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Bullish and Bearish Candlestick Patterns: How They Form and What They May Signal
Let's Start Here –
Charts can be analyzed in many ways.
Traders use Japanese Candlestick Patterns, Renko, Bar, Line, Heikin Ashi, Point & Figure, and other indicators to help interpret price action.
You may be wondering, "Which method should I focus on?"
One popular approach among traders is candlestick patterns.
Why?
Candlestick patterns are widely used because they provide a clear visual representation of price movements and market behavior.
This training content is designed to educate you about candlestick patterns and how traders may interpret them as part of a structured trading plan. It is for educational purposes only and does not constitute personal trading advice.
Here’s what this training content covers today:
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What a candlestick pattern is, and how to read one
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Bullish reversal candlestick patterns
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Potential ways traders identify bullish reversal setups
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Bearish reversal candlestick patterns
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Potential ways traders identify bearish reversal setups
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Candlestick patterns indicating indecision
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Candlestick patterns that may show trend continuation
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Potential approaches for spotting trend continuation setups
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Tips on understanding candlestick patterns without memorizing them
Now…
A Little History Lesson
During the 1700s, a Japanese rice trader named Munehisa Homma developed Japanese candlestick patterns.
Candlestick charting became one of the most influential charting frameworks in trading history. It was invented by Homma Munehisa. The father of candlestick chart patterns.
This trader is considered to be the most successful trader in history, he was known as the God of markets in his days his trading success contributed to the historical reputation of candlestick charting.
Nearly 300 years later, Steve Nison introduced it to the western world in his book Japanese Candlestick Charting Techniques.
The original ideas have most likely been modified, resulting in the candlestick patterns you see today.
Anyway, that's a quick rundown of the history of Japanese candlestick patterns.
Let's take a look at how to interpret a candlestick chart...
So, how do you read a Japanese candlestick chart?
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Each candlestick is built using four key data points:
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Open – The price at which the asset begins trading during a specific time period.
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High – The highest price reached during that time period.
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Low – The lowest price reached during that time period.
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Close – The price at which the asset finishes trading during that time period.
Here’s the key concept to remember:
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In a bullish candle, the close is above the open.
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In a bearish candle, the close is below the open.
These definitions describe how price movement is visually represented on a chart and are used for educational purposes to help you understand market behavior.
Bullish Reversals Are Up First
Bullish reversal candlestick patterns may suggest that buying pressure is increasing. However, seeing a pattern alone does not guarantee a favorable outcome or provide a statistical advantage in the markets.
Many traders choose to combine candlestick patterns with other forms of analysis when evaluating potential trade setups.
Using multiple tools may help provide additional context, though no method guarantees success.
For now, here are several commonly referenced bullish reversal candlestick patterns to be aware of:
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Hammer
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Bullish Engulfing Pattern
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Piercing Pattern
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Tweezer Bottom
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Morning Star
Hammer
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After a price decline, a Hammer is a single-candle pattern that some traders classify as a potential bullish reversal signal.
Here’s how it’s commonly identified:
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The upper shadow is small or nearly non-existent.
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The price closes near the upper portion of the total range.
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The lower shadow is typically two to three times the length of the body.
Here’s what the pattern represents in terms of price movement:
At the open, selling pressure may push the price lower.
Later in the session, buying interest may increase, driving the price back up. If the candle closes above the open, it reflects upward price movement during that period.
In simple terms, a Hammer is viewed by many traders as a potential sign of lower price rejection after a decline.
However, the appearance of a Hammer does not guarantee a trend reversal.
Traders often look for additional confirmation or supporting analysis before making any decisions, and no pattern ensures a profitable outcome.
Bullish Engulfing Pattern
After a price decline, a Bullish Engulfing Pattern may form. It is a two-candle formation that some traders classify as a potential bullish reversal pattern.
Here’s how it’s commonly identified:
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The first candle closes lower (bearish).
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The second candle’s body fully engulfs the body of the first candle (excluding the shadows).
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The second candle closes higher (bullish).
In terms of price behavior:
During the first candle, selling pressure may dominate, resulting in a lower close for that period.
On the second candle, increased buying interest may push price higher, sometimes closing above the previous candle’s high.
Many traders interpret this shift as a possible change in short-term momentum.
However, a Bullish Engulfing Pattern does not guarantee that buyers will remain in control or that price will continue higher. Additional context and analysis are often considered, and no pattern ensures a profitable outcome.
