1.

Bullish Hammer

Reversal Candlestick pattern: Hammer.

Prior trend: Down.
Likely implication: Bullish reversal.
Alternative implication: Bearish continuation.

Explanation: The Hammer forms in a down trend. The price moves sharply lower after the
open, but rebounds to close significantly higher. Typically, in the upper third of the candle.
The body can be white(up) or black(down).

The hammer candle suggests that trading action was strong during the period. As selling
pushed the price lower, buyers managed to regain and push the price to close the period
near the open.
The sharp rebound from the low indicates rejection at that price, and hints it could be a
support level.

Implications:

• Bullish reversal: The hammer candlestick pattern must be preceded by down trend.
And it indicates that although strong selling with within the trend happened. Buying
entered the market and was strong enough to reverse the price higher, to close just
above or below open price. In most cases, the pattern has bullish implication.

• Bearish continuation: In case the main scenario fails. As the price breaks out
below the low of the hammer candle within the following few candles. Bearish
continuation of the downtrend is likely.
Remember: The body should be small relative to the shadows. A general rule of thumb is
that the shadow must be at least twice the size of the body.

2. Hanging Man

Reversal Candlestick pattern: Hanging Man.

Prior trend: Up.
Likely implication: Bullish continuation or bearish reversal.

Explanation: The hanging man candlestick pattern has the exact shape of the hammer
candlestick. The only difference is that it forms in an uptrend.

The sharp rebound from the low indicates rejection at that price, and hints it could be a
support level.

Implications: The chances of a bearish reversal or bullish continuation for a hanging man
is roughly equal, and depends on the following price action.

• Bullish continuation: The hanging man indicates that although strong selling
entered the market, buying was strong enough to reverse the price higher, and close
just above or below open price. Wait for the price to break the high of the hanging
man candle to confirm the continuation of the uptrend.
 • Bearish reversal: A bearish reversal will be the most likely outcome If we don’t get
a follow through above the high of the hanging man. And the price retreats to close
below the hanging man low.

3. Shooting Star

Reversal Candlestick pattern: Shooting Star.

Prior trend: Up.
Likely implication: Bearish reversal.
Alternative implication: Bullish continuation.
Explanation: The shooting star forms in an uptrend. As the price moves sharply higher
after the open but reverses to close significantly below the high of the session. Typically, in
the upper third of the candle. The body can be white(up) or black(down).

The sharp reversal from the high indicates rejection at that price, and hints it could be a
resistance level.

Implications:

• Bearish reversal: The shooting star indicates that although buyers continued to
push the price to new highs within the context of the uptrend, strong selling pressure
forced the price to reverse. Thus, the pattern indicates further selling ahead.
 • Bullish continuation: If the price closes above the high of the shooting star, further
upside within the context of the uptrend is likely.

The breakout above the first shooting star in the chart example above led to an extension of
the uptrend. However, another shooting star pattern formed later, and was followed by a
bearish reversal.

4. Inverted Hammer

Reversal Candlestick pattern: Inverted Hammer

Prior trend: Down
Likely implication: Bearish continuation or bullish reversal
Explanation : Has the exact shape of a shooting star. But forms in an uptrend. Also, the
sharp reversal from the high suggests rejection at that price, and hints it could be a
resistance level.

The sharp rebound from the low indicates rejection at that price, and hints it could be a
support level.

Implications: The chances of a bearish continuation or bullish reversal for a inverted

hammer is roughly equal, and depends on the following price action.

• Bearish continuation: The inverted hammer indicates that although strong buying
pushed the price higher against the main downtrend, selling pressures remained in
control and forced the price lower again. The pattern can be interpreted that the
bearish trend may continue.

• Bullish reversal: If we do not get a follow through below the inverted hammer low,
and the price break the high of the candle, further upside will be the likely outcome.
5. Gravestone Doji

Reversal Candlestick pattern: Gravestone Doji.

Prior trend: Up or Down
Likely implication: Bearish Reversal.
Alternative implication: Bullish continuation.
Explanation: The Gravestone doji is similar to the Shooting Star candle. But the opening
and closing price are equal or almost equal and near to the high. Also, it can form in both,
up and downtrend.

The sharp reversal from the high indicate rejection at that price, and hints it could be a
resistance level.

Implications: The Gravestone doji pattern should be treated exactly like a Shooting Star
pattern.

• Bearish Reversal
 • Bullish continuation

6. Dragonfly Doji

Candlestick pattern: Dragonfly Doji.

