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Technical Analysis · Candlesticks

Candlestick Patterns: Complete Guide
300-Year-Old Wisdom from Japanese Rice Traders

2026-06-03·13 min read·Technical Analysis

Candlestick charts first appeared in 1700s Osaka, Japan, where rice trader Munehisa Homma used them to track rice prices. He built a fortune off the system and earned the nickname "the god of markets" (the god of markets). In 1990, Steve Nison introduced the technique to the West, and every TradingView candle you see today is a descendant of his invention.

This post covers 10 classic patterns, the real win rate of each, the conditions under which they fail, and Pine Script for auto-detection.

1. The Anatomy of a Candlestick

Each candle encodes 4 prices:

    ┃         ← Upper Shadow
   ┃▓┃        ← Body
   ┃▓┃        ← Close > Open = Bullish candle (green / white)
   ┃▓┃        ← Close < Open = Bearish candle (red / black)
    ┃         ← Lower Shadow

Body length = strength of the winning side
Shadow length = direction that was tested but rejected (who finally surrendered)

2. Single-Candle Reversal Patterns

2.1 Hammer (Bottom Reversal)

     ┃▓┃     ← Small body at the top
      ┃
      ┃     ← Long lower shadow (≥ 2x body)
      ┃
      ┃

Meaning: price drops, then buyers slam it back up. Only meaningful at theend of a downtrend. The same shape inside an uptrend is called a "Hanging Man" — a top signal instead.

Historical win rate (standalone): 50–55%. Needs trend confirmation.

2.2 Shooting Star (Top Reversal)

      ┃
      ┃     ← Long upper shadow
      ┃
     ┃▓┃     ← Small body at the bottom

Meaning: price pushes up, sellers slam it back down. Only meaningful at theend of an uptrend. Historical win rate: 50–58%.

2.3 Doji (Indecision)

      ┃
     ─       ← Open ≈ Close
      ┃

Meaning: bulls and bears are balanced. Weak on its own, but when it appears at the end of a strong trend, it often signals an imminent reversal. Historical win rate: 45–55% (one of the weakest reversal signals).

3. Two-Candle Patterns

3.1 Bullish Engulfing

      ┃▓┃     ← Large green candle
   ┃░┃        ← Previous small red candle
   Fully engulfed by the green candle

Meaning: sellers are completely overwhelmed → strong reversal signal. Historical win rate: 60–68% (when it appears at the end of a downtrend).

3.2 Bearish Engulfing

The mirror image: a large red candle engulfs the previous small green candle. When it appears at the end of an uptrend, win rate is 58–65%.

3.3 Tweezer Top / Bottom

Two candles share almost identical highs (top) or lows (bottom). Meaning: price tested the same level twice and failed → strong support / resistance. Paired with high volume, win rate climbs above 60%.

4. Three-Candle Patterns (the Strongest Reversal Signals)

4.1 Morning Star (Bottom Reversal)

Candle 1: large red candle (downtrend continues)
Candle 2: small candle or Doji (pivot point)
Candle 3: large green candle (close above midpoint of candle 1)

→ Strong bottom reversal signal

Win rate: 70%+ (when it appears at the end of a clear downtrend).

4.2 Evening Star (Top Reversal)

The mirror image. Win rate: 65–72%.

4.3 Three White Soldiers (Strong Continuation)

Three consecutive large green candles, each opening inside the previous body. Signals an accelerating bull move. Historical win rate: 70%+.

4.4 Three Black Crows (Strong Downtrend)

Three consecutive large red candles — the symmetric counterpart to Three White Soldiers.

5. Why Most "Textbook" Win Rates Are Bogus

Bulkowski's research shows real win rates are far lower than the books claim
In Encyclopedia of Candlestick Charts, Thomas Bulkowski used statistical analysis to find that most candlestick patterns are only 5–10% above 50% win rate. The "80% win rate" you see in textbooks is a cherry-picked example, not large-sample statistics. In reality, candlestick patterns must be combined with other indicators — used alone, they're close to a coin flip.

6. Candlestick Patterns + Three Confirmation Filters

The professional way to use candlestick patterns:

  1. Trend filter: only trade reversals in the direction of the main trend (in an uptrend, look for bullish reversal signals after a pullback)
  2. Location filter: the pattern must appear near a key level — support / resistance / VWAP / EMA200, etc.
  3. Volume confirmation: the reversal candle's volume must be meaningfully above average (otherwise it's just noise)

Add these three filters and win rate climbs from 55% to 65–70%.

7. Pine Script Auto-Detection Example

//@version=5
indicator("Candlestick Pattern Auto-Detect", overlay=true)

// Bullish Engulfing
bullishEngulf = close[1] < open[1] and  // previous candle red
                close > open and          // current candle green
                open < close[1] and       // current open < prev close
                close > open[1]           // current close > prev open

// Hammer
body = math.abs(close - open)
lowerShadow = math.min(open, close) - low
upperShadow = high - math.max(open, close)
hammer = lowerShadow > body * 2 and upperShadow < body * 0.5

// Morning Star (3-candle combo)
morningStar = close[2] < open[2] and                                    // candle 1 large red
              math.abs(close[1] - open[1]) < math.abs(close[2] - open[2]) * 0.3 and  // candle 2 small
              close > open and                                          // candle 3 green
              close > (open[2] + close[2]) / 2                          // close above midpoint of candle 1

// Filter with EMA200 — only detect in uptrend
ema200 = ta.ema(close, 200)
trendOK = close > ema200

if bullishEngulf and trendOK
    label.new(bar_index, low, "Engulf", style=label.style_label_up, color=color.green)
if hammer and trendOK
    label.new(bar_index, low, "Hammer", style=label.style_label_up, color=color.green)
if morningStar and trendOK
    label.new(bar_index, low, "Morning ★", style=label.style_label_up, color=color.green, size=size.large)

8. Candlestick Patterns vs. Other Technical Analysis

  • Candlestick patterns: high-frequency, short-term, require combination logic
  • Trend lines: medium-term, subjective, but show the big picture
  • Indicators (RSI / MACD / EMA): objective, quantifiable, lagging

Professional workflow: use candlestick patterns to find entry timing, use indicators / trend lines to determine direction. Combining the two gives the highest win rate.

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9. Three Key Takeaways

  1. A single candlestick pattern is close to a coin flip — it only becomes meaningful when paired with trend / location / volume filters
  2. Three-candle patterns are the strongest (Morning Star, Three White Soldiers), with win rates above 70%
  3. Candlesticks find the timing, indicators find the direction.Candlesticks alone = gambling; candlesticks + trend confirmation = a system
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