Finally, because candlesticks are constructed differently across timeframes, a Hammer on a higher timeframe may appear as a Bullish Engulfing Pattern on a lower timeframe.
This reflects how price data is aggregated, not a guaranteed trading signal.
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Piercing Pattern
After a price decline, a Piercing Pattern may form. It is a two-candle formation that some traders classify as a potential bullish reversal pattern.
Unlike a Bullish Engulfing Pattern - where the second candle closes above the previous open - a Piercing Pattern closes within the body of the prior candle.
Because of this structure, some traders consider the Piercing Pattern to reflect a more moderate shift in momentum compared to a Bullish Engulfing Pattern.
However, neither pattern guarantees future price movement.
Here’s how the Piercing Pattern is commonly identified:
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The first candle closes lower (bearish).
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The second candle closes higher (bullish).
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The second candle closes above the midpoint (50%) of the first candle’s body but does not fully engulf it.
In terms of price behavior:
During the first candle, selling pressure may push price lower.
On the second candle, buying interest may increase, resulting in a close that recovers more than half of the prior candle’s body.
Many traders interpret this as a potential sign that buying pressure is emerging.
However, like all candlestick patterns, it reflects historical price behavior and does not ensure a reversal or profitable outcome.
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Tweezer Bottom
I’m not talking about the tool you use for nose hair (even though the name fits).
After a price decline, a Tweezer Bottom is a two-candle formation that some traders classify as a potential bullish reversal pattern.
Here’s how it’s commonly identified:
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The first candle reflects a move lower in price.
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The second candle revisits or tests a similar low as the first candle before closing higher.
In terms of price behavior:
During the first candle, selling pressure may push the price lower, but buying interest can begin to appear.
On the second candle, price tests that prior low again.
If it fails to move meaningfully lower and closes higher, some traders interpret this as a possible sign of support forming.
In simple terms, a Tweezer Bottom may suggest that price is encountering difficulty moving lower after two attempts. However, it does not guarantee a reversal or that price will rise.
Like all candlestick patterns, it reflects past price behavior and should be viewed in broader market context.
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Morning Star
After a price decline, a Morning Star may form. It is a three-candle formation that some traders classify as a potential bullish reversal pattern.
Here’s how it’s commonly identified:
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The first candle closes lower (bearish).
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The second candle has a relatively small range, reflecting reduced momentum.
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The third candle closes higher, often retracing a significant portion (commonly more than 50%) of the first candle’s body.
In terms of price behavior:
During the first candle, selling pressure may dominate, resulting in a lower close.
The second candle reflects a period of reduced momentum or indecision, as buying and selling activity appears more balanced.
On the third candle, increased buying interest may push price higher.
Many traders interpret this sequence as a possible shift in short-term momentum.
However, a Morning Star does not guarantee that sellers are exhausted or that buyers will remain in control. Like all candlestick patterns, it reflects historical price action and should be evaluated within broader market context.
Let’s take it a step further and look at how traders sometimes incorporate these patterns into a broader analysis process.
Relying on a single candlestick pattern alone does not provide a consistent statistical advantage. For that reason, many traders choose to combine patterns with additional forms of analysis.
One commonly discussed approach is:
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In an upward-trending market, some traders monitor for pullbacks toward areas they identify as support.
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If price approaches a support level, they may then look for a bullish reversal candlestick pattern as a potential confirmation signal.
When evaluating a bullish reversal pattern, traders often compare its size and structure to recent candles. A larger candle relative to prior price bars may reflect stronger price rejection during that period.
However, none of these techniques guarantee a successful trade.
They are methods traders use to interpret price behavior within a broader strategy.
Reversal Candlestick Patterns That Are Bearish
Bearish reversal candlestick patterns may suggest that selling pressure is increasing. However, the appearance of a pattern alone does not guarantee a favorable outcome or provide a consistent statistical advantage in the markets.
For that reason, many traders choose to analyze candlestick patterns alongside other tools or forms of market analysis when evaluating potential setups.
For now, here are several commonly referenced bearish reversal candlestick patterns to be aware of:
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Shooting Star
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Bearish Engulfing Pattern
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Dark Cloud Cover
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Tweezer Top
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Evening Star
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Star Shooting
After a price advance, a Shooting Star may form. It is a single-candle pattern that some traders classify as a potential bearish reversal signal.
