This guide explains how to read a candle, defines the common single, double and triple candlestick patterns with exact rules you can test, shows them on Nifty-style price examples, explains why context matters more than the pattern, and sets out how to turn a pattern into a rule-based entry with a stop and a target.
Candlestick patterns at a glance
| Pattern | Candles | Shape | Usually read as |
|---|---|---|---|
| Doji | 1 | Open and close almost equal | Indecision |
| Hammer | 1 | Small body near the top, long lower shadow, after a fall | Possible bottom |
| Hanging man | 1 | Same shape as a hammer, after a rise | Possible top |
| Shooting star | 1 | Small body near the bottom, long upper shadow, after a rise | Possible top |
| Inverted hammer | 1 | Same shape as a shooting star, after a fall | Possible bottom |
| Marubozu | 1 | Long body, little or no shadow | Strong pressure in the body's direction |
| Spinning top | 1 | Small body, shadows on both sides | Indecision |
| Bullish engulfing | 2 | A down candle followed by a larger up candle | Possible bottom |
| Bearish engulfing | 2 | An up candle followed by a larger down candle | Possible top |
| Harami | 2 | A small candle inside the previous candle's body | Slowing momentum |
| Piercing line | 2 | Up candle closing above the middle of a down candle | Possible bottom |
| Dark cloud cover | 2 | Down candle closing below the middle of an up candle | Possible top |
| Tweezer top or bottom | 2 | Two candles with the same high or low | Possible turn at that level |
| Morning star | 3 | Down candle, small candle, strong up candle | Possible bottom |
| Evening star | 3 | Up candle, small candle, strong down candle | Possible top |
| Three white soldiers | 3 | Three strong up candles in a row | Strong buying |
| Three black crows | 3 | Three strong down candles in a row | Strong selling |
Key takeaways
- A candle has a body (open to close) and shadows (the high and low beyond the body).
- Single-candle patterns describe one period; two- and three-candle patterns describe a change across periods.
- The same shape means different things after a rise and after a fall, which is why the hammer and the hanging man have different names.
- Patterns work better as filters at levels that matter, such as support, resistance or the previous day's range, than on their own.
- Every pattern needs an exact definition before it can be tested: how small is a small body, how long is a long shadow.
- Use the pattern's high or low for the stop, and size the trade from that stop.
How to read a candle
Each candle covers one period: a minute, five minutes, a day or a week. Its four prices:
- Open: the first price of the period.
- High and low: the extremes of the period.
- Close: the last price.
The body runs from the open to the close. It is shown green or hollow when the close is above the open (an up candle) and red or filled when the close is below the open (a down candle). The thin lines above and below the body are the shadows, or wicks, reaching to the high and the low.
| Part | What it tells you |
|---|---|
| A long body | One side controlled the period from open to close |
| A small body | The period ended near where it began |
| A long upper shadow | Buyers pushed the price up, but sellers pushed it back down |
| A long lower shadow | Sellers pushed the price down, but buyers pushed it back up |
| The colour | Whether the period closed higher or lower than it opened |
Take a day on Nifty that opens at 25,020, falls to 24,880, recovers and closes at 25,060, with a high of 25,080. The body is 40 points (25,020 to 25,060), the lower shadow 140 points (24,880 to 25,020) and the upper shadow 20 points (25,060 to 25,080). Sellers had the early part of the day, buyers the rest. After a fall, that shape is a hammer.
Single-candle patterns
Doji
A doji has an open and close that are almost equal, so the body is a thin line. Define it as a body no larger than 10% of the candle's range. A doji after a strong move says the move has paused; it does not say which way the next move goes. A long-legged doji has long shadows on both sides; a dragonfly doji has only a long lower shadow; a gravestone doji only a long upper shadow.
Hammer and hanging man
Both have a small body near the top of the candle and a long lower shadow. A testable definition: the lower shadow is at least twice the body, the upper shadow is no more than 10% of the range, and the body sits in the top third of the range. After a fall it is a hammer, a sign that buyers absorbed the selling. After a rise it is a hanging man, a warning that selling appeared during the period even though buyers closed it near the high.
Shooting star and inverted hammer
The mirror image: a small body near the bottom and a long upper shadow, at least twice the body. After a rise it is a shooting star, showing buyers pushed up and failed to hold the gain. After a fall it is an inverted hammer, a weaker sign of a possible bottom that needs a strong next candle to confirm it.
Marubozu
A marubozu is a long body with little or no shadow: the open is at one extreme and the close at the other. Define it as a body of at least 90% of the range, and longer than the average body of the last 10 candles. An up marubozu shows buying from open to close; a down marubozu the reverse.
