Japanese Candle Patterns (JCP) User Guide

Overview and Features

Japanese candlestick patterns, a foundational element of technical analysis, provide traders with visual insights into market psychology. Each pattern represents the battle between bulls and bears, encapsulating critical information about market sentiment, potential reversals, and continuation signals. Developed centuries ago and later popularized by Steve Nison in Japanese Candlestick Charting Techniques, these patterns are now widely recognized tools for assessing market conditions.

This indicator, leveraging the power of the JCP (Japanese Candle Patterns) methodology, assists traders in identifying and acting upon these vital patterns, enhancing both strategy formulation and execution.

Key Features

  • Comprehensive Pattern Recognition: Detects 55 well-known candlestick patterns such as the Doji, Hammer, and Engulfing patterns, each marked on the chart for clear visibility and immediate interpretation.

    • Single-Candle Patterns: Patterns like the Hammer, Shooting Star, and Doji.
    • Multi-Candle Patterns: Patterns that unfold over several candles, such as the Engulfing, Harami, and Morning/Evening Star.
    • Complex Patterns: Channels, Triangles, and support/resistance-based patterns which provide insights into broader market structures.
    • Trend Reversals: Patterns like the Hammer, Engulfing, or Doji Star are known for signaling possible reversals in price direction.
    • Continuation Signals: Patterns such as the Rising Three Method or Falling Three Method can indicate that a trend is likely to continue, which is valuable for trend-following strategies.
    • Confirmation of Market Strength: Patterns like the Marubozu, which lack shadows, show strong conviction by buyers or sellers, confirming strength in a given direction.

  • Multi-Timeframe Scanning: Whether trading on the 1-minute chart or the monthly chart, the JCP indicator adapts seamlessly, allowing users to examine patterns across multiple timeframes, from intra-day to long-term perspectives. Note: To use this feature effectively, fully load tick data for your desired timeframe.

  • Reduces Subjectivity: Manual identification of patterns can be subjective, while JCP applies consistent criteria.

  • Improves Efficiency: JCP scans the chart automatically, allowing traders to stay focused on strategic decision-making.

  • Compatible with EAsiTrader EA: Provides signals to NTL EAsiTrader EA for automated trading.

Whether you are a novice or experienced trader, JCP provides a systematic approach to identifying and utilizing candlestick patterns, combining the insights of centuries-old techniques with the power of modern trading tools.

Installation and Settings

Installation

  1. Installing the Indicator:

    • Download the JCP indicator JCP.ex5 file and place it in the Indicators\NTL folder of your MQL5 platform directory. You may need to create folder NTL if it doesn’t already exist.
    • The typical file path is Terminal -> MQL5 -> Indicators -> NTL. Once the file is in this folder, restart the platform to ensure it appears in the Navigator panel.

  2. Applying JCP to the Chart:

    • Open the chart of the symbol and timeframe on which you’d like to use the JCP indicator.
    • Drag the JCP indicator from the Navigator panel (under Indicators\NTL) onto your chart.
    • After adding JCP, you’ll see Inputs that allow you to customize how patterns are displayed, which patterns to include, and more.

  3. Customizing Settings:

    • Access input settings after dragging JCP onto a chart or by double-clicking on the indicator in the Navigator panel or selecting Properties after applying it to the chart.
    • Choose Your Timeframe: Use the Timeframe setting to select the timeframe for pattern analysis. For example, if your chart timeframe is M30 but you set Timeframe to H1, JCP will identify patterns based on hourly data but display them on the 30-minute chart. Selecting timeframes lower than the chart timeframe is not possible, e.g. M10 timeframe on a M30 timeframe chart.
    • Select Patterns: In the input settings, enable or disable specific patterns based on your trading strategy. For example, if you focus on reversal signals, you might prioritize patterns like the Hammer or Engulfing patterns.
    • Pattern Customization: If you have specific preferences for pattern definitions, such as stricter criteria for Doji or Hammer patterns, adjust the relevant parameters in the Standard Patterns Definition Settings section.
    • Trend Confirmation Settings: For traders using trend-following strategies, the TrendConfirmation setting lets you filter patterns based on alignment with the ADX indicator. Adjust the ADXPeriod and ADXTrendLevel settings to fine-tune this feature.

  4. Verifying JCP’s Functionality on the Chart:

    • Once configured, observe how JCP displays patterns on the chart. Patterns appear with abbreviations or symbols, making it easy to spot key signals without clutter.
    • Tip: Test different configurations and timeframes in a demo environment to find the setup that best complements your trading strategy.

  5. Saving Your Custom JCP Template:

    • To avoid reconfiguring JCP each time, save your preferred settings as a template. Right-click on the chart, select Template -> Save Template, and name it something descriptive, like JCP_Custom.
    • You can load this template on other charts to quickly apply your JCP settings.

Settings

Timeframe

The Timeframe setting allows you to select the specific timeframe from which JCP will analyze candlestick patterns, regardless of the chart’s current timeframe. This feature is helpful if you want to analyze patterns on a higher or lower timeframe than the one currently displayed, giving you a multi-timeframe perspective. Timeframe must be greater than or equal to the chart’s timeframe.

  • Example Use Case:

    • Let’s say your chart’s timeframe is set to M15 (15 minutes), but you want to identify patterns based on hourly (H1) data. Set the Timeframe input to H1. JCP will then scan the data of each completed H1 candle and display any detected patterns on the M15 chart.

  • Common Applications:

    • Timeframe Analysis: Setting a higher timeframe (e.g., H4 on an H1 chart) can help capture more stable, long-term patterns that are less affected by noise.

  • Recommendation:

    • Match the timeframe to your trading strategy. For instance, trend traders might prefer higher timeframes (H4, D1), while intraday traders may choose M15 or M30 for quicker signals.

Pattern Types (CSV List)

This setting is a powerful feature that lets you customize which patterns JCP will scan for and display. It accepts a comma-separated list of pattern types, enabling you to fine-tune the indicator based on your trading strategy and preferred signals.

  • Full Pattern List:

    • AbandonedBabyBottom, AbandonedBabyTop, AscendingChannel, AscendingTriangle, BearishBeltHold, BearishCounterAttack, BearishEngulfing, BearishHarami, BearishHLinePin, BearishSeparating, BullishBeltHold, BullishCounterAttack, BullishEngulfing, BullishHarami, BullishHLinePin, BullishSeparating, DarkCloudCover, DescendingChannel, DescendingTriangle, Doji, DojiStar, DragonFlyDoji, EveningStar, FallingThreeMethod, FallingWindow, FlatLowerBody, FlatUpperBody, GravestoneDoji, Hammer, HangingMan, HighWave, InvertedHammer, LongLeggedDoji, LongLowerShadow, LongUpperShadow, Marubozu, MorningStar, Pennant, PiercingPattern, Rectangle, ResistanceLine, RisingThreeMethod, RisingWindow, ShavenBottom, ShavenHead, ShootingStar, SpinningTop, SupportLine, ThreeBlackCrows, ThreeWhiteSoldiers, TowerBottom, TowerTop, TweezerTop, TweezerBottom, UpsideGapTwoCrows.

  • Example Use Case:

    • To limit the indicator to specific patterns, enter only the desired patterns in Pattern Type setting. For example, setting Hammer, Doji, BullishEngulfing means JCP will only scan for and display these three patterns.

  • Tips for Customization:

    • Strategy-Specific Patterns:
      • For reversal strategies, you might prioritize patterns like Hammer, ShootingStar, Engulfing, and Doji.
      • For trend continuation, consider RisingThreeMethod, FallingThreeMethod, or Marubozu.
    • Limit Pattern Quantity: Using fewer patterns can help reduce visual clutter on the chart and improve chart readability, especially on lower timeframes.
    • Testing Different Combinations: Experiment with various pattern combinations to find setups that yield the most reliable signals for your trading style.

By adjusting Timeframe and Pattern Types thoughtfully, you can better align JCP’s analysis with your trading approach, whether it’s short-term scalping or long-term trend trading.

