Bullish and Bearish Engulfing
  • Morning Star
  • Doji Patterns (Gravestone Doji,  Dragonfly Doji, and Evening Doji Star)
  • Hanging Man
  • Shooting Star

Having a quick reference guide, such as a downloadable PDF or an accessible web page, simplifies the learning process and supports real-time trading decisions. This tool is crucial for traders to quickly verify their observations and respond to market changes effectively, thereby enhancing the likelihood of successful trades.

Bullish Candlestick Patterns

Bullish candlestick patterns are essential tools for investors aiming to identify potential buying opportunities in the markets, including stocks, forex, and crypto. These patterns, which feature on candlestick charts, signal a likely reversal from downward trends to upward trends, providing a visual representation of buyer momentum gaining over sellers. The Hammer candlestick pattern is a prime example of a bullish indicator, characterized by a short body at the top with a long lower wick, suggesting that the market is rejecting lower prices and a breakout could be imminent.

These formations not only boost the confidence of traders in anticipating upward moves but also help in determining the strength of market support at various price levels. Traders often look for these patterns in shorter timeframes to make quick trading decisions, but they can be equally effective in longer-term analyses. Understanding these patterns gives traders an edge in developing strategies that capitalize on shifts from bearish to bullish market sentiments.

Hammer and Inverted Hammer

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These patterns typically indicate potential bullish reversals when appearing during a downtrend. The Hammer has a small body at the top with a long lower shadow, suggesting that the market is rejecting lower prices.

Examples of how to spot these patterns:

  • Look for a Hammer pattern after a significant price decline.
  • Confirm the pattern with an increase in volume, which suggests a strong buying pressure.

Morning Star

This three-candle pattern signals a strong reversal from a bearish to a bullish market. It starts with a tall, bearish candle, followed by a small-bodied candle that gaps below the first, and is completed by a large bullish candle.

Best market conditions for this pattern:

  • It forms after a noticeable downtrend.
  • It should be accompanied by a spike in trading volume on the third candle.

Neutral Candlestick Patterns

Neutral candlestick patterns, such as the Doji and Spinning Top, occupy a critical place in the analysis of market conditions across various trading platforms. These patterns are depicted by candles that have small bodies, indicating a balance or indecision between buyers and sellers. The presence of these patterns within a defined range often signals consolidation before a significant market move either upwards or downwards.

For traders and investors, recognizing these patterns on candlestick charts provides pivotal insights into the equilibrium points of market forces. They serve as a cautionary signal that the current trend may be pausing and potentially reversing, or that volatility is low as traders define their positions. Whether trading English or Japanese candlestick formations, forex, or stocks, understanding these neutral patterns helps in maintaining a balanced perspective on market dynamics, allowing for better risk management and strategic planning.


Characterized by its cross-like appearance, a Doji represents market indecision. The opening and closing prices are virtually equal, reflecting a tug-of-war between buyers and sellers without a clear winner.

How traders should react:

  • View Doji as a sign to proceed with caution, particularly if it forms after a lengthy price move.
  • Consider the context of the previous candles for a fuller market interpretation.

Spinning Top

This pattern has a small body centered between long upper and lower shadows. It suggests a balance between buying and selling pressure but hints at a potential change in market direction.

Implications of a Spinning Top:

  • It often precedes a reversal or a significant price move if followed by a decisive candle.
  • Watch the following candles to confirm the forthcoming direction.

Bearish Candlestick Patterns

Bearish candlestick patterns are vital for detecting potential sell-off points or the beginning of downtrends in various markets, including traditional stocks and the burgeoning crypto sector. These patterns, such as the Evening Star and Shooting Star, feature candles with long upper wicks, which imply rejection of higher prices and a possible downward breakout. Such formations are particularly valued in bearish markets or as signals for the end of bullish trends.

These chart patterns are instrumental for traders looking to protect profits or enter short positions. The dark cloud cover and hanging man patterns are typical bearish reversals that underscore the market’s shift from bullish to bearish sentiment. In forex trading, recognizing these patterns early can significantly mitigate loss and improve position management. They offer a visual cue that selling pressure is increasing and that it might be time to consider defensive strategies or prepare for potential downturns in asset prices.

Evening Star

The Evening Star, a mirror reflection of the Morning Star, forecasts bearish reversals when it forms after an uptrend. It starts with a bullish candle, followed by a small-bodied candle, and ends with a bearish candle that closes well into the first candle’s body.

Conditions for reliability:

  • Occurs after an uptrend.
  • Supported by increased volume on the third candle.