Spinning top
A small body with shadows of similar length on both sides. Like a doji, it shows indecision, but with a slightly larger body.
Two-candle patterns
Bullish and bearish engulfing
A bullish engulfing is a down candle followed by an up candle whose body covers the whole body of the first: it opens at or below the first candle's close and closes above its open. A bearish engulfing is the reverse after a rise. The second candle's body should be clearly larger than the first's, for example at least 1.2 times as large, for the pattern to count in a test.
Harami
The opposite of engulfing: a small candle whose body lies inside the previous candle's body. It shows that the strong move of the first candle has slowed. A harami cross is a harami whose second candle is a doji.
Piercing line and dark cloud cover
A piercing line comes after a fall: a down candle, then an up candle that opens below the first candle's low or close and closes above the middle of its body. Dark cloud cover is the reverse after a rise: an up candle, then a down candle that opens above it and closes below the middle of its body. In Indian markets, gaps between candles are common at the open but rare within a session, so on intraday charts these patterns often appear without the gap.
Tweezer tops and bottoms
Two candles with the same high (a tweezer top) or the same low (a tweezer bottom), usually with opposite colours. They show a level that the price tested twice and could not pass. Define "the same" as within a small tolerance, such as 0.05% of the price.
Three-candle patterns
Morning star and evening star
A morning star has three parts after a fall: a long down candle, a small candle (a doji or spinning top) that shows the selling has paused, and a long up candle that closes well into the first candle's body. An evening star is the mirror after a rise. Define "well into" as beyond the middle of the first candle's body.
Three white soldiers and three black crows
Three long up candles in a row, each opening within the previous body and closing near its high, are three white soldiers. Three long down candles closing near their lows are three black crows. They describe strong, sustained pressure. After an already long move they can mark exhaustion rather than continuation.
Inside bar
An inside bar is a candle whose high and low both sit within the previous candle's range. It marks a contraction, and traders often trade the breakout of the larger "mother" candle's range. See the inside bar strategy.
Reading patterns in context
The same pattern means more or less depending on where it appears.
| Context | Stronger | Weaker |
|---|---|---|
| Location | At support, resistance, the previous day's high or low, or a round number | In the middle of a range |
| Trend | A reversal pattern after an extended move | A reversal pattern after two or three candles |
| Volume | Higher than average on the pattern candle | Lower than average |
| Timeframe | Daily and hourly candles | One-minute candles, which carry more noise |
| Confirmation | The next candle moves in the expected direction | The next candle reverses |
A bullish engulfing on the daily Nifty chart at the previous month's low, on higher volume, is worth testing as a trade. The same pattern on a one-minute chart in the middle of the day is not. Support and resistance give patterns their location; see the support and resistance strategy.
Defining patterns as rules
A pattern can be tested or automated only when every word in its description becomes a number. An example definition set for daily candles:
| Pattern | Rule |
|---|---|
| Doji | Body ≤ 10% of the range |
| Hammer | Lower shadow ≥ 2 × body; upper shadow ≤ 10% of range; close in the top third; the close is below the close five days earlier |
| Bullish engulfing | Previous candle down; current candle up; current open ≤ previous close; current close ≥ previous open; current body ≥ 1.2 × previous body |
| Morning star | Candle 1 down with a body ≥ average body; candle 2 body ≤ 30% of candle 1's body; candle 3 up, closing above the middle of candle 1's body |
| Marubozu | Body ≥ 90% of range and ≥ the 10-day average body |
The "close below the close five days earlier" condition in the hammer rule is a simple way to require a prior fall. Without it, the test counts every candle with the right shape, wherever it appears.
Turning a pattern into a trade
A pattern gives a possible entry. A trade also needs a stop, a target and a size.
- Entry. Enter when the next candle trades above the pattern's high (for bullish patterns) or below its low (for bearish ones). Waiting for this break filters out many patterns that fail at once.
- Stop. Place it below the pattern's low for a bullish pattern, or above its high for a bearish one.
- Target. Use the next resistance or support level, or a multiple of the risk, such as twice the stop distance.
- Size. Work out the lots or shares from the stop distance and your risk per trade.
- Time exit. If neither the stop nor the target is reached within a set number of candles, exit.
Take the hammer from earlier: low 24,880, high 25,080 on Nifty futures. Entry above 25,080, stop below 24,880, a 200-point risk, or ₹13,000 on one lot of 65. A target at twice the risk is 25,480. With a ₹5,00,000 account risking 1%, the ₹5,000 budget does not cover one futures lot at this stop, so the trade would be taken with an option or a smaller instrument, or skipped. The risk reward ratio calculator and the position size calculator do this arithmetic.