Use Strict Criteria

Tightens criteria for identifying patterns (e.g., for Doji and Hammer).

Big Body

Defines a candle’s “Big Body” size in terms of a ratio of the candle’s average body height. The average body height is defined as the average height of a candle’s body over a 14 candle period.

Big Candle

Defines a candle’s “Big Candle” size in terms of a ratio of the candle’s average whole height. The average candle height is defined as the average height of a whole candle over a 14 candle period.

Doji Body

Defines the maximum body size of a Doji pattern in terms of a ratio of the candle’s average body height. The average body height is defined as the average height of a candle’s body over a 14 candle period.

Small Body

Defines a candle’s “Small Body” size in terms of a ratio of the candle’s average body height. The average body height is defined as the average height of a candle’s body over a 14 candle period.

Small Candle

Defines a candle’s “Small Candle” size in terms of a ratio of the candle’s average whole height. The average candle height is defined as the average height of a whole candle over a 14 candle period.

Window Min Gap

Defines the minimum gap for a Falling or Rising Window pattern in terms of a ratio of the candle’s average whole height. The average candle height is defined as the average height of a whole candle over a 14 candle period.

Complex Pattern Tolerances

Define tolerances for channels, rectangles, and triangles as percentages of candle body height.

Trend Confirmation

Displays only patterns that align with the ADX-based trend.

ADX Period

Sets the ADX calculation period for smoothing trend identification.

ADX Trend Level

Sets the minimum ADX threshold to validate trends.

Use Symbol Names

When this setting is true the pattern’s abbreviated name is shown above or below the pattern on the chart. When this setting is false the pattern’s full name is shown above or below the pattern on the chart.

Using the Indicator

The following candle patterns are listed showing their full name, followed by their abbreviated name. The signs have the following meaning:

  • +: Bullish Pattern
  • -: Bearish Pattern
  • ++: Bullish Reversal Pattern
  • –: Bearish Reversal Pattern