Shooting Star

Appearing during an uptrend, this candlestick indicates a potential price fall. Its long upper shadow shows that buyers initially pushed the price up, but sellers took control and drove the price back down.

Significance of placement:

  • Ensure the pattern occurs after a price increase.
  • Validate with subsequent bearish movement to confirm a downtrend.

Advanced Candlestick Patterns

Advanced candlestick patterns involve more complex formations that typically combine multiple candles and require a deeper understanding of market psychology and timing. These patterns, such as the Bearish and Bullish Harami, require careful observation of not just the candles but also trend context and volume for accurate interpretation.

Others, like the Dark Cloud Cover, you’ve got to get the calculator out for!

Advanced candlestick patterns can provide critical insights into market continuity and potential breakouts, which are pivotal for traders looking to capitalize on sustained movements rather than short-term fluctuations. Recognizing patterns like ascending triangles, flags, and pennants can help traders predict the continuation of a trend, offering opportunities for strategic entry and exit. These patterns, supported by volume analysis, can significantly increase the reliability of predicting future price movements. To effectively master these continuation patterns, enhance your trading strategy by exploring our comprehensive guide on Continuing Patterns, which details identification techniques and trading tactics for these advanced formations.

How Can You Use the Candlestick Cheat Sheet?

Incorporating the candlestick cheat sheet into daily trading routines can immensely benefit market participants. Here’s how:

  • Quickly cross-reference observed patterns during trading to confirm hypotheses.
  • Use the cheat sheet as a guide when reviewing past trades to improve future strategy.

While the cheat sheet is an invaluable tool, it is most effective when used in conjunction with other forms of technical analysis. Understanding market context, support and resistance levels, and other indicators ensures a holistic approach to trading and helps mitigate risks associated with reliance on any single method.

Using a candlestick cheat sheet effectively depends on understanding the best times to apply these patterns within market cycles. Integrating candlestick patterns with strategic timing can significantly enhance trading precision, particularly when you align them with optimal market conditions. This approach is crucial for leveraging candlestick strategies effectively, ensuring trades are well-timed and based on solid technical analysis. Gain more insight into timing your trades with our detailed guide on the Best Time to Buy Stocks.

Key Takeaways

  • Mastery of candlestick patterns is crucial for interpreting market sentiment and making informed trading decisions.
  • Both bullish and bearish patterns provide insights into market trends and potential reversals.
  • Advanced patterns offer deeper insights but require a good grasp of basic patterns for effective use.

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Frequently Asked Questions

What Makes Candlestick Patterns a Crucial Tool for Traders?

Candlestick patterns are essential because they not only illustrate price movements but also the psychological underpinning behind these movements. This dual insight helps traders anticipate potential market shifts and align their strategies accordingly.

What Is the Difference Between Bullish and Bearish Engulfing Patterns?

Bullish Engulfing patterns occur when a small bearish candle is followed by a larger bullish candle that completely engulfs the first. This suggests a strong shift to buying pressure. Conversely, a Bearish Engulfing pattern happens when a small bullish candle is followed by a larger bearish candle, indicating growing selling pressure. Both patterns are pivotal in signaling imminent reversals and are key components of a trader’s analytical toolkit.

What Is the Meaning Behind Different Candlestick Chart Patterns?

Candlestick chart patterns are visual representations of price movements within a set time frame. Each pattern, depicted through an image or picture on the chart, categorizes market sentiment into types such as bullish or bearish reversals. Understanding the meaning behind these patterns can help traders identify potential market trends based on historical data.

How Do Candlestick Patterns Help Predict Market Movements?

Candlestick patterns, when analyzed within their categories, use the visual cues of green (rising prices) and red (falling prices) bars to predict potential market movements. These patterns, viewed as images on a chart, offer insights based on the percentage change and type of market action, aiding traders in making informed decisions.

Why Is It Important to Know the Types of Candlestick Patterns?

Knowing the types of candlestick patterns allows traders to categorize market conditions and tailor their strategies accordingly. Each type of pattern, whether it represents continuation or reversal, signals different market dynamics, which can be crucial for executing timely trades.

Can the Size and Number of Candlesticks Influence Trading Decisions?

Yes, the size and number of candlesticks can greatly influence trading decisions. Large candles may indicate strong buying or selling pressure, reflected by significant percentage changes in price, while the number of consecutive green or red candles can signify market strength or weakness.

What Are Some Common Misconceptions About Candlestick Patterns?

Some common misconceptions include the belief that all candlestick patterns provide clear trading signals or that they can predict market movements on their own without additional analysis. Traders often overlook the importance of context and market conditions when interpreting these patterns.

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (888) 878-3621 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”