Here’s how it’s commonly identified:
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The lower shadow is small or nearly non-existent.
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The candle closes near the lower portion of its total range.
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The upper shadow is typically two to three times the length of the body.
In terms of price behavior:
At the open, buying pressure may push price higher. Later in the session, increased selling interest can drive price back down.
If the candle closes below the open, it reflects downward price movement during that period.
In simple terms, a Shooting Star is viewed by many traders as a possible sign of higher price rejection after an advance.
However, the appearance of a Shooting Star does not guarantee a trend reversal.
Traders often look for additional confirmation or broader market context before making decisions, and no pattern ensures a profitable outcome.
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Bearish Engulfing Pattern
After a price advance, a Bearish Engulfing Pattern may form. It is a two-candle pattern that some traders identify as a potential bearish reversal signal.
Here’s how it’s commonly observed:
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The first candle closes higher (bullish).
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The second candle opens near the high of the first candle and closes below the first candle’s body, fully “engulfing” it.
What this reflects:
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The first candle shows buyers in control for that period.
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The second candle shows increased selling pressure that pushes the price below the first candle’s close.
Traders view a Bearish Engulfing Pattern as an indication that sellers may have gained temporary control.
However, like all candlestick patterns, it does not guarantee a trend reversal. Many traders combine it with other analysis for higher-probability setups, and no single pattern ensures profitability.
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Dark Cloud Cover
After a price advance, a Dark Cloud Cover may form. It is a two-candle pattern that some traders interpret as a potential bearish reversal signal.
Unlike a Bearish Engulfing Pattern, which closes below the previous candle’s open, the Dark Cloud Cover closes within the body of the first candle.
Because of this, it is generally considered a slightly weaker signal than a Bearish Engulfing Pattern.
Here’s how it’s commonly observed:
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The first candle closes bullishly, showing buyers in control.
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The second candle opens above or near the first candle’s close and then closes below the midpoint of the first candle’s body.
What this reflects:
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The first candle indicates buying strength.
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The second candle shows selling pressure stepping in, pushing the price lower and signaling that sellers may be gaining temporary control.
Traders often combine the Dark Cloud Cover with other technical tools to confirm higher-probability setups. No single pattern guarantees a trend reversal.
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Tweezer Top
After a price advance, a Tweezer Top may form. It is a two-candle pattern that can indicate a potential bearish reversal.
Here’s how to identify it:
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The first candle shows the market testing higher prices but closing lower than its high, indicating initial selling pressure.
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The second candle retraces the previous candle’s high but closes below it, showing that buyers failed to sustain momentum.
What this pattern reflects:
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Buyers pushed the price up initially, but selling pressure prevented further gains.
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The inability to trade higher on the second candle signals that sellers are taking control.
In other words, a Tweezer Top suggests that the market is struggling to move higher and may reverse lower.
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Evening Star
After a price advance, an Evening Star may form. It is a three-candle bearish reversal pattern that signals a potential shift in control from buyers to sellers.
Here’s how to identify it:
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The first candle is bullish, showing that buyers are in control.
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The second candle has a small range, reflecting market indecision as buying and selling pressures balance out.
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The third candle closes strongly lower, usually more than 50% of the first candle’s body, indicating that sellers have taken over.
What this pattern reflects:
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Buyers initially controlled the market, but momentum slowed on the second candle.
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The third candle shows that sellers have stepped in decisively, suggesting that the uptrend may be exhausted.
In other words, the Evening Star indicates a shift in control from buyers to sellers and signals a potential reversal to the downside.
Finding High-Probability Bearish Reversal Setups
Now that you understand the key bearish reversal candlestick patterns, here’s how to turn them into high-probability trades:
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Wait for a pullback toward Resistance if the market is in a downtrend.
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Look for a bearish reversal candlestick pattern at that Resistance level.
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Confirm strength: The pattern should be larger than the preceding candles, showing strong price rejection.
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Enter the trade: If the price clearly rejects Resistance, go short at the open of the next candle.
For bullish setups, reverse the logic: wait for a pullback to Support, look for a bullish reversal, and enter long when rejection is confirmed.
Candlestick Patterns of Indecision
Indecisive candlestick patterns show a balance between buyers and sellers. Two common examples to recognize:
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Spinning Top
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Doji
Let’s break these down…
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Spinning Top
A Spinning Top is a candlestick pattern that signals market indecision-buyers and sellers are evenly matched.