Standard Candle Patterns

  1. Abandoned Baby Bottom (++ABB)
  • Description: The Abandoned Baby Bottom is a rare bullish reversal pattern, often appearing at the end of a downtrend. It consists of three candles: a strong bearish candle, a small-bodied Doji with a gap down, and a bullish candle with a gap up.
  • Pattern Criteria:
    • The first candle is bearish, reflecting strong selling pressure.
    • The second candle is a Doji with a gap below the first candle, signifying indecision in the market.
    • The third candle is bullish and opens with a gap above the Doji, showing that buyers have stepped in.
  • Trading Significance:
    • This pattern suggests that a downtrend is potentially reversing as buyers regain control, often signaling a shift in momentum toward the upside.
    • The two gaps (before and after the Doji) are key elements that strengthen the pattern’s reliability.
  • Interpretation Tips:
    • This pattern is most effective in strongly oversold markets where buying pressure is expected.
    • Confirmation with additional indicators like RSI (indicating oversold conditions) or volume can improve signal reliability.
  1. Abandoned Baby Top (–ABT)
  • Description: The Abandoned Baby Top is the bearish counterpart to the Abandoned Baby Bottom, typically appearing at the end of an uptrend. It signals a potential reversal to the downside.
  • Pattern Criteria:
    • The first candle is bullish, indicating strong buying momentum.
    • The second candle is a Doji with a gap above the first candle, signaling indecision and potential exhaustion.
    • The third candle is bearish and opens with a gap below the Doji, suggesting that sellers are regaining control.
  • Trading Significance:
    • This pattern often indicates a shift in sentiment from bullish to bearish, signaling that an uptrend may be ending.
    • The gaps on either side of the Doji enhance its reliability as a reversal signal.
  • Interpretation Tips:
    • This pattern is particularly valuable in overbought conditions, where a correction is anticipated.
    • Look for confirmation through volume analysis (increasing on the third candle) or with other trend indicators like ADX.
  1. Bearish Belt Hold (–BH)
  • Description: The Bearish Belt Hold is a single-candle pattern that appears after an uptrend. It signals potential downside reversal by opening at or near the high of the period and closing well below the opening price.
  • Pattern Criteria:
    • The candle is bearish and opens near its high with little to no upper shadow.
    • The candle’s body is long, suggesting strong downward momentum.
  • Trading Significance:
    • This pattern signals that sellers have taken control and could indicate the beginning of a downtrend.
    • The lack of an upper shadow reflects immediate selling pressure from the open, which can suggest increased bearish sentiment.
  • Interpretation Tips:
    • The Bearish Belt Hold is often more reliable when it occurs after a prolonged uptrend or near a significant resistance level.
    • Traders may look for a confirming candle in the next period to strengthen the signal.
  1. Bearish Counter Attack (–CA)
  • Description: The Bearish Counter Attack pattern is a two-candle formation that appears in an uptrend and suggests a potential bearish reversal. It is characterized by the second candle “countering” the previous bullish momentum by closing at or near the first candle’s close.
  • Pattern Criteria:
    • The first candle is bullish, typically a long white candle in an uptrend.
    • The second candle opens above the first but closes near or at the first candle’s close, with a strong bearish body.
  • Trading Significance:
    • This pattern indicates a significant shift in sentiment, as sellers step in to counter recent bullish momentum.
    • The “counter” move suggests that bullish strength is weakening, potentially leading to a trend reversal.
  • Interpretation Tips:
    • The Bearish Counter Attack pattern is most effective near resistance levels, where sellers are likely to be more aggressive.
    • For additional confirmation, look for declining volume on the first candle and increased volume on the second, indicating stronger selling interest.
  1. Bearish Engulfing (–E)
  • Description: The Bearish Engulfing pattern is a two-candle reversal pattern that appears in an uptrend, signaling a potential shift from bullish to bearish sentiment. The second candle “engulfs” the first candle, with a larger bearish body that completely covers the previous smaller bullish candle.
  • Pattern Criteria:
    • The first candle is bullish and generally smaller, often a short-bodied candle indicating waning bullish momentum.
    • The second candle is a long bearish candle that opens above the first candle’s high and closes below its low, fully engulfing the first candle’s body.
  • Trading Significance:
    • This pattern indicates a strong shift in sentiment, as sellers overcome buyers and push prices lower, suggesting a possible reversal.
    • The larger the size difference between the two candles, the stronger the signal, as it reflects a significant change in control.
  • Interpretation Tips:
    • For added reliability, use the Bearish Engulfing pattern near resistance zones, where reversals are more likely.
    • Confirmation with declining volume on the first candle and rising volume on the second can strengthen the bearish signal.
  • Strict Criteria:
    • Includes lower body.
  1. Bearish Harami (-HR)
  • Description: The Bearish Harami is a two-candle pattern that appears in an uptrend, indicating potential reversal. It consists of a large bullish candle followed by a smaller bearish candle that is “contained” within the previous candle’s body.
  • Pattern Criteria:
    • The first candle is a long bullish candle, showing strong buying momentum.
    • The second candle is a smaller bearish candle that opens and closes within the range of the first candle’s body, signaling indecision.
  • Trading Significance:
    • This pattern suggests that the bullish trend may be losing strength, as indicated by the smaller bearish candle within the larger bullish body.
    • It reflects hesitation from buyers, often hinting at a potential reversal if further bearish confirmation follows.
  • Interpretation Tips:
    • This pattern is particularly effective after a prolonged uptrend, as it may signify profit-taking or the emergence of selling pressure.
    • For additional confirmation, consider waiting for a bearish close on the following candle, showing that sellers are gaining control.
  1. Bearish Separating Line (–SL)
  • Description: The Bearish Separating Line is a two-candle continuation pattern that typically appears in a downtrend. It indicates a strong bearish sentiment, where the first candle is bullish, but the second candle opens at the same level and closes significantly lower, resuming the downtrend.
  • Pattern Criteria:
    • The first candle is bullish, usually seen as a temporary pause in a downtrend.
    • The second candle is bearish, opening at the first candle’s open and closing significantly lower, continuing the downtrend.
  • Trading Significance:
    • This pattern reflects strong bearish momentum, as sellers quickly regain control after a brief bullish interruption.
    • The separation of the bullish and bearish candles reinforces the trend’s strength, indicating that the downtrend is likely to continue.
  • Interpretation Tips:
    • The Bearish Separating Line is often most reliable when occurring within an established downtrend, where bearish continuation is anticipated.
    • Traders can use this pattern to confirm entries or add to existing positions in a strong downtrend.
  1. Bullish Belt Hold (++BH)
  • Description: The Bullish Belt Hold is a single-candle pattern that appears in a downtrend and signals potential reversal. It has a long bullish body that opens near the low and closes near the high, indicating strong buyer interest.
  • Pattern Criteria:
    • The candle opens near its low and has little to no lower shadow.
    • It has a long bullish body that closes near the high, suggesting strong upward momentum.
  • Trading Significance:
    • This pattern signifies that buyers have taken control, and it may indicate the start of an upward reversal if confirmed by subsequent bullish price action.
    • The lack of a lower shadow shows that buying strength was present throughout the session.
  • Interpretation Tips:
    • The Bullish Belt Hold is especially effective near a support level, where buyers are more likely to step in.
    • Look for a confirming bullish candle in the next session to reinforce the reversal signal.
  1. Bullish Counter Attack (++CA)
  • Description: The Bullish Counter Attack pattern is a two-candle formation that appears in a downtrend and signals a potential bullish reversal. The second candle “counters” the previous bearish momentum by closing at or near the first candle’s close, showing renewed buying interest.
  • Pattern Criteria:
  • The first candle is a strong bearish candle, reflecting downward momentum.
  • The second candle opens below the previous close, continuing the downtrend, but it closes at or near the first candle’s close, signaling buying strength.
  • Trading Significance:
    • This pattern suggests a change in sentiment as buyers counter the prior bearish force. While it may not always signify a full reversal, it often indicates a shift to a consolidation phase or a temporary pause in the downtrend.
  • Interpretation Tips:
    • The Bullish Counter Attack is especially effective when it occurs near a key support level, where buyers might naturally step in.
    • Consider waiting for a confirming bullish candle to validate the shift in momentum.
  1. Bullish Engulfing (++E)
  • Description: The Bullish Engulfing pattern is a two-candle bullish reversal pattern that appears after a downtrend. It consists of a small bearish candle followed by a larger bullish candle that completely engulfs the previous candle, indicating a potential shift from selling to buying pressure.
  • Pattern Criteria:
    • The first candle is bearish, generally short-bodied, and reflects waning selling pressure.