Patterns on different timeframes
| Timeframe | What a candle covers | Noise | Use |
|---|---|---|---|
| 5 minutes | A small part of the session | High | Intraday entries at levels, with tight stops |
| 15 minutes | About 4% of the session | Moderate | Intraday trades held for an hour or more |
| 1 hour | About a sixth of the session | Lower | Swing entries and intraday trend reads |
| Daily | One session | Low | Swing trades over days to weeks |
| Weekly | Five sessions | Lowest | Position trades and longer views |
Costs weigh more on short timeframes, because the expected move per trade is smaller while charges per trade are the same. A pattern that shows an edge on daily candles may not survive costs on five-minute candles.
Combining patterns with indicators
Patterns are often combined with an indicator that measures the context:
- RSI. A hammer with RSI below 30 combines a shape with an oversold reading.
- Moving averages. A bullish engulfing above a rising 50-day average trades with the trend; the same pattern below a falling average trades against it.
- Volume. Higher than average volume on the pattern candle shows broader participation.
- VWAP. On intraday charts, a reversal pattern at VWAP or its bands marks a level many traders watch.
Each extra condition removes signals. Test whether the condition improves the result enough to justify trading less often.
A worked example: engulfing at support
On the daily Nifty chart, the previous month's low is 24,950. Day 1 opens at 25,120 and closes at 24,960, a 160-point down candle that touches the support. Day 2 opens at 24,940, falls to 24,905, then rallies to close at 25,150, with a high of 25,170. Its 210-point body covers the whole of day 1's body and is more than 1.2 times its size, so it is a bullish engulfing at support.
| Step | Level | Detail |
|---|---|---|
| Entry | Above 25,170 | The pattern's high, on day 3 |
| Stop | Below 24,905 | The pattern's low: a 265-point risk |
| Target | 25,700 | Twice the risk above the entry |
| Risk on one Nifty futures lot | ₹17,225 | 265 points × 65 |
A ₹5,00,000 account risking 1% cannot take one futures lot at this stop. A bought call or a debit spread with a smaller risk, sized to ₹5,000, expresses the same view within the budget.
How to test a pattern
- Write the definition in numbers, including the prior trend and the level.
- Choose the market and timeframe, such as Nifty futures on daily candles.
- Set the trade rules: entry on the break of the pattern, the stop, the target and a time exit.
- Run the test on several years of data, including charges and slippage.
- Compare with a baseline, such as entering on any day at the same level without the pattern.
- Check a separate period that was not used to build the rule.
- Look at the number of trades. A result from 20 trades says little; aim for hundreds.
Bullish and bearish pairs
Most patterns come in mirror pairs. The same shape at the opposite end of a move carries the opposite meaning.
| Bullish, after a fall | Bearish, after a rise |
|---|---|
| Hammer | Hanging man |
| Inverted hammer | Shooting star |
| Bullish engulfing | Bearish engulfing |
| Piercing line | Dark cloud cover |
| Morning star | Evening star |
| Tweezer bottom | Tweezer top |
| Three white soldiers | Three black crows |
Patterns in options trading
Options traders use patterns on the index chart to time entries. A bullish pattern on Nifty might lead to a bought call, a bull call spread or a sold put spread. The pattern's stop distance shapes the option choice. A 265-point stop needs time: an option with only a few days left can lose much of its value to theta while the index tests the stop. A debit spread lowers the cost of waiting, and selling a put spread below the pattern's low profits if the low holds, whether or not the index rallies. The stop on the option should match the pattern's stop on the index, not a fixed percentage of the premium.
Gaps and patterns
Indian markets often open with a gap after overnight news, so the first daily candle of a move may open far from the previous close. Gaps change some patterns: a piercing line or dark cloud cover in the classic definition needs a gap at the open, while engulfing patterns form more often after gaps. A gap that is not filled during the session, followed by a strong close, often matters more than any pattern formed inside it.
Keeping a record
Keep a record of each pattern trade: the pattern, the timeframe, the level it formed at, the entry, stop and exit, and the result after costs. After 50 or 100 trades, the record shows which patterns and contexts earn their place and which do not.
Do candlestick patterns work?
Published tests of candlestick patterns on stock and index data give mixed results. Some patterns show a small edge in some markets and periods, often less than trading costs, and many show none once costs are included. The patterns that hold up tend to be those used with context, such as location at a level, the prior trend and confirmation, rather than the shape alone.
