Single, Double, and Triple Candlestick Patterns
As we explore candlestick patterns, it’s important to remember not to rely solely on them for confirmations to enter a trade. Typically, traders try to have at least a few confluences before placing any trades.
Single Candlestick Patterns
Seeing as you have an idea of what some of the candlesticks look like based on the previous section, we can now show you how to differentiate between a Hammer and Hanging Man.
The key is to identify the trend prior to seeing either one of them. You will notice a hammer at the end of a downtrend, which could be a sign that buyers are about to be in control, and price could reverse to an uptrend. Hanging man is the complete opposite, which you’ll notice at the end of an uptrend. Even though buyers tried to push price up, sellers continued to force price into a downtrend.
For the next set of single candlesticks, an Inverted hammer and a shooting star react just like the hammer, and hanging man. They visually have the same qualities, but the difference depends on previous market direction. If you see a shooting star form near a resistance level, it’s a strong indication that price can shoot back down. People tend to think when they see an inverted hammer that it should react opposite to a hammer which is FALSE. Both are indicators that price could head up. Once you start actively looking at your charts, and backtesting the pairs you want to trade, you’ll pick up on these candlesticks a lot faster!
Double Candlestick Patterns
What’s better than one candlestick? TWO! Let’s start off with ENGULFING CANDLES. These can be quite common to find on a chart. The reason for the name is that in this two candlestick pattern, you will find the second candle will “engulf” the other.
A BEARISH ENGULFING should have a smaller bullish candle heading up, with a bearish candle following right after. The bearish candlestick typically opens at the previous candles close, or slightly higher. This tells us that sellers have the upper hand in the market, so you can expect price to head down afterwards.
A BULLISH ENGULFING should have a smaller bearish candle heading down, with a strong bullish candle following directly after. The bullish candlestick typically opens at the previous candles close. This tells us that buyers have the upper hand in the market, so you can expect price to head up afterwards.
Next we have the two tweezer patterns! These candlestick patterns are really important to make note of. When you see either a TWEEZER TOP or TWEEZER BOTTOM, that is usually a good sign that a reversal is about to take place. You will notice these patterns after a trend
has occurred over a long period of time.
Moving on to patterns that can be a bit more tricky as they consist of a lot more than just two candlesticks. The entirety of a bunch of candles is a pattern in itself. The dual comes in when talking about the points that these patterns create.
A DOUBLE BOTTOM almost resembles the letter “w”, which gives us as traders a reason to believe price may be heading up. It doesn’t matter how many candlesticks touch the first and second bottom, all that matters is they reach the same price point before bouncing back up.
NOTE: The neckline is the high/low point price made in the middle of a double top/double bottom. Not only will some traders entire this trade for a buy once the second bottom occurs, but they would buy once price breaks resistance!
A DOUBLE TOP could almost look like the letter “m”, which is the opposite of a double bottom. Seeing a double top on a chart is a huge indication that price can reverse and head down!
NOTE: You are able to find major market patterns on timeframes as low as the 1 hour. However, seeing these patterns on higher timeframes such as the 4 hour, daily, and weekly may give you a stronger confidence in trading due to a long-term story being told.
Triple Candlestick Patterns
Here we have two triple candlestick formations: The Morning Star and the Evening Star. To identify a MORNING STAR, you will first identify the trend prior to the formation. If price was in a previous downtrend and you notice a bearish candle, followed by a doji, and then a bullish candlestick, you can expect price to reverse and push right up.
EVENING STARS will be found at the end of an uptrend, which could push price to reverse and jolt right back down. This pattern consists of one bullish candle, followed by a doji, and then a bearish candle.
As you can see they have similar qualities, but push price in opposite directions. In both patterns, the third candlestick needs to close past the midpoint of the very first candlestick.
Take a look at this illustration to give you a better understanding.
Next we have two major patterns that most traders like to consider as their favorites to spot! Similar to the double bottom and double top, these triple stick candlestick patterns consist of more than three candles but there’s three major areas you should look out for.
HEAD & SHOULDERS gives traders a confirmation that a bearish reversal is about to take place. You will typically see this pattern form AFTER an uptrend, giving us a sign that price is about to REVERSE in a downtrend. It consists of 3 points: a head, and two shoulders. It doesn’t really matter how the neckline is drawn, as long as you connect the candles after the first shoulder, and before the second. If the neckline has a downwards slope, it gives you a stronger indication that a head and shoulders is about to form. Once price comes back down to the neckline after the second shoulder, you can expect a reversal to take place.
An INVERTED HEAD & SHOULDERS is the opposite of a head and shoulders pattern, which gives traders an indication that price is about to reverse from a downtrend, into an uptrend. It’s basically like an upside down head and shoulders! Once price breaks the neckline after the second shoulder, you can possibly expect a reversal to take place.
Now we’re getting into the more difficult side of candlestick patterns. It could take some practice to spot these, but they are quite useful when trying to figure out what price may be doing next. There are 3 different types: ASCENDING, DESCENDING, and SYMMETRICAL. They are similar to what you call “flags”, however you do have a few differences.
When looking for these formations, you need to make sure that you have at least two points where the candlesticks (the wick) are touching the trendlines. Once price breaks one of the trendlines drawn, you can almost always predict price will continue in that direction. You will more than likely notice these patterns before a major news announcement. Price will tend to consolidate within the triangle formation until the news announcement helps push price to break out.
One more thing to note is how to target your take profit when trading the break of a triangle formation. To ensure a decent take profit, some traders try to set their take profit the same amount of distance as the opening of your triangle.
Let’s start off with a SYMMETRICAL TRIANGLE. You can typically see this formation when price is steadily bouncing back and forth from an uptrend to a downtrend. In other words, price will simultaneously be making higher lows and lower highs. Yes, you read that right. Price is consolidating while making lower highs and HIGHER lows. Not lower highs and lower lows.
A DESCENDING TRIANGLE can be formed when price is in a downtrend, but cannot get past a certain level of support. As you can see price is making lower highs, but is struggling to make lower lows. Once price breaks through the level of support with enough confluences, you may enter a trade.
An ASCENDING TRIANGLE is when price is in an uptrend, but is struggling to break a level of resistance. Technically price is making higher lows and not higher highs. Trendlines can be really helpful in your entries as they help you figure out where the next bounce can be.