Prior trend: Down or Up.
Likely implication: Bullish reversal.
Alternative implication: Bearish continuation.
Explanation : The Dragonfly doji is similar to the Hammer pattern. But the opening and
closing price are equal or almost equal, and near the low. Also, it can form in both, up and
downtrends.

The sharp rebound from the low indicate rejection at that price, and hints it could be a
support level.

Implications: The Dragonfly should be treated exactly like a Hammer pattern.

• Bullish Reversal
 • Bearish continuation

7. Bullish Engulfing

Reversal Candlestick pattern: Bullish Engulfing.

Prior trend: Down.
Likely implication: Bullish reversal.

Explanation : The engulfing is a long candle with a body that covers the preceding
candle(s) whole range(body and shadow). It engulfs the prior candle or candles.
Bullish engulfing candle must be preceded by a down trend. The candle open at the price of
the close of the prior candle, and closes above the high of the prior candle.

The bullish engulfing candle suggests that trading was active during the period. Where
buying was in control and pushed the price higher to surpass prior candles open to high
range.

Implication: The bullish engulfing pattern indicates that the prior down trend could be
reversing.
8. Bearish Engulfing

Candlestick pattern: Bearish Engulfing.

Prior trend: Up.
Likely implication: Bearish reversal.
Explanation: The exact opposite of a bullish engulf. The candle is a down red candle that
opens at or above the close of prior candle and closes below the low of the prior candle(s).

Implication: The candle forms in an uptrend and suggests a bearish reversal may have
started.
BONUS Forex Reversal Candlestick Patterns:

9. Long-legged Doji

Reversal Candlestick pattern: Long-legged Doji

Prior trend: Up or Down
Main implication: All outcomes are possible.

Explanation: The long-legged doji forms when the opening and closing prices are equal or
near equal. And upper and lower shadows are noticeably long.
The long-legged doji suggests that trading was very active during the period. Both buyer
and sellers pushed the price in both directions. However, the price was rejected at the high
and the low. And at the end it settled near the middle, indicating equilibrium and indecision.

Implications: If forms after an uptrend, the pattern suggests the buying pressure is no
longer in full control. It is fifty-fifty now between buyers and sellers. Therefore, the uptrend
may stop for correction or reversal. The opposite is true if the pattern forms following a
down trend.

• Bullish reversal
• Bearish reversal

• Bullish continuation
• Bearish continuation
10. High Wave Candle

Reversal Candlestick pattern: High Wave Candle.

Prior trend: Up or Down.
Likely implication: Bearish or bearish reversal. The outcome depends on the candle shape
and the preceding trend.

The high wave candle is a gigantic candle. Its range can be longer than a whole month of
trading. Usually happens following an unexpected and unscheduled significant news event.
Most if the move happens in the initial spike in the few minutes following the news.
To be a high wave candle, the candle range must be MORE than 6 times the average range
for the past 14 periods. (The longer the better). If you can’t decide manually, you can use
the Average True Range (ATR) indicator to measure this:

1- Add the ATR indicators with settings period set to 14.

2- Add another ATR for the same chart with setting period set to 1.
3- Find the value of ATR(1) for the suspected high wave candle
4- Find the value of f ATR 14 one candle before the high wave.
5- Compare the two values, if the value of ATR(1) is 6 times or more the value of ATR(14),
then its a valid high wave candle.

Implications:

Bullish reversal if(and ONLY if):

1- Forms following a downtrend.

2- The candle has a long bullish body(up), with a short upper shadow compared to the
body. Typically, the body should be more than twice the size of the shadow.
3- Or, the candle has a small body(can up or down) with a long lower shadow compared to
the body. Typically, the body should be longer than 60 percent of the the whole candle..

Bearish reversal if(and Only if):

1- Forms following an uptrend.

2- The candle has a long bearish body(up), with a short lower shadow compared to the
body. Typically, the body should be more than twice the size of the shadow. The likely
outcome is reversal of the uptrend.
3- Or, the candle has a small body(can up or down) with a long upper shadow compared to
the body. Typically, the body should be more than 60 percent of the whole candle. The
likely outcome is reversal of the uptrend.

Hint: DO NOT rush to short the price as the risk to reward would be poor, and usually, the
the price will attempt to revisit the candle high providing a better entry price before reversing
lower. Or you can wait for a shorter time frame bearish confirmation signal before shorting.