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Step 2: Candlesticks

A candle shows who won a single period: buyers, sellers, or neither. A candlestick pattern is one to three candles that together tell a short story, such as "sellers pushed hard, then buyers took over." This step teaches you to read those stories and, just as important, when to ignore them.

The four placement rules​

Learn these before any single pattern. They decide whether a pattern counts.

  1. A reversal pattern needs something to reverse. A bullish reversal counts only after a fall and near support. A bearish reversal counts only after a rise and near resistance. The same shape in the middle of a range, or in the middle of a trend, is noise.
  2. Wait for the next candle. Most patterns need confirmation: the next candle closes in the new direction, or price breaks the pattern's high or low.
  3. Bigger and longer means stronger. A long wick shows a harder rejection than a short one. A large body shows more conviction than a small one. A pattern on a weekly chart beats the same pattern on a 5-minute chart.
  4. More candles and more volume mean more weight. A three-candle pattern is usually more reliable than a two-candle pattern, which is more reliable than one candle. A pattern on above-average volume beats the same pattern on thin volume.

Lessons in this step​

  1. Single candles
    • Reading bodies and wicks, and why long wicks mark support and resistance
    • Plain bullish and bearish candles, and the marubozu
    • Hammer and hanging man
    • Inverted hammer and shooting star
    • Doji: standard, long-legged, dragonfly, and gravestone
    • Spinning top and high wave
    • Belt hold
  2. Two-candle patterns
    • Bullish and bearish engulfing
    • Piercing line, bearish piercing, and dark cloud cover
    • Harami and harami cross
    • Tweezer top and tweezer bottom
    • Bull and bear counter attack
    • Bullish and bearish kicker
    • A hammer at the low of a bullish engulfing
  3. Three-candle patterns
    • Morning star and evening star, including the doji star versions
    • Abandoned baby
    • Three white soldiers and three black crows, and how to trade the pullback after them
    • Three inside up and three inside down
    • Three outside up and three outside down
    • Rising three methods and falling three methods

Start with the core set​

If you are new, learn these seven first: plain strong candle, hammer, shooting star, doji, engulfing, morning or evening star, and three white soldiers or three black crows. They cover reversal, rejection, indecision, and conviction. The other patterns add detail later.

What to do next​

When you can name these patterns and say where each one counts, go to Step 3: Chart patterns.