Candlestick patterns explained: how to read a candlestick chart and trade the key bullish and bearish signals

Candlestick patterns are shapes formed by one, two or three price candles that traders use to judge who is in control of the market – buyers or sellers. They are one of the oldest and most widely used tools in technical analysis, and you can see them on any candlestick chart in MT5, the Xellion app or WebTrader.

This guide explains how a single candle is built, how to read a candlestick chart, and the most useful bullish candlestick patterns and bearish candlestick patterns – including the doji candle, the hammer candlestick and the engulfing pattern. One point before we start: a pattern is a probability, not a promise. It tells you that a move is more likely, never that it is certain. Use patterns together with levels, trend and sensible trade sizing.

What is a candlestick chart?

A candlestick chart shows price movement over a fixed period – one minute, one hour, one day – as a series of candles. Each candle records four prices for that period:

• Open – the price at the start of the period.
• High – the highest price reached.
• Low – the lowest price reached.
• Close – the price at the end of the period.

The thick part of the candle is the body, running from open to close. The thin lines above and below are the wicks (or shadows), showing the high and the low.

• Green (bullish) body — ---: Close above open — ---: Buyers pushed price up during the period
• Red (bearish) body — ---: Close below open — ---: Sellers pushed price down during the period
• Long upper wick — ---: Price rose, then fell back — ---: Sellers rejected higher prices
• Long lower wick — ---: Price fell, then recovered — ---: Buyers rejected lower prices
• Small body — ---: Open and close close together — ---: Indecision – neither side won clearly

Compared with a line chart, which only joins closing prices, a candlestick chart shows the fight inside each period. That is why traders prefer it for spotting turning points.

How to read candlestick patterns step by step

Before looking for any named pattern, work through these steps on the chart:

1. Pick a timeframe. Patterns on the 1-hour, 4-hour and daily charts are generally more meaningful than on very short timeframes, where random noise creates many false shapes.
2. Identify the trend. Is price making higher highs and higher lows (uptrend), lower highs and lower lows (downtrend), or moving sideways? A reversal pattern needs something to reverse.
3. Mark key levels. Patterns that form at a known level are far more useful than patterns in the middle of nowhere. Our guide to support and resistance trading shows how to draw them, and Fibonacci retracement levels are another popular reference.
4. Wait for the candle to close. A hammer that is still forming can turn into something else entirely before the period ends.
5. Look for confirmation. Many traders wait for the next candle to move in the direction the pattern suggests before acting.

Bullish candlestick patterns

Bullish candlestick patterns suggest that buying pressure may be taking over, usually after a fall. These are the most common ones.

Hammer candlestick

A hammer candlestick has a small body near the top of the range and a long lower wick – at least twice the length of the body – with little or no upper wick. It forms after a decline. The long lower wick shows that sellers drove price down, but buyers stepped in and pushed it back up before the close.

Example: EUR/USD falls for several hours to 1.0800, a level that held twice last week. A 1-hour hammer forms with a low at 1.0782 and a close at 1.0805. A trader might wait for the next candle to close higher, then consider a buy with a stop loss below 1.0782.

The inverted hammer is its mirror: a small body at the bottom with a long upper wick, also after a decline. It is weaker and usually needs stronger confirmation.

Bullish engulfing pattern

A bullish engulfing pattern is a two-candle pattern. The first candle is red; the second is green and its body completely covers (engulfs) the body of the first. It shows that buyers overpowered the selling of the previous period. It is more meaningful when the second candle is large and forms at support.

Morning star

A morning star is a three-candle pattern: a long red candle, then a small candle (often a doji) that gaps or drifts lower, then a long green candle that closes well into the body of the first. It reflects a shift from selling, to indecision, to buying.

Piercing line

A red candle followed by a green candle that opens lower but closes above the midpoint of the red candle's body. It is similar to bullish engulfing but slightly weaker.

Bearish candlestick patterns

Bearish candlestick patterns are the mirror images. They suggest selling pressure may be taking over, usually after a rise.

Shooting star

A small body near the bottom of the range with a long upper wick, forming after an advance. Buyers pushed price up, but sellers drove it back down before the close. On gold, a shooting star on the 4-hour chart near a recent high is a classic warning that the rally may be running out of steam.

Hanging man

It looks exactly like a hammer – small body on top, long lower wick – but appears after a rise. The long lower wick shows that sellers were able to push price well down during the period, an early sign of weakness. It needs confirmation from a lower close on the next candle.

