Takeaways

• A candlestick is formed by connecting the open, close, high, and low for a specific period.
• Some candlestick patterns can be recognized as price reversal signals—for example, the hammer.
• You can get a heads-up when trading signals are freshly generated by enabling ‘Technical Signals’ in the Price Alert setting.
• You can also use a Screener to choose stocks with a specific candlestick pattern.

What are Candlesticks?

Let’s start from the basics to see what trading signals different candlestick patterns imply.

A candlestick is formed by connecting the open, close, high, and low for a specific period.

As we can see above, the candle body represents the open-to-close range. The candle body represents the difference between buying and selling activities. When buyers slightly outnumber sellers in the market, the body appears short and green. When there are far more sellers than buyers in the market, the body appears tall and red.

The upper and lower wicks indicate the high and low of a given period. The longer the wick, the more volatile the stock is during the period.

Candles form different shapes and combinations commonly known as candlestick patterns. Let’s move on to see what signals each pattern delivers.

Single Candlestick Pattern

Doji Candlestick

The Doji is formed when the price closes at a price where it opened. The Doji has no candle body. This pattern means the buyers and sellers in the market are roughly balanced during the period. When this pattern appears, it’s likely that the previous trend will end.

A commonly used pattern is the gravestone Doji, also called Gravestone. Because its opening and closing price equal the lowest price of the period, it has no candle body and no lower wick.

It indicates a possible trend reversal and is often used as a short-term signal. Depending on the previous trend, gravestone Doji are divided into bullish gravestone and bearish gravestone.

Hammer Candlestick

Hammers have a long upper or lower wick and a small candle body on the opposite side. Like the Doji, a hammer candlestick pattern indicates that a price reversal might be on its way.

There are two types of hammers.

The first is a regular hammer. It has a long lower candlewick and a small body in the upper part of the candle. When it appears in a downtrend, it’s called a ‘Hammer’. It implies that an uptrend might be on the way. When it appears in an uptrend, it’s called a ‘Hanging Man’, implying that the price might change to the downside.

The second type is an upside down hammer. It has a long upper candlewick and a small body in the lower part of the candle. When it appears in a downtrend, it’s called an ‘Inverted Hammer’. It implies that an uptrend might be on the way. When it appears in an uptrend, it’s called a ‘Shooting Star’, implying a possible price decline.

Double Candlestick Pattern

Engulfing Candlestick Patterns

An engulfing candlestick pattern consists of a random candle and a bigger candle that fully “engulfs” it.

A bullish engulfing pattern appears at the end of a downtrend. It is comprised of a small bearish candle and a bigger bullish candle that encompasses it. It indicates that an uptrend might follow.

A bearish engulfing pattern appears at the end of an uptrend. It is comprised of a small bullish candle and a bigger bearish candle that encompasses it. It indicates that a downtrend might follow.

*These are only a part of the candlestick patterns that indicate possible upcoming price reversals. It must be noted that these signals are more reliable when used with technical indicators and other technical analysis techniques.

Get a Heads-up When Reversal Signals Appear

What should you do once you’ve added some candidate stocks to your watchlist? Watching the price by yourself can be time-consuming, and you could easily miss short-term reversal signals.

One simple way to watch the price efficiently is by setting a customized price alert. Check below to see how.

Screen Stocks with a Specific Candlestick Pattern

You can use our screener to find stocks with a specific candlestick pattern, as shown below.

You can also add technical indicators into the screener so that the trading signals are more reliable.

Join our Technical Analysis group in Webull community to learn more about charts and patterns!

What's More

-Try it out on paper trading

-Take a quiz to evaluate your technique