How to spot it:
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Small body
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Long upper and lower shadows
What it means:
The market opened with both buying and selling pressure, but neither side could dominate by the close. This indicates uncertainty and a possible pause or reversal in the current trend.
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Doji
A Doji signals market indecision, where buying and selling pressures are balanced.
How to spot it:
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Open and close are near the middle of the range
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Upper and lower shadows are short and roughly equal
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Variations and meanings:
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Dragonfly Doji – Indicates rejection of lower prices; buyers stepped in.
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Gravestone Doji – Indicates rejection of higher prices; sellers stepped in.
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Dragonfly Doji
Unlike a regular Doji, a Dragonfly Doji opens and closes near the highs of its range, with a long lower shadow.
This shows that lower prices were rejected, as buyers pushed the market higher toward the opening price.
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Gravestone Doji
Unlike a regular Doji, a Gravestone Doji opens and closes near the lows of its range, with a long upper shadow.
This shows that higher prices were rejected, as selling pressure pushed the market lower toward the opening price.
Candlestick Patterns That Continue
Continuation candlestick patterns suggest the market is likely to keep moving in the same direction. For trend traders, these patterns can provide some of the most profitable opportunities.
Here are four continuation patterns to be aware of:
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Rising Three Method
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Falling Three Method
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Bullish Harami
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Bearish Harami
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Rising Three Method
The Rising Three Method is a bullish trend continuation pattern, signaling that the market is likely to keep rising.
How to spot it:
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The first candle is a large bullish candle with a strong body.
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The second, third, and fourth candles are smaller in range and body.
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The fifth candle has a large body and closes above the first candle’s high.
What it means:
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Buyers dominate the first candle, closing the session strongly.
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The next three candles show a slight pullback as some buyers take profits, but new buyers enter, preventing a strong selloff.
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On the fifth candle, buyers reclaim control, pushing the price to new highs.
In western charting terms, the Bullish Flag and Rising Three Method are almost synonymous.
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Falling Three Method
The Falling Three Method is a bearish trend continuation pattern, signaling that the market is likely to keep trending lower.
How to spot it:
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The first candle is a large bearish candle.
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The second, third, and fourth candles are smaller in range and body.
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The fifth candle has a large body and closes below the first candle’s low.
What it means:
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Sellers dominate the first candle, closing the session sharply lower.
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The next three candles show a minor pullback as some sellers take profits, but new short sellers enter, preventing a strong rally.
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On the fifth candle, sellers reclaim control, pushing the price to new lows.
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Bullish Harami
Most trading books and websites describe a Bullish Harami as a reversal pattern after a price decline-but common sense tells a different story.
If hundreds of candlesticks have formed a downtrend, a single Bullish Harami is unlikely to reverse it.
Its real power is as a continuation pattern in an uptrend, signaling that buyers are “taking a break” before the price continues higher.
How to spot it:
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The first candle is large and bullish.
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The second candle is small, with a limited range, and can be bullish or bearish.
What it means:
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The first candle shows strong buying pressure.
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The second candle reflects indecision-buying and selling pressures nearly balance as traders take profits and new buyers enter.
Pro tip: The Bullish Harami can be treated as an Inside Bar; they carry the same meaning and are interchangeable.
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Bearish Harami
In a downtrend, a Bearish Harami works best as a continuation pattern. It signals that sellers are “taking a break,” and the price will likely continue lower.
How to spot it:
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The first candle is large and bearish.
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The second candle is small with a limited range, bullish or bearish.
What it means:
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The first candle shows strong selling pressure.
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The second candle depicts indecision-buying and selling pressures nearly balance as traders take profits and new sellers enter.
How to Find High-Probability Trend Continuation Setups
Now that you understand continuation patterns, here’s how to turn them into actionable setups:
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Breakouts: Wait for the market to break out of Resistance if in a range.
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Pattern Confirmation: Look for a continuation candlestick pattern after the breakout (e.g., Rising Three Method or Bullish Harami).
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Trade Execution: Go long on a breakout that forms a bullish continuation pattern. For short setups, the reverse applies.
Candlestick Patterns Made Easy
You’re probably thinking: “There are so many candlestick patterns-how am I supposed to remember them all?”
Good news: you don’t have to memorize them.
Master the next two concepts, and you’ll be able to read any candlestick pattern like a pro-think of it as your personal candlestick cheat sheet.
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