Bearish engulfing pattern

A green candle followed by a larger red candle whose body completely covers the first one. Sellers overwhelmed the buyers of the previous period. On XAU/USD, a bearish engulfing pattern on the daily chart at a resistance level is one of the most watched signals by gold traders.

Evening star

The mirror of the morning star: a long green candle, a small indecisive candle, then a long red candle closing deep into the first candle's body.

The doji candle: indecision on the chart

A doji candle has an open and close that are almost the same, so the body is just a thin line. It shows that buyers and sellers ended the period in balance. A doji on its own is neutral – what matters is where it appears.

• Standard doji — ---: Cross, short wicks both sides — ---: Pure indecision
• Long-legged doji — ---: Long wicks both sides — ---: Large swings, no winner
• Dragonfly doji — ---: Long lower wick, no upper wick — ---: Buyers rejected lower prices – can be bullish at support
• Gravestone doji — ---: Long upper wick, no lower wick — ---: Sellers rejected higher prices – can be bearish at resistance

After a strong trend, a doji can be an early sign that momentum is fading. In a quiet, sideways market, dojis are common and usually mean very little.

Candlestick patterns cheat sheet

• Hammer — ---: 1 — ---: Bullish reversal — ---: After a fall, at support
• Inverted hammer — ---: 1 — ---: Bullish reversal — ---: After a fall, needs confirmation
• Bullish engulfing — ---: 2 — ---: Bullish reversal — ---: At support, after a decline
• Morning star — ---: 3 — ---: Bullish reversal — ---: After a clear downtrend
• Shooting star — ---: 1 — ---: Bearish reversal — ---: After a rise, at resistance
• Hanging man — ---: 1 — ---: Bearish reversal — ---: After a rise, needs confirmation
• Bearish engulfing — ---: 2 — ---: Bearish reversal — ---: At resistance, after a rally
• Evening star — ---: 3 — ---: Bearish reversal — ---: After a clear uptrend
• Doji — ---: 1 — ---: Indecision — ---: After a strong trend

How to trade candlestick patterns more carefully

Candlestick patterns work best as one piece of a plan, not as a signal on their own. A simple routine:

• Context first. Trend, support and resistance, and the bigger timeframe come before the pattern.
• Confirmation. Wait for the next candle to close in the expected direction.
• Stop loss beyond the pattern. For a hammer, below its low; for a shooting star, above its high. If price goes past that point, the pattern has failed.
• Size the trade from your stop. Decide how much of your account you are willing to lose – many traders use 1–2% – and work out the lot size from the stop distance. Our lot size and pip value guide explains the maths, and the position size calculator and pip calculator do it for you. Check the margin with the margin calculator.
• Watch the news. A perfect engulfing pattern can be wiped out in seconds by US jobs data or a central bank decision. Check the economic calendar and read our economic calendar guide.
• Mind the session. Patterns that form during the London and New York sessions (roughly 12:30 pm to 2:30 am IST) have more volume behind them. See forex market timings in IST.

Common mistakes with candlestick patterns

• Trading every pattern you see — ---: Many patterns fail, especially on small timeframes — ---: Only trade patterns at key levels

Candlestick patterns on gold and EUR/USD

The same patterns appear on every market, but their behaviour differs. EUR/USD tends to move in smaller, steadier steps, so patterns on the 1-hour and 4-hour charts are popular. Gold (XAU/USD) is more volatile: wicks are longer and false signals more common on short timeframes, so many traders focus on 4-hour and daily candles. Check the live gold price today and read how to trade gold online for more on gold's typical daily range.

Practise first, then go live

The quickest way to learn candlestick patterns is to spot them on real charts without real money at stake. Open a free demo account, switch MT5 to candlestick view, and mark every hammer, engulfing pattern and doji you find on EUR/USD and gold for a couple of weeks. Note which ones worked and which failed – you will soon see why context matters.

When you are ready:

1. Choose Standard ($50 minimum, spreads from 0.9, no commission), Raw Spread ($250, from 0.1 plus $3.50 per lot per side) or Zero Spread ($750, from 0.0 plus $5.50 per lot per side) on the accounts page.
2. Deposit by UPI instantly from $50, by bank transfer within 1 business day from $100, or with USDT, BTC or ETH from $10 – see the funding page. Bank withdrawals are listed at about 15–20 minutes.
3. Trade on MT5 (server Xellion-Live), the Xellion app for iOS and Android, or WebTrader – see platforms and our MT5 download and login guide.

New to forex? Start with what is forex trading, how to start forex trading in India and our pick of the best forex trading apps with UPI.

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