    • The second candle is a long bullish candle that opens below the first candle’s low and closes above its high, completely engulfing the first candle’s body.
  • Trading Significance:
    • This pattern suggests a strong shift in sentiment, as buyers overpower sellers, potentially marking the start of an uptrend.
    • The larger the size difference between the two candles, the more significant the reversal signal, as it reflects a complete change in control.
  • Interpretation Tips:
    • The Bullish Engulfing pattern is most effective near support levels, where a reversal is more likely.
    • Consider using a confirmation tool like RSI to verify that the market is oversold, increasing the probability of a reversal.
  • Strict Criteria:
    • Includes upper body.
  1. Bullish Harami (+HR)
  • Description: The Bullish Harami is a two-candle pattern that appears in a downtrend, signaling potential reversal. It consists of a long bearish candle followed by a smaller bullish candle that is “contained” within the previous candle’s body, showing indecision and the possibility of a trend reversal.
  • Pattern Criteria:
    • The first candle is a long bearish candle, indicating strong selling momentum.
    • The second candle is a smaller bullish candle that opens and closes within the range of the first candle’s body.
  • Trading Significance:
    • This pattern suggests that the bearish trend may be losing momentum, with buyers gradually gaining strength.
    • While the Bullish Harami is not always a strong reversal pattern on its own, it often signals a period of consolidation or a slowdown in the downtrend.
  • Interpretation Tips:
    • This pattern is particularly effective after an extended downtrend, as it may indicate exhaustion among sellers.
    • For additional confirmation, traders may wait for a bullish close on the following candle, which would signal that buyers are taking control.
  1. Bullish Separating Line (++SL)
  • Description: The Bullish Separating Line is a two-candle continuation pattern that typically appears in an uptrend. It signals strong bullish momentum as buyers quickly regain control after a brief bearish interruption.
  • Pattern Criteria:
    • The first candle is bearish, suggesting a temporary pause in an uptrend.
    • The second candle is bullish, opening at the first candle’s open and closing significantly higher, continuing the uptrend.
  • Trading Significance:
    • This pattern reflects strong bullish momentum and often indicates that the uptrend is likely to continue.
    • The “separating” characteristic of the candles reinforces the strength of the trend, suggesting that buyers are dominant.
  • Interpretation Tips:
    • The Bullish Separating Line is most reliable within a confirmed uptrend, where continuation patterns are expected.
    • Traders can use this pattern to add to existing long positions or as confirmation to enter on a pullback within a bullish trend.
  1. Dark Cloud Cover (–DCC)
  • Description: The Dark Cloud Cover is a bearish reversal pattern that appears in an uptrend, signaling potential downward momentum. It consists of a two-candle formation where the first candle is bullish, and the second candle opens above the previous high but closes below the midpoint of the first candle’s body.
  • Pattern Criteria:
    • The first candle is a long bullish candle, showing strong buying interest.
    • The second candle opens above the high of the first candle, indicating initial bullish strength, but closes below the midpoint of the first candle’s body, signaling bearish takeover.
  • Trading Significance:
    • This pattern suggests a shift in sentiment from bullish to bearish, with sellers pushing prices lower after an initial attempt by buyers to continue the uptrend.
    • The deeper the bearish candle closes into the first candle’s body, the stronger the signal.
  • Interpretation Tips:
    • Dark Cloud Cover is most effective near resistance zones or in overbought conditions, where reversals are more likely.
    • Confirmation from volume (higher on the second candle) or indicators like RSI indicating overbought conditions can enhance reliability.
  • Strict Criteria:
    • Requires the Open to equal the Close and the Close to pierce the body from above between 51-99%.
  1. Doji (D)
  • Description: A Doji is a single-candle pattern where the open and close prices are nearly identical, forming a small body and often accompanied by long shadows. It represents indecision in the market, with neither buyers nor sellers gaining control.
  • Pattern Criteria:
    • The candle has a small or nonexistent body, with the open and close prices being almost identical.
    • Shadows can vary, indicating the range of price movement within the period.
  • Trading Significance:
    • Doji patterns often signal potential reversals, especially after extended trends, as they indicate a balance between buying and selling pressure.
    • In a strong trend, however, a Doji may simply represent a pause or consolidation phase.
  • Interpretation Tips:
    • Look for Doji near key support or resistance levels for reversal signals, and use other indicators for confirmation.
    • Different types of Doji (e.g., Dragonfly Doji, Gravestone Doji) provide additional clues based on shadow length and positioning.
  1. Doji Star (DS)
  • Description: The Doji Star is a two-candle pattern that appears in a trend (up or down) and suggests a potential reversal. The first candle is long and reflects the current trend, followed by a Doji that opens and closes within the range of the previous candle, indicating indecision.
  • Pattern Criteria:
    • The first candle is long, matching the current trend direction (bullish in an uptrend, bearish in a downtrend).
    • The second candle is a Doji that opens and closes within the range of the first candle, showing a temporary balance of forces.
  • Trading Significance:
    • The Doji Star suggests that the prevailing trend may be weakening, and it often signals a potential reversal if followed by a confirming candle in the opposite direction.
    • The appearance of a Doji after a strong move reflects market indecision and the possibility that sentiment may be shifting.
  • Interpretation Tips:
    • The Doji Star is most effective when used near key support or resistance areas.
    • For additional confirmation, look for a follow-up candle that moves in the opposite direction, validating the reversal.
  1. Dragonfly Doji (DFD)
  • Description: The Dragonfly Doji is a variation of the Doji pattern, with a long lower shadow and little to no upper shadow. It suggests potential bullish reversal when it appears after a downtrend, as it indicates that buyers are stepping in.
  • Pattern Criteria:
    • The candle has a small or nonexistent body, with the open and close near the high of the period.
    • The long lower shadow suggests that, despite initial selling pressure, buyers stepped in and pushed prices back up.
  • Trading Significance:
    • This pattern is often interpreted as a potential reversal signal, particularly after a downtrend, as it shows that buyers are beginning to counter selling pressure.
    • The longer the lower shadow, the more significant the rejection of lower prices, enhancing the likelihood of a reversal.
  • Interpretation Tips:
    • The Dragonfly Doji is more reliable at key support levels, where buyers are expected to step in.
    • For confirmation, look for a bullish candle following the Dragonfly Doji, indicating continued buying pressure.
  1. Evening Star (–ES)
  • Description: The Evening Star is a three-candle bearish reversal pattern that appears at the top of an uptrend. It consists of a long bullish candle, followed by a small-bodied candle (often a Doji) that gaps up, and a long bearish candle that closes well into the body of the first bullish candle.
  • Pattern Criteria:
    • The first candle is a strong bullish candle, reflecting buying interest.
    • The second candle is small-bodied (indicating indecision) and gaps above the first candle.
    • The third candle is a long bearish candle that closes below the midpoint of the first candle’s body, showing that sellers have taken control.
  • Trading Significance:
    • The Evening Star pattern signals a shift from bullish to bearish sentiment, often marking the beginning of a downtrend.
    • The pattern is more reliable when the third candle closes well into the body of the first candle, demonstrating strong selling pressure.
  • Interpretation Tips:
    • Look for Evening Stars near resistance levels, where they’re more likely to signal reversals.
    • For confirmation, wait for additional bearish follow-through in subsequent candles or consult indicators like volume or RSI to support the signal.
  1. Falling Three Method (–3M)
  • Description: The Falling Three Method is a bearish continuation pattern that typically appears in a downtrend. It consists of a strong bearish candle, followed by three small bullish candles within the range of the first candle, and concludes with another strong bearish candle, which confirms the downtrend.
  • Pattern Criteria:
    • The first candle is a long bearish candle, indicating strong selling momentum.
    • The next three candles are small bullish candles (or neutral) within the range of the first candle, showing a temporary consolidation.
    • The fifth candle is a strong bearish candle that breaks below the low of the first candle, continuing the downtrend.
  • Trading Significance:
    • This pattern suggests that the market is pausing before resuming the downward trend, with sellers ultimately regaining control.
    • The three smaller candles within the first candle’s range indicate temporary profit-taking by sellers or minor buying pressure.
  • Interpretation Tips:
    • The Falling Three Method is most effective when it appears in a strong downtrend, where continuation is more likely.
    • To confirm the signal, wait for the final bearish candle to close below the low of the first candle, reinforcing the bearish trend.
  1. Falling Window (-W)
  • Description: The Falling Window is a bearish continuation pattern that signifies a gap down, where the price opens below the previous candle’s low, leaving a gap or “window.” This gap reflects strong selling momentum and often signals further downside movement.
