ᑕᑐ Reversal Candlestick Patterns: Bearish and Bullish Reversal Candles

The white body must totally engulf the body of the first black candlestick. Ideally, though not necessarily, the white body would engulf the shadows as well. Although shadows are permitted, they are usually small or nonexistent on both candlesticks. In January 2000, Sun Microsystems (SUNW) formed a pair of bullish engulfing patterns that foreshadowed two significant advances (see chart below).

• This signal is verified if a bearish candlestick closes below the open of the candlestick on the left side of this pattern.
• White/white and white/black bullish harami are likely to occur less often than black/black or black/white.
• The same formula applies to each time frame chart being viewed.
• Bullish engulfing patterns typically appear at the bottom of downtrends, signaling potential exhaustion of selling pressure.

It indicates a bearish reversal pattern or the end of buying spree at the beginning of selling. Besides, you can use technical tools such as the RSI or MACD to confirm the strength of a trend. An increase in trading volumes during a breakout is a strong confirmation signal. Moreover, you can validate a Spinning Top by using reversal candlestick patterns, such as the Engulfing, Piercing Line/Dark Cloud Cover, or Hammer/Hanging Man. The Bearish Engulfing is a two-candle pattern that often appears at the end of an uptrend. It is the counterpart to the Bullish Engulfing Pattern in bullish reversal candlestick patterns.

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• Their bullish or bearish nature depends on the preceding trend.
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• The White Marubozu candlestick pattern is formed by one single candle.
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It starts with a large bearish candle, followed by a smaller bullish candle within its range, and then a third bullish candle that closes above the high of the first candle. This pattern confirms a shift from bearish to bullish momentum. Tweezer Bottoms occur when two consecutive candles have nearly identical lows, forming a strong support level.

I won’t bore you by explaining them all here, but know that they build on these key traits. A hammer is a candlestick pattern that typically forms during a downtrend and signals a bullish reversal. The hammer is one of the most recognisable candlestick patterns used by traders due to its simplicity and reliability. The Inverted Hammer is a bullish candlestick pattern that forms at the end of a downtrend and looks similar to a regular hammer, except it has a long upper wick instead of a lower wick. This shows that buyers attempted to push prices higher but faced resistance.

The Bullish Runaway Gap

Not only do they signal a potential change in market conditions, they also imply a direction. Free stock charting with proprietary trading tools and premium data. If you’re unsure about entering immediately, wait for one or two additional candles to confirm the reversal.

Hammer Candlestick

In April, Genzyme (GENZ) declined below its 20-day EMA and began to find support in the low thirties (see chart below). The stock began forming a base as early as April 17, but a discernible reversal pattern failed to emerge until the end of May. The bullish abandoned baby formed with a long black candlestick, doji, and long white candlestick. The gaps on either side of the doji reinforced the bullish reversal.

After the advance above $160, a two-week pullback followed, and the stock formed a piecing pattern (red arrow) that was confirmed with a large gap up. After a decline, a black/black or black/white combination can still be regarded as a bullish harami. The first long black candlestick signals that significant selling pressure remains, which could indicate capitulation. The small candlestick immediately following forms with a gap up on the open, indicating a sudden increase in buying pressure and potential reversal.

Does a hammer candlestick appear on all timeframes?

They mean the stock may be about to reverse direction and turn downward. Morning star patterns show that the bears attempted to press their advantage on candle one, stalled on candle two, and finally surrendered momentum to the bulls on candle three. A bullish abandoned baby pattern is a 3-candlestick formation that may signal a bullish reversal. The Piercing Line is a two-candle pattern that signals a reversal after a strong downtrend. It’s less common than other patterns but can be effective when bullish reversal candlestick patterns correctly identified. These patterns are highly visual, making it easier for traders to spot changes in market sentiment.

Their shape is also different, as the candlestick usually has a very small or no body at all. Once a hammer candlestick is spotted, it is ideal to confirm whether it has formed near a significant support level. While this is not necessary for the hammer candlestick to be valid, it does improve the odds of a successful trend reversal. The Bullish Belt Hold is a single, long bullish candle that opens at its low and continues to rise throughout the session without forming a lower wick. This pattern indicates strong buying pressure and is often seen as a sign of trend continuation.

If it goes any further, you’ll have a bullish engulfing candle set-up. You’ll find the hanging man at the peak of an uptrend, signaling a potential reversal. The second candle is bearish and closes at almost the length of the first candle.

If you’re looking for a forex and CFD broker with fast execution, great trading tools, and quality education, check out Pepperstone or eToro – for US residents. Rather than obsessing over candlestick patterns in isolation, take a step back and analyze the market’s structure first and candlestick reversal patterns indicator to confirm your bias. This top-down approach makes reading reversals in real-time easier and more accurate. The Hammer pattern consists of one candlestick with a small body, a long lower shadow, and a small or nonexistent upper shadow. The long lower shadow is a strong indication that buying pressure has significantly rejected and countered selling pressure, suggesting the strong likelihood of a bullish reversal. After a decline, the hammer’s intraday low indicates that selling pressure remains.

It is displayed as dots on the price chart, with dots above the price indicating a downtrend and dots below the price indicating an uptrend. When the dots shift from above to below the price or vice versa, it is considered a signal of a potential reversal. The second candlestick should open well above the first ones closing mark. It should close beneath 50% of the body of the first candlestick. It is very similar to the previous one but the second candlestick is a doji.

Some investors find them more visually appealing than the standard bar charts and the price actions easier to interpret. As with any candlestick or chart pattern, false signals occur, which is why using stop-loss orders and additional tools for confirmation is crucial. The doji has a very small or no body at all, and the shadows at both ends can be long. This candlestick can appear in both uptrends and downtrends and show that no party is in control. To trade the hammer candlestick, traders should first identify an instrument that is in an existing downtrend.

Notably, a Spinning Top pattern should not be used in isolation — it needs to be confirmed by subsequent candles, technical indicators, and fundamental factors. The correct application and interpretation of this pattern can significantly improve the efficiency of a trading strategy. The screenshot below shows a Double Spinning Top pattern with upward gaps, which confirms a stronger Piercing Line reversal pattern. A series of green and red Spinning Tops forms following the price decline and the appearance of the large Bearish Marubozu candlestick.

Bullish harami cross patterns show that the bears attempted to press their advantage on candle one, lost momentum between candles, and fully stalled out by the close of candle two. Bullish harami patterns show that the bears attempted to press their advantage on candle one, lost momentum between candles, and fully stalled out by the close of candle two. Morning doji star patterns show that the bears attempted to press their advantage on candle one, stalled on candle two, and finally surrendered momentum to the bulls on candle three.