That is a reason to test, not to dismiss. A pattern rule tested on your instrument, timeframe and costs tells you more than any general claim. Test on enough data to include different market conditions, keep part of the data aside to check the result, and include charges and slippage. The guides on backtesting mistakes and walk-forward testing cover the traps.
Candlestick patterns and other chart types
Heikin Ashi candles average each candle with the previous one, which smooths the chart and makes trends easier to see, but hides the real open and close; standard patterns do not apply to them in the same way. See the Heikin Ashi strategy. Line charts show only closes, so no pattern can be read from them. Bar charts show the same four prices as candles in a different form.
Candlestick patterns at the open
The first candles of the Indian session often carry the overnight news, and patterns there behave differently. A large gap and a long first candle can set the day's range. Strategies such as the open high low strategy read the first candle's open against its high or low. On five-minute charts, the first candle's range is often the widest of the day, so stops based on it are wide too.
Common mistakes
- Trading the shape without the context. Location and trend decide most of a pattern's meaning.
- Using loose definitions. "Small body" and "long shadow" need numbers before a pattern can be tested.
- Entering before confirmation. Many patterns fail on the next candle.
- Ignoring the stop distance. A long pattern candle means a wide stop and a smaller position.
- Reading one-minute candles as if they were daily. Short timeframes carry more noise and higher relative costs.
- Counting the hits and forgetting the misses. Patterns are easy to see after the fact; a test counts both.
Patterns on Nifty, Bank Nifty and stocks
The same patterns appear on every market, but their behaviour differs. Index candles are smoother, because they average many stocks, so single-candle signals such as a doji are more common and often less meaningful. Stock candles carry company news, so a long shadow on a results day reflects the news, not a shift in sentiment that can be traded in the same way. Bank Nifty moves more in percentage terms than Nifty, so the same pattern produces wider stops. Test a pattern separately on each market you trade rather than assuming one result holds for all.
What a pattern cannot tell you
A pattern says nothing about news that has not happened yet, the size of the next move, or why traders bought and sold. It shows only the result of their trading over a few periods. Two traders can read the same hammer differently, and both can be wrong. That is why the stop matters more than the pattern: it limits the cost of the reading being wrong, and over many trades the cost of wrong readings decides the result as much as the right ones.
A short reading routine
At the end of each session, look at the daily candle of the market you trade: where it closed in its range, how long its shadows were, and whether it formed at a level you marked. Note any pattern, then wait for the next session's break before acting. A routine of reading, marking and waiting turns patterns from impressions into a repeatable process. Over time, the notes show which patterns you read well and which you should stop trading.
Candlestick patterns in QuantPower
QuantPower's strategy builder can use candle conditions such as the open, high, low and close of the current and previous candles, the body and shadow sizes, and comparisons with averages, so a pattern definition like the ones above can become an entry rule. The same rule can be backtested with costs, paper traded and run as a bot with a stop and a daily MTM limit.
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Frequently asked questions
What are candlestick patterns?
Shapes formed by one to three price candles that describe how buying and selling pressure changed over those periods, such as the doji, hammer, engulfing and morning star.
Which candlestick pattern is the most reliable?
None is reliable on its own. Patterns that appear at a support or resistance level, after a clear prior move and with confirmation from the next candle, test better than the same shapes elsewhere.
What is the difference between a hammer and a hanging man?
They have the same shape, a small body near the top and a long lower shadow. A hammer comes after a fall and a hanging man after a rise.
Do candlestick patterns work for intraday trading?
They can be used on intraday charts, but short timeframes carry more noise and higher costs relative to the move. Five-minute and longer candles, at levels such as the previous day's high or low, usually give cleaner signals than one-minute candles.
How many candles do I need to read a pattern?
One to three for the pattern itself, plus enough earlier candles to see the trend and the levels around it.
Can candlestick patterns be automated?
Yes, once each pattern is defined with exact numbers for the body, shadows and prior trend. The rule can then be backtested and run as an automated strategy.
Should I trade a pattern without confirmation?
Most traders wait for the next candle to break the pattern's high or low. It costs some of the move but filters out many patterns that fail immediately.
Related guides
- Inside bar strategy: trading the breakout of a contraction candle
- Heikin Ashi strategy: smoothed candles for trends
- Open high low strategy: reading the first candle of the day
- Support and resistance strategy: the levels that give patterns their meaning
- Risk reward ratio calculator: the target and stop around a pattern
- Technical indicators: the main indicators and what each measures
- Indicator vs price action: trading from indicators or from the chart itself
Sources
- Steve Nison, Japanese Candlestick Charting Techniques: the standard pattern definitions
- NSE: Nifty 50 index methodology and trading hours
- Example candles on this page are illustrative, not historical prices