  • Pattern Criteria:
    • The current candle opens with a gap down from the previous candle’s low, creating a window.
    • No overlap exists between the current candle and the previous one, reinforcing the gap as a strong bearish signal.
  • Trading Significance:
    • This pattern indicates that sellers are dominating the market, with strong bearish sentiment likely to continue.
    • The presence of a “window” or gap suggests that the downtrend may accelerate as buyers struggle to close the gap.
  • Interpretation Tips:
    • The Falling Window is more significant when it appears in a strong downtrend, where it acts as a continuation signal.
    • For additional confirmation, watch for follow-through bearish candles that maintain or expand the gap, signaling ongoing selling pressure.
  1. Gravestone Doji (GD)
  • Description: The Gravestone Doji is a single-candle bearish reversal pattern that typically appears at the top of an uptrend. It has a long upper shadow and little to no lower shadow, with the open and close near the low of the period, resembling a gravestone. It reflects a rejection of higher prices and signals potential downside movement.
  • Pattern Criteria:
    • The candle has a small or nonexistent body, with the open and close near the low of the period.
    • The long upper shadow suggests that, despite initial buying pressure, sellers ultimately regained control.
  • Trading Significance:
    • This pattern often signals a potential reversal, particularly after a strong uptrend, as it shows that buyers were unable to maintain higher prices.
    • The Gravestone Doji is stronger as a bearish signal when it appears at a resistance level.
  • Interpretation Tips:
    • For confirmation, look for a bearish candle following the Gravestone Doji, which would indicate continued selling pressure.
    • The pattern is more reliable if volume increases on the Gravestone Doji or if it appears in overbought conditions, as it shows that sellers are becoming more active.
  1. Hammer (++H)
  • Description: The Hammer is a single-candle bullish reversal pattern that appears in a downtrend. It has a small body at or near the top of the candle range and a long lower shadow, indicating that buyers have started to push back after a period of selling.
  • Pattern Criteria:
    • The candle has a small body at the top, with a long lower shadow that is at least twice the height of the body.
    • There is little to no upper shadow, suggesting that buyers maintained control by the close.
  • Trading Significance:
    • The Hammer suggests that selling pressure may be waning, as buyers are stepping in to counter the downtrend.
    • This pattern is more reliable when it appears near key support levels, signaling a possible reversal.
  • Interpretation Tips:
    • The Hammer is stronger if followed by a bullish candle, confirming the reversal.
    • Look for additional indicators like increasing volume or oversold conditions in RSI to support the bullish signal.
  • Strict Criteria:
    • Upper shadow height must be no more than 3% of the lower shadow height.
  1. Hanging Man (–HM)
  • Description: The Hanging Man is a bearish reversal pattern that appears in an uptrend and has a similar appearance to the Hammer. It has a small body at or near the top of the range with a long lower shadow, suggesting that sellers are starting to enter the market.
  • Pattern Criteria:
    • The candle has a small body at the top of the range, with a long lower shadow that is at least twice the height of the body.
    • There is little to no upper shadow, indicating that sellers controlled a significant portion of the period.
  • Trading Significance:
    • The Hanging Man suggests that buying momentum may be weakening, as sellers have stepped in. However, the trend remains up unless further bearish confirmation follows.
    • It’s most effective near resistance levels, where it’s more likely to mark the end of an uptrend.
  • Interpretation Tips:
    • Wait for a bearish candle following the Hanging Man to confirm the reversal.
    • Volume analysis is also useful; higher volume on the Hanging Man may indicate stronger selling pressure.
  1. High Wave (HW)
  • Description: The High Wave is a single-candle pattern with long upper and lower shadows and a small body, indicating significant price volatility and market indecision. It often appears at the top or bottom of a trend, hinting at a potential reversal or pause.
  • Pattern Criteria:
    • The candle has a small body with long upper and lower shadows, showing significant price movement in both directions.
    • The shadows reflect indecision, as neither buyers nor sellers could maintain control by the close.
  • Trading Significance:
    • The High Wave pattern signals that the current trend may be weakening or stalling, with a possible reversal on the horizon.
    • The longer the shadows relative to the body, the stronger the signal, as it reflects extreme indecision.
  • Interpretation Tips:
    • For confirmation, look for a follow-up candle that breaks out in either direction.
    • High Wave patterns are more reliable near support or resistance levels, where volatility and indecision are more likely to indicate a change in direction.
  1. Inverted Hammer (++IH)
  • Description: The Inverted Hammer is a bullish reversal pattern that appears in a downtrend. It has a small body near the lower end of the range and a long upper shadow, suggesting that buyers attempted to push prices higher, even though sellers regained some control by the close.
  • Pattern Criteria:
    • The candle has a small body at the bottom, with a long upper shadow at least twice the size of the body.
    • There is little to no lower shadow, indicating that sellers were unable to push prices significantly lower.
  • Trading Significance:
    • The Inverted Hammer suggests that the downtrend may be weakening, as buyers attempted to gain control.
    • It is more effective as a reversal signal when followed by a strong bullish candle, confirming the upward momentum.
  • Interpretation Tips:
    • Look for confirmation from other indicators, such as volume or an oversold reading in RSI, to validate the bullish signal.
    • The Inverted Hammer is more reliable when it appears near a support level, where buyers are expected to be more active.
  • Strict Criteria:
    • Lower shadow must be no more than 3% of the upper shadow height.
  1. Long Legged Doji (LLD)
  • Description: The Long Legged Doji is a single-candle pattern with very long upper and lower shadows and a tiny body in the middle. It reflects significant volatility within the period but ultimately ends with indecision, as the open and close prices are nearly the same.
  • Pattern Criteria:
    • The candle has very long upper and lower shadows, with a small or nonexistent body at the center.
    • The open and close prices are almost identical, showing that neither buyers nor sellers were able to gain control by the end of the period.
  • Trading Significance:
    • This pattern suggests that there is considerable uncertainty in the market, with buyers and sellers pushing the price in both directions before settling back at the starting point.
    • When it appears after a strong uptrend or downtrend, it often signals a potential reversal.
  • Interpretation Tips:
    • Long Legged Doji patterns are more reliable near key support or resistance levels, where indecision may lead to a reversal.
    • Look for a follow-up candle that confirms the breakout direction to validate the signal.
  1. Long Lower Shadow (++LLS)
  • Description: The Long Lower Shadow is a single-candle bullish pattern where the candle has a long lower shadow and a small body near the high of the range. It signals that, despite initial selling pressure, buyers stepped in and pushed the price back up.
  • Pattern Criteria:
    • The candle has a long lower shadow, with a small body positioned near the high of the candle’s range.
    • There is little to no upper shadow, suggesting that buyers maintained control by the close.
  • Trading Significance:
    • The Long Lower Shadow indicates strong buying interest, with sellers failing to maintain their push downward.
    • This pattern is often a bullish reversal signal, particularly when it appears after a downtrend or near a support level.
  • Interpretation Tips:
    • Look for this pattern at key support levels, where it is more likely to mark the beginning of an uptrend.
    • For further confirmation, wait for a bullish candle in the next session to reinforce the signal.
  1. Long Upper Shadow (–LUS)
  • Description: The Long Upper Shadow is a single-candle bearish pattern where the candle has a long upper shadow and a small body near the low of the range. It suggests that buyers attempted to push the price higher but were met with strong selling pressure, ultimately driving the price back down.
  • Pattern Criteria:
    • The candle has a long upper shadow, with a small body positioned near the low of the range.
    • There is little to no lower shadow, indicating that sellers gained control by the close.
  • Trading Significance:
    • This pattern indicates strong selling interest and often signals a bearish reversal when it appears after an uptrend or near a resistance level.
    • The Long Upper Shadow shows that buyers were unable to maintain higher prices, which can hint at a shift in sentiment.
  • Interpretation Tips:
    • This pattern is more effective at resistance levels, where it is likely to signal a reversal.
    • For confirmation, wait for a bearish candle in the next session to validate the signal, particularly if it’s accompanied by increased volume.
  1. Marubozu (M)
  • Description: The Marubozu is a strong single-candle pattern that has no shadows, meaning the candle opens at the low and closes at the high (bullish Marubozu) or opens at the high and closes at the low (bearish Marubozu). It indicates strong directional momentum, with one side dominating the session entirely.
  • Pattern Criteria:
    • The candle lacks upper and lower shadows, reflecting complete dominance by either buyers (bullish Marubozu) or sellers (bearish Marubozu).
