Candlestick Patterns: Read Market Psychology

This article is part of our comprehensive trading course, Master the Art of Trading, designed to guide you step-by-step through market mastery.

In our previous article, we discussed how Trendlines and Channels help identify the direction of the market and important support/resistance zones. Once you’ve drawn those levels, the next crucial step is learning to read price action within those zones — and that’s where **Candlestick Patterns** come into play.

**Candlestick Patterns** offer visual clues about market psychology. They reveal who’s in control — buyers or sellers — and often hint at upcoming reversals or continuations.

**Candlestick patterns** are formed by one or more candles that represent price behavior during a specific time frame (e.g., 5-min, 1-hour, daily). Traders use them to make short-term and long-term trading decisions.

✅ Doji

• Shape: Open ≈ Close, very small body.
• Signal: Indecision. Neither bulls nor bears are in control.
• Best Use: Near support/resistance zones or trendline breaks.

✅ Hammer

• Shape: Small body, long lower wick, little/no upper wick.
• Signal: Bullish Reversal after a downtrend.
• Note: Confirmation needed from the next bullish candle.

✅ Shooting Star

• Shape: Small body, long upper wick, little/no lower wick.
• Signal: Bearish Reversal after an uptrend.

✅ Spinning Top

• Shape: Small real body, long wicks on both sides.
• Signal: Market is in confusion. Watch for breakout direction.

✅ Bullish Engulfing

• Structure: Small red candle followed by a larger green candle that engulfs the previous body.
• Signal: Strong bullish reversal.

✅ Bearish Engulfing

• Structure: Small green candle followed by a larger red candle that engulfs the previous body.
• Signal: Strong bearish reversal.

✅ Piercing Pattern

• Structure: Downtrend → Long red candle → Green candle opens gap-down but closes above midpoint of red candle.
• Signal: Potential bullish reversal.

✅ Dark Cloud Cover

• Structure: Uptrend → Long green candle → Red candle opens gap-up but closes below the midpoint of green candle.
• Signal: Potential bearish reversal.

Hook patterns are subtle yet powerful price formations. They’re usually not taught in basic **candlestick** books but are incredibly useful in trend continuation setups.

🔸 Bullish Hook

• Appears after a minor pullback in an uptrend.
• Small red candles followed by a strong green candle near trendline or moving average.
• Looks like the price is “hooking” back to the trend.

🔸 Bearish Hook

• Appears after a minor bounce in a downtrend.
• Small green candles followed by a strong red candle.
• Suggests a trap for buyers and continuation of the downtrend.

• Where to Use It: Near trendlines and channels, especially if you’re using them as discussed in our previous article.

Never rely on a **candlestick pattern** alone. Always combine it with:

• Trendlines or channels
• Support/resistance
• Volume (optional but helpful)

• Look for confluence. For example: a hammer forming right at a trendline support is more powerful than a hammer in the middle of nowhere.
• Wait for confirmation. The next candle often validates or rejects the **candlestick pattern**.

Now that you understand **candlestick patterns**, try this:

• 👉 Go back to your Trendline and Channel chart.
• 👉 Wait for price to approach a key level.
• 👉 Watch for **candlestick signals** near that level.

These **patterns**, when combined with solid technical tools, can give you clear entries and exits — with more confidence.