You’ve seen them on every chart — those green and red rectangular shapes that look like candles with wicks sticking out the top and bottom. They’re candlestick patterns, and they tell you exactly what the market is thinking at any given moment. Here’s what each one means and how to trade it.
Trading involves risk. Binary options and forex trading involve substantial risk of losing your capital. This glossary is for educational purposes only. Never trade money you cannot afford to lose.
How to Use This Glossary
Each term below includes a plain-English definition, a real trading example, and a link to a detailed strategy guide. Use Ctrl+F (or Cmd+F) to find specific patterns. Terms are grouped by category — bullish patterns first, then bearish, then neutral.
Bullish Candlestick Patterns
Hammer
A hammer is a single-candle pattern with a small body at the top and a long lower wick — it looks like a hammer. The long lower wick shows that sellers pushed the price down during the session, but buyers stepped in and pushed it back up to close near the open. This tells you the market is testing support and finding buyers (see how to trade support and resistance →).
Example: EUR/USD drops to 1.0820 during the session but closes back at 1.0835, forming a hammer on the 15-minute chart. This suggests buyers are defending the 1.0820 level — a potential entry for a CALL.
Morning Star
A three-candle bullish reversal pattern. First candle: long red (downtrend continues). Second candle: small body (indecision — the market is catching its breath). Third candle: long green that closes above the midpoint of the first candle (buyers have taken control). This is one of the most reliable reversal patterns.
Example: After a 3-day downtrend, GBP/USD forms a small doji on the daily chart, then opens sharply higher the next day — textbook morning star, confirming the reversal.
Bullish Engulfing
A two-candle pattern where a small red candle is followed by a larger green candle that completely “engulfs” the previous candle’s body. This means buyers overwhelmed sellers — momentum has shifted. Works best at support levels (see our candlestick patterns strategy →).
Example: On the 5-minute chart, a small red candle at support is followed by a large green candle that engulfs it. Buyers have stepped in — time to consider a CALL.
Piercing Pattern
A two-candle bullish reversal pattern. First candle: long red. Second candle: long green that opens lower (gap down) but closes above the midpoint of the first candle’s body. Shows that sellers lost control after the initial gap — buyers are back.
Bearish Candlestick Patterns
Shooting Star
The opposite of a hammer. A small body at the bottom with a long upper wick. Shows that buyers pushed the price up during the session, but sellers fought back and drove it back down to close near the open. Appears at the top of uptrends — a warning sign that the rally is losing steam.
Example: GBP/JPY rallies to 186.50, forms a shooting star with a long upper wick reaching 187.00. Sellers rejected the higher price — potential entry for a PUT.
Evening Star
The bearish version of the morning star. A long green candle, followed by a small body (indecision), followed by a long red candle that closes below the midpoint of the first candle. Signals a top reversal. Especially reliable on higher timeframes (1-hour and above).
Bearish Engulfing
The opposite of bullish engulfing. A small green candle followed by a larger red candle that engulfs the previous body. Sellers have overwhelmed buyers — the uptrend is likely ending. Pairs well with overbought RSI readings for confirmation.
Neutral / Indecision Patterns
Doji
A candle where the open and close are nearly identical — the body is a thin horizontal line. The doji looks like a plus sign. It means the market opened and closed at almost the same price, showing indecision. After a long uptrend, a doji warns that the bulls are tired. After a downtrend, it signals the bears are exhausted (learn to trade reversals →).
Example: USD/CHF rallies for 4 hours on the 5-minute chart, then forms a doji at resistance. The rally is losing momentum — prepare for a PUT if the next candle confirms.
Spinning Top
A small body with upper and lower wicks of roughly equal length. Shows that neither buyers nor sellers could take control — the market is undecided. A spinning top during a strong trend means the trend is pausing, not necessarily reversing.
Why Candlestick Patterns Matter
Candlestick patterns reveal what the market is thinking — not what it will do next. A hammer at support is worth attention, but it’s not a guaranteed buy signal. Always confirm with indicators (RSI, MACD, volume) and check the higher timeframe trend before acting on any single pattern.
The most reliable setups combine candlestick patterns with key levels. A bullish engulfing at support is stronger than one in the middle of nowhere. A shooting star at resistance is more reliable than one in a vacuum.
Candlestick Patterns Cheat Sheet
Common Confusions
Hammer vs Hanging Man — They look identical. The difference is context: a hammer appears at the bottom of a downtrend (bullish), while a hanging man appears at the top of an uptrend (bearish). Same shape, opposite meaning.
Engulfing vs Piercing — A bullish engulfing completely covers the previous candle. A piercing pattern covers more than half but not all. Engulfing is stronger.
Next Steps
Now that you understand candlestick patterns, here’s what to learn next:
Candlestick Patterns Strategy → — Apply what you just learned with a complete trading strategy.
Price Action Trading Glossary → — Build your foundation with related price action terms.
Support and Resistance Strategy → — Combine candlestick patterns with key levels for higher probability setups.
Trading candlestick patterns involves substantial risk of losing your capital. This glossary is for educational purposes only. Past performance does not guarantee future results. Always do your own research before trading.
Was this glossary helpful?