    • A bullish Marubozu opens at the low and closes at the high, while a bearish Marubozu opens at the high and closes at the low.
  • Trading Significance:
    • The Marubozu pattern signifies strong market sentiment and can indicate the continuation of the trend if it appears within an established trend.
    • If it appears at the beginning of a new trend, it often acts as a powerful reversal signal, showing a clear shift in control.
  • Interpretation Tips:
    • In an uptrend, a bullish Marubozu can act as a continuation signal, suggesting that buyers remain firmly in control.
    • In a downtrend, a bearish Marubozu reinforces selling pressure. Look for additional confirmation through volume or follow-up candles to validate the signal.
  1. Morning Star (++MS)
  • Description: The Morning Star is a three-candle bullish reversal pattern that appears at the end of a downtrend. It consists of a long bearish candle, a smaller-bodied candle that gaps down (often a Doji), and a long bullish candle that closes well into the body of the first bearish candle.
  • Pattern Criteria:
    • The first candle is a long bearish candle, reflecting strong selling pressure.
    • The second candle is small-bodied (often a Doji), which gaps down from the first candle, indicating indecision or a pause in selling.
    • The third candle is a long bullish candle that closes above the midpoint of the first candle, showing that buyers have taken control.
  • Trading Significance:
    • The Morning Star suggests a reversal from bearish to bullish sentiment, often marking the beginning of an uptrend.
    • The pattern is more reliable when the third candle closes well into the body of the first candle, indicating a strong shift in momentum.
  • Interpretation Tips:
    • Look for Morning Stars near support levels, where they’re more likely to indicate a reversal.
    • Confirmation from other indicators, such as RSI or volume, can improve reliability, especially if the market is oversold.
  1. Piercing Pattern (++PP)
  • Description: The Piercing Pattern is a two-candle bullish reversal pattern that appears at the end of a downtrend. It consists of a bearish candle followed by a bullish candle that opens below the previous low and closes more than halfway into the body of the first candle, suggesting a shift toward bullish sentiment.
  • Pattern Criteria:
    • The first candle is bearish, showing strong selling momentum.
    • The second candle opens below the previous candle’s low, reflecting continued bearish pressure.
    • The second candle closes above the midpoint of the first candle’s body, indicating that buyers are gaining strength.
  • Trading Significance:
    • The Piercing Pattern signals a potential reversal, as buyers overcome the selling pressure and drive prices higher.
    • This pattern is particularly effective near support levels or in oversold markets, where a reversal is more likely.
  • Interpretation Tips:
    • The Piercing Pattern is more reliable if confirmed by additional bullish candles in subsequent periods.
    • Look for confirmation from indicators like volume (higher on the bullish candle) or an RSI reading showing oversold conditions.
  • Strict Criteria:
    • Requires the Open to equal the Close and the Close to pierce the body from below between 51-99%.
  1. Rising Three Method (++3M)
  • Description: The Rising Three Method is a bullish continuation pattern that appears during an uptrend. It consists of a strong bullish candle, followed by three smaller bearish or neutral candles within the range of the first candle, and concludes with a long bullish candle that closes above the first candle, confirming the uptrend.
  • Pattern Criteria:
    • The first candle is a long bullish candle, reflecting strong buying momentum.
    • The next three candles are smaller bearish or neutral candles within the range of the first candle, indicating a temporary consolidation.
    • The fifth candle is a long bullish candle that closes above the high of the first candle, confirming the continuation of the uptrend.
  • Trading Significance:
    • The Rising Three Method pattern suggests a brief pause in the uptrend before it resumes, with buyers regaining control after a short consolidation.
    • This pattern provides traders with an entry point within a strong uptrend, where they can anticipate further upward movement.
  • Interpretation Tips:
    • The pattern is most effective when accompanied by high volume on the final bullish candle, reinforcing the continuation signal.
    • Traders can enter at the breakout or add to existing long positions, using the low of the first candle as a stop-loss level.
  1. Rising Window (+W)
  • Description: The Rising Window is a bullish continuation pattern characterized by a gap up in price, where the current candle opens above the previous candle’s high, creating a “window” or gap. This gap reflects strong buying interest and often suggests that the uptrend will continue.
  • Pattern Criteria:
    • The current candle opens with a gap above the previous candle’s high, creating a visible space between the two.
    • There is no overlap between the current and previous candles, reinforcing the bullish signal.
  • Trading Significance:
    • The Rising Window indicates strong bullish sentiment, as buyers were willing to pay a higher price immediately after the prior candle.
    • This pattern is often seen as a signal of upward momentum and likely trend continuation.
  • Interpretation Tips:
    • The Rising Window is particularly strong when it appears within an uptrend, as it signals that buyers are eager to continue pushing the price higher.
    • Watch for follow-through buying to confirm the signal, and consider using the gap as a support level if prices retrace.
  1. Shaven Bottom (SH)
  • Description: The Shaven Bottom is a single-candle bullish pattern that lacks a lower shadow, indicating that the price opened at the low and moved upward consistently throughout the session, closing near the high. It reflects strong buying pressure with no significant selling interest.
  • Pattern Criteria:
    • The candle opens at the low and has no lower shadow, suggesting consistent upward movement.
    • The body closes near the high, with little to no upper shadow, signaling strong buying momentum.
  • Trading Significance:
    • This pattern indicates sustained buying interest and is typically a bullish signal, especially if it appears after a downtrend or near support levels.
    • In an uptrend, the Shaven Bottom can act as a continuation pattern, signaling that buyers remain in control.
  • Interpretation Tips:
    • The Shaven Bottom is more reliable if it appears near a key support level or after a pullback in an uptrend.
    • For confirmation, look for another bullish candle in the next session or increased volume on the Shaven Bottom itself to validate the bullish sentiment.
  1. Shaven Head (SH)
  • Description: The Shaven Head is a single-candle bearish pattern that lacks an upper shadow, indicating that the price opened near the high and moved consistently downward throughout the session, closing near the low. It suggests strong selling pressure with little to no buying interest during the period.
  • Pattern Criteria:
    • The candle opens near the high and has no upper shadow, suggesting a steady decline from the open.
    • The body closes near the low, with little to no lower shadow, indicating strong selling momentum.
  • Trading Significance:
    • This pattern reflects strong bearish sentiment and is typically a bearish signal, especially if it appears after an uptrend or near resistance levels.
    • In a downtrend, the Shaven Head can act as a continuation pattern, reinforcing sellers’ control.
  • Interpretation Tips:
    • Look for the Shaven Head near resistance or at the end of a pullback in a downtrend for a stronger bearish signal.
    • For confirmation, check for increased volume on the Shaven Head or a follow-up bearish candle to validate the bearish sentiment.
  1. Shooting Star (–SS)
  • Description: The Shooting Star is a bearish single-candle reversal pattern that appears after an uptrend. It has a small body near the low of the range and a long upper shadow, indicating that buyers attempted to push the price higher but were met with strong selling pressure, ultimately driving the price back down.
  • Pattern Criteria:
    • The candle has a small body at the lower end of the range with a long upper shadow that is at least twice the height of the body.
    • There is little to no lower shadow, reflecting that sellers gained control by the close after a strong upward move.
  • Trading Significance:
    • The Shooting Star signals a potential reversal from bullish to bearish sentiment, as buyers were unable to maintain higher prices.
    • It’s more effective as a reversal signal when it appears near resistance levels.
  • Interpretation Tips:
    • For a stronger signal, look for a bearish candle to follow the Shooting Star, confirming the reversal.
    • Volume analysis can add confidence, with higher volume on the Shooting Star indicating stronger selling interest.
  • Strict Criteria:
    • Lower shadow must be no more than 10% of the candle’s height.
  1. Spinning Top (ST)
  • Description: The Spinning Top is a single-candle pattern with a small body in the middle of the candle and relatively long upper and lower shadows. It represents market indecision, as both buyers and sellers were active but neither side could gain control.
  • Pattern Criteria:
    • The candle has a small body in the center, with roughly equal-length upper and lower shadows.
    • This balance of shadows reflects a tug-of-war between buyers and sellers, resulting in a close near the open price.
  • Trading Significance:
    • The Spinning Top often appears during consolidation phases or at potential turning points in the market, signaling indecision.
    • When it appears after a strong trend (up or down), it can indicate that momentum is waning, possibly leading to a reversal or pause.
  • Interpretation Tips:
    • If the Spinning Top appears near a support or resistance level, it can be a precursor to a reversal.
    • Wait for a follow-up candle in either direction to confirm whether the market will continue or reverse its prior trend.

Complex Patterns

  1. Ascending Channel (AC)
  • Description: The Ascending Channel is a bullish continuation pattern formed by two parallel upward-sloping trendlines, encompassing a series of higher highs and higher lows. This pattern indicates that the price is trending upward within a defined range and often signals continuation until a breakout or breakdown occurs.
  • Pattern Criteria:
    • The pattern consists of two parallel trendlines sloping upward, with price moving between the lines.
    • The price action includes a series of higher highs and higher lows, touching both the upper resistance and lower support trendlines.
  • Trading Significance:
    • This pattern is typically a bullish continuation signal, as the price gradually rises within the channel.
    • A breakout above the upper trendline suggests an acceleration in the uptrend, while a breakdown below the lower trendline may signal a reversal.
  • Interpretation Tips:
    • Traders can enter long positions near the lower trendline (support) and take profits near the upper trendline (resistance).
    • For confirmation of a breakout, watch for increased volume as the price moves above the upper trendline. If the price breaks below the lower trendline, it could signal a trend reversal.
  1. Ascending Triangle (AT)
  • Description: The Ascending Triangle is a bullish continuation pattern that forms with a horizontal resistance line and an upward-sloping support line. It signifies that the price is being compressed, with buyers becoming increasingly aggressive, often leading to a breakout above the resistance level.
  • Pattern Criteria:
    • The pattern consists of a horizontal resistance level, indicating that sellers are holding the price at a consistent level.
    • The support level slopes upward, showing that buyers are pushing the price higher, forming a series of higher lows.
  • Trading Significance:
    • The Ascending Triangle generally indicates a bullish continuation, as it shows building buying pressure against a static resistance level.
    • A breakout above the resistance line suggests that buyers have overwhelmed sellers, potentially leading to a strong upward move.
  • Interpretation Tips:
    • Ascending Triangles are more effective within an uptrend, where they signal continuation.
    • Volume often spikes on a breakout above the resistance level, adding strength to the bullish signal. Traders can enter on the breakout and set a target by measuring the height of the triangle and projecting it from the breakout point.
  1. Bearish HLine Pin (–HLP)
  • Description: The Bearish HLine Pin is a bearish reversal pattern, where the price touches or “pins” a specific horizontal resistance level multiple times without breaking through. This repeated failure to break the resistance level signals that sellers are gaining strength, increasing the probability of a downward move.
  • Pattern Criteria:
    • A horizontal resistance line forms at a level where the price has repeatedly attempted and failed to close above.
    • The price action consists of upward moves that repeatedly “pin” the resistance level before falling back, showing that buyers are struggling to push past this level.
  • Trading Significance:
    • This pattern suggests that selling pressure is mounting at the resistance level, increasing the chances of a reversal to the downside.
    • It indicates that the current uptrend may be weakening as sellers defend the resistance level.
    • Interpretation Tips:
    • The Bearish HLine Pin pattern is most effective when accompanied by decreasing volume or additional bearish indicators, reinforcing the likelihood of a reversal.
    • For confirmation, look for a strong bearish candle after the last “pin” at the resistance line. Traders can enter short positions with a stop-loss above the resistance line.
  1. Bullish HLine Pin (++HLP)
  • Description: The Bullish HLine Pin is a bullish reversal pattern that occurs when the price touches or “pins” a specific horizontal support level multiple times without breaking below it. This repeated failure to break the support level signals that buyers are gaining strength, increasing the probability of an upward move.
  • Pattern Criteria:
    • A horizontal support line forms at a level where the price has repeatedly tested but failed to close below.
    • The price action shows downward moves that “pin” the support level before moving back up, indicating that sellers are struggling to push the price lower.
  • Trading Significance:
    • The Bullish HLine Pin suggests that buying interest is building at the support level, increasing the likelihood of a reversal to the upside.
    • This pattern often marks the end of a downtrend, as buyers defend the support level.
  • Interpretation Tips:
    • The Bullish HLine Pin pattern is particularly strong when supported by other bullish indicators, such as increased volume on each pin at the support level.
    • Traders can look for a bullish candle to close above the previous pin highs to confirm the reversal and consider entering a long position with a stop-loss below the support level.
  1. Descending Channel (DC)
  • Description: The Descending Channel is a bearish continuation pattern formed by two parallel downward-sloping trendlines, containing a series of lower highs and lower lows. This pattern indicates that the price is trending downward within a defined range, often suggesting continuation until a breakout or breakdown occurs.
  • Pattern Criteria:
    • The pattern consists of two parallel trendlines sloping downward, with price moving between the lines.
    • Price action includes a series of lower highs and lower lows, with touches on both the upper resistance and lower support trendlines.
  • Trading Significance:
    • The Descending Channel typically signals bearish continuation, as the price gradually declines within the channel.
    • A breakout above the upper trendline may indicate a trend reversal to the upside, while a breakdown below the lower trendline suggests further downside movement.
  • Interpretation Tips:
    • Traders can enter short positions near the upper trendline (resistance) and take profits near the lower trendline (support).
    • For confirmation of a breakdown, look for increased volume as the price moves below the lower trendline. Conversely, if the price breaks above the upper trendline, it may signal a bullish reversal.
  1. Descending Triangle (DT)
  • Description: The Descending Triangle is a bearish continuation pattern that forms with a horizontal support line and a downward-sloping resistance line. It indicates that selling pressure is increasing as buyers hold the price at a consistent support level, often leading to a breakdown below the support level.
  • Pattern Criteria:
    • The pattern consists of a horizontal support level, showing that buyers are defending the price at a particular level.
    • The resistance level slopes downward, showing that sellers are pushing the price lower, forming a series of lower highs.
  • Trading Significance:
    • The Descending Triangle generally indicates a bearish continuation, as it shows mounting selling pressure against a static support level.
    • A breakdown below the support line suggests that sellers have overwhelmed buyers, potentially leading to a strong downward move.
  • Interpretation Tips:
    • Descending Triangles are more effective within a downtrend, where they signal continuation.
    • Volume often spikes on a breakdown below the support level, reinforcing the bearish signal. Traders can enter short positions on the breakdown, using the height of the triangle to project a potential price target.
  1. Flat Lower Body (FL)
  • Description: The Flat Lower Body is a bearish pattern where the price opens and trades higher but then falls to close near the low of the range, leaving a small or nonexistent lower shadow. This pattern reflects that sellers are in control toward the end of the period, with buyers unable to push prices back up before the close.
  • Pattern Criteria:
    • The candle has a small or nonexistent lower shadow, meaning the close is near the low of the period.
    • The body is positioned in the upper part of the range, with the open near the high.
  • Trading Significance:
    • The Flat Lower Body suggests that, despite initial buying interest, sellers took over and maintained control, often indicating continued downward pressure.
    • This pattern can signal a bearish reversal when it appears after a strong uptrend or near resistance.
  • Interpretation Tips:
    • Look for a bearish candle to follow the Flat Lower Body for confirmation of the downward move.
    • Traders might also use volume analysis to strengthen the signal, with higher volume supporting the likelihood of continued selling pressure.
  1. Flat Upper Body (FU)
  • Description: The Flat Upper Body is a bullish pattern where the price opens and trades lower but then rallies to close near the high of the range, leaving a small or nonexistent upper shadow. This pattern indicates that buyers are in control toward the end of the period, with sellers unable to push prices back down before the close.
  • Pattern Criteria:
    • The candle has a small or nonexistent upper shadow, meaning the close is near the high of the period.
    • The body is positioned in the lower part of the range, with the open near the low.
  • Trading Significance:
    • The Flat Upper Body reflects strong buying pressure, suggesting that buyers took over and maintained control by the close, often signaling continued upward movement.
    • This pattern can signal a bullish reversal when it appears after a downtrend or near a support level.
  • Interpretation Tips:
    • For confirmation, look for a bullish candle to follow the Flat Upper Body, indicating further upward movement.
    • Increased volume on this candle can provide additional confidence in the likelihood of continued buying pressure.
  1. Pennant (PEN)
  • Description: The Pennant is a continuation pattern that forms after a strong move in either direction. It resembles a small symmetrical triangle with converging trendlines and typically appears during a pause in the trend before the price resumes in the same direction.
  • Pattern Criteria:
    • The pattern begins with a strong directional move (up or down), known as the “flagpole.”
    • Following the flagpole, price consolidates within two converging trendlines, forming the shape of a small triangle.
    • A breakout from the Pennant in the same direction as the initial move signals continuation.
  • Trading Significance:
    • The Pennant signals that the market is temporarily consolidating after a strong move, but the prevailing trend is likely to resume.
    • It is a useful pattern for identifying continuation points, particularly in trending markets.
  • Interpretation Tips:
    • Pennants are most effective when accompanied by high volume during the breakout phase, reinforcing the continuation.
    • Traders can measure the flagpole height and project it from the breakout point to set a potential price target.
  1. Rectangle (R )
  • Description: The Rectangle is a continuation pattern that forms when price moves within two parallel horizontal trendlines, indicating a period of consolidation within a defined range. It can serve as either a bullish or bearish continuation pattern, depending on the breakout direction.
  • Pattern Criteria:
    • The pattern is defined by price oscillating between a horizontal resistance level and a horizontal support level, forming a rectangular shape.
    • Multiple touches of both support and resistance are ideal, indicating that the range is holding firm.
    • A breakout in the direction of the prevailing trend signals continuation.
  • Trading Significance:
    • The Rectangle reflects a pause in the trend, with buyers and sellers in balance before the price resumes in the prevailing direction.
    • This pattern is valuable for traders seeking continuation signals in trending markets.
  • Interpretation Tips:
    • Look for volume to increase on the breakout for confirmation of trend continuation.
    • Traders can measure the height of the Rectangle and project it from the breakout point to estimate a potential price target.
  1. Resistance Line (RL)
  • Description: The Resistance Line is not a candle-specific pattern but rather a horizontal level that acts as a ceiling where price movements tend to stall. Resistance lines are formed when the price fails to move above a certain level multiple times, suggesting strong selling interest or a lack of buying pressure at that level.
  • Pattern Criteria:
    • A horizontal line is drawn at a price level that has previously stopped upward movement multiple times.
    • Each time price approaches this level, it encounters selling pressure or fails to continue upward, reinforcing the resistance.
  • Trading Significance:
    • Resistance Lines signal potential reversal zones where price may turn back down if the resistance level holds.
    • If the price breaks above a well-established resistance level, it often indicates strong bullish sentiment and a potential continuation of the uptrend.
  • Interpretation Tips:
    • Look for other bearish reversal patterns or indicators, such as RSI showing overbought conditions, to confirm the likelihood of price turning down from a resistance line.
    • If the price breaks above the resistance with increased volume, it’s often seen as a breakout signal, suggesting further upward movement.
  1. Support Line (SL)
  • Description: The Support Line is a horizontal level that acts as a floor where price movements tend to stop declining and reverse upward. It’s formed when the price fails to move below a certain level multiple times, suggesting strong buying interest or a lack of selling pressure at that level.
  • Pattern Criteria:
    • A horizontal line is drawn at a price level that has previously halted downward movement on multiple occasions.
    • Each time price approaches this level, it encounters buying pressure, which reinforces the support level.
  • Trading Significance:
    • Support Lines signal potential reversal zones where price may turn back up if the support level holds.
    • If the price breaks below a well-established support level, it often indicates strong bearish sentiment and the potential for further decline.
  • Interpretation Tips:
    • Look for other bullish reversal patterns or indicators, like RSI showing oversold conditions, to confirm the likelihood of price turning up from a support line.
    • If the price breaks below the support with increased volume, it’s often seen as a bearish breakout signal, suggesting further downward movement.

Advanced Usage and Strategy Integration

Indicator Buffers

  • Buffer 0: Candle Pattern Data
    • Bits 0-15: Pattern Type
    • Bits 16-19: Pattern Width In Bars
  • Buffer 1: Signal Flag values (Signal)
    • If (PatternTrendType Is Bearish Or PatternTrendType Is TopReversal Or PatternTrendType Is MajorTopReversal) Then Signal = Bearish
    • If (PatternTrendType Is Bullish Or PatternTrendType Is BottomReversal Or PatternTrendType Is MajorBottomReversal) Then Signal = Bullish

Strengthening Signals with Indicators

While Japanese Candlestick Patterns (JCP) can offer valuable insights into market psychology, their reliability and predictive power increase significantly when used in conjunction with other technical indicators. Each candlestick pattern provides a snapshot of market sentiment, but indicators like Moving Averages, RSI, and Bollinger Bands help confirm and strengthen these signals. By combining JCP with indicators, traders can reduce false signals, improve entry and exit timing, and make more informed decisions in both trending and volatile markets.

  1. Moving Averages (MA)
    Moving Averages help smooth out price data and highlight trend direction. Here’s how to integrate them with candlestick patterns:

  • Bullish Crossover and Bullish Patterns: When a shorter-term MA (e.g., 10-period) crosses above a longer-term MA (e.g., 50-period), it signals potential upward momentum. If this crossover aligns with a bullish pattern like a Hammer or Engulfing Bullish, it strengthens the likelihood of a trend reversal.

  • Bearish Patterns Below MA: Bearish patterns such as the Shooting Star or Bearish Engulfing forming below the MA suggest continued downward pressure, especially if the price remains below both short and long MAs.

    Example: In a downtrend, if the price briefly rises to test the 50-period MA and forms a Bearish Engulfing pattern, this combination can confirm a selling opportunity with higher confidence.

  1. Relative Strength Index (RSI)
    RSI measures the strength of price changes and is especially useful for identifying overbought or oversold conditions, enhancing JCP patterns:

  • Overbought Conditions with Bearish Patterns: If RSI is above 70 and a bearish pattern like Evening Star forms, it suggests a strong potential for a price reversal.

  • Oversold Conditions with Bullish Patterns: Similarly, an RSI below 30 alongside a Morning Star or Hammer indicates that buyers may soon gain control, suggesting a buying opportunity.

    Example: Suppose RSI has entered the oversold zone, and a Hammer pattern forms. This combination signals an opportune moment for a potential trend reversal, especially if it aligns with a support level.

  1. Bollinger Bands
    Bollinger Bands help gauge volatility, with price movements near the bands often signaling potential reversals:

  • Reversal Patterns at Upper Band: When the price touches the upper band and forms a bearish pattern like Shooting Star or Bearish Engulfing, it suggests that the asset might be overextended, signaling a sell opportunity.

  • Reversal Patterns at Lower Band: Conversely, if the price reaches the lower band and forms a bullish pattern like Hammer or Bullish Engulfing, it signals a potential reversal upwards.

    Example: During a period of high volatility, the price touches the upper Bollinger Band, followed by a Shooting Star. This often indicates a strong selling signal, especially if the price starts moving back toward the middle band.

Using JCP in combination with other indicators is essential for refining and validating trade signals. Indicators help filter out noise and reduce the impact of false signals that may appear from isolated patterns, thus providing a more holistic view of market conditions. This approach allows traders to make well-rounded decisions, improving the effectiveness of the JCP indicator as part of a comprehensive trading strategy.

Tips for Optimal JCP Usage

  1. Pattern Filtering:
    Use PatternType to narrow down patterns based on your trading style or market conditions. High-probability patterns such as Engulfing, Doji, and Morning/Evening Stars are particularly effective in volatile or trending markets. Filtering for these patterns can reduce noise and help you focus on significant signals.
    Example: If trading in a trending market, filter for patterns like Bullish Engulfing in an uptrend or Bearish Engulfing in a downtrend. These patterns indicate that the current trend is likely to continue.

  2. Market-Specific Patterns:
    Adjust your pattern selection based on the type of market:

  • Trending Markets: In strongly trending markets, prioritize continuation patterns like Three White Soldiers or Three Black Crows. These patterns confirm that the current trend has momentum and is likely to continue.
  • Range-Bound Markets: In range-bound markets, focus on reversal patterns like Hammer, Shooting Star, and Doji. These patterns are most effective near support and resistance levels, indicating potential reversals within the range.
    Example: In a range-bound market, if the price approaches a resistance level and forms a Shooting Star pattern, this combination suggests a potential reversal and an opportunity to consider a sell position.

Insights

Japanese Candlestick Patterns provide traders with nuanced insights into market psychology, yet some of their deeper interpretations are often overlooked. Here are advanced insights for applying JCP theory effectively:

  1. Psychological Layers of Reversal Patterns
    Reversal patterns like the Hammer and Shooting Star are more than mere entry signals; they reveal shifts in trader psychology. For instance, a Hammer forming after a downtrend indicates that buyers managed to regain control after a period of selling pressure, which might signal a bottom. Conversely, a Shooting Star shows buyer exhaustion at a peak, with sellers starting to dominate. Understanding the shift in momentum through these patterns allows traders to gauge when a trend may be reversing.

    • Example: In a downtrend, a Hammer forming near a key support level suggests a potential reversal. Combining this with oversold conditions (e.g., an RSI below 30) can provide a strong buy signal.

  2. The Power of Context in Continuation Patterns
    Continuation patterns like Rising Three Methods or Falling Three Methods suggest a temporary pause before the prevailing trend resumes. Observing these patterns in the context of trend strength can reveal the commitment of buyers or sellers. For example, the Rising Three Method in an uptrend reflects a momentary consolidation where sellers briefly control the market, but the trend resumes as buyers overpower them.

    • Example: If the Rising Three Method occurs after a period of high volume, it reinforces the likelihood of trend continuation, as the brief pause indicates that buyers are recharging before pushing prices higher.

  3. Complex Patterns for Detecting Breakouts and Reversals
    Patterns like Ascending Triangles or Descending Triangles provide unique opportunities by signaling a buildup of energy before a breakout. These patterns form as buyers and sellers become increasingly decisive, often leading to an explosive price move once a key level is breached.

    • Example: An Ascending Triangle forming in an uptrend near a resistance level with high volume is a strong signal of a breakout. Measuring the height of the triangle and projecting it from the breakout point offers a potential price target, allowing traders to set informed profit levels.

  4. Volume as a Confirmation Tool
    Volume plays a crucial role in confirming the reliability of candlestick patterns. Increased volume during the formation of a pattern—such as a Bearish Engulfing—can indicate stronger market commitment and enhance the signal’s reliability.

    • Example: A Bullish Engulfing pattern at a support level, accompanied by rising volume, signifies that buyers are taking control, increasing the likelihood of a reversal.

  5. Multi-Timeframe Analysis for Higher Accuracy
    Using candlestick patterns across multiple timeframes adds another dimension to their effectiveness. Patterns on higher timeframes, such as daily or weekly charts, often carry more weight, while shorter timeframes like 5-minute charts can fine-tune entry and exit points.

    • Example: A Bullish Engulfing on a daily chart signals a potential trend reversal. When confirmed by a smaller timeframe, like an hourly Hammer, it provides a more precise entry point with reduced risk.

By considering these advanced interpretations, traders can better leverage Japanese Candlestick Patterns as part of a holistic strategy, enhancing both the timing and reliability of trading decisions.