What are Single Candlestick Patterns & Their Types | Finschool (2024)

Single Candlestick Patterns helps to Gauge the market trends, historical analysis and forecasting future. They are the most potent form of technical indicators. The candlestick can be said to be historical indicator as the candlesticks are formed on the already happened market action. But the candlesticks formed goes a long way in understanding the future trends and price patterns.

What are Single Candlestick Pattern?

• Single Candlestick Pattern is formed by just one candle. Here there are no multiple or group of candles and the trading signal is generated based on a single day’s trading action. Typically traders use the 1-day candlestick chart to identify a single candlestick pattern. This is one of the simplest forms of technical analysis and takes very little time.

Understanding Single Candlestick Pattern

• Single Candlestick Pattern are classified as trend reversal patterns. There is no single candlestick pattern that is classified as a continuation pattern. However single candlestick patterns often need to be read in the context of the candlesticks that preceded it, and often need confirmation.
• Trend Reversal pattern must appear in an established trend. They should be ignored in non trending market.
• One needs to pay attention to the length of the candle while trading. The length signifies the range of the day. The longer the candle the more intense is the buying and selling activity. If the candles are short it can be concluded that the trading action was subdued. The trades have to be qualified based on the length of the candles as well. One should avoid trading based on subdued short candles.

Japanese Candlestick Pattern

• A Japanese Candlestick is a method that technical analysis use to identify the current market state and predict future movements. It was initially invented in the early 1700’s by Munehisa Homma, a Japanese rice trader. Steve Nison introduced it to the world in his book Japanese Candlestick Charting Techniques, first published in 1991.
• It provides an elaborate and accurate depiction of the market price through a graphical presentation. Traders can easily identify market trends by looking at the candlestick length and color. Types of Japanese Candlestick Pattern.

Hammer and Hanging Man

Recognition Criteria for a Hammer:

• The Hammer Pattern occurs when the candle opens at high but is not able to sustain there and it falls considerably but with continuous buying interest is able to recover and the candle closes in green and near the opening price. The length of the wick here has to be at least twice the size of the body.
• The Hammer pattern is a single candle bullish reversal pattern that can be spotted at the end of a downtrend. The opening price, close and top are approximately at the same price, while there is a long wick that extends lower, twice as big as the short body.

Recognition Criteria for a Hanging Man

• A Hanging man candlestick pattern occurs during an uptrend and warns that prices may start to fall. The candle is composed of a small real body a long lower shadow, and little or no upper shadow. The hanging man shows that selling interest is starting to increase. It is a bearish reversal candlestick pattern that occurs after a price advance. The advance can be small or large, but should be composed of at least a few price bars moving higher overall.
• The hanging man pattern is just a warning. The price must move lower on the next candle in order for the hanging man to be a valid reversal pattern. This is called confirmation. Traders typically exit long trades or short trades during or after the confirmation candle not before.

Inverted Hammer and Shooting Star

Inverted Hammer

• The inverted Hammer Candlestick Pattern is primarily a bottom reversal pattern. This pattern is typically formed when a downtrend is drawing towards an end. The inverted Hammer Candlestick formation occurs mainly at the bottom of downtrends and can act as a warning of a potential bullish reversal pattern.
• What happens next day after the Inverted Hammer pattern is formed is what gives traders an idea as to whether or not prices will go higher or lower. After a long downtrend the formation of an inverted Hammer is bullish because prices hesitated to move downward during the day. Sellers pushed prices back to where they were at the open but increasing prices shows that bulls are testing the powers of the bears

Shooting Star

• In Technical analysis a shooting star is interpreted as a type of reversal pattern. The shooting star looks exactly the same like inverted hammer but instead of being found in a downtrend it is found in an uptrend. It is made up of candle with small lower body little or no lower wick, and a long upper wick that is at least two times the size of the lower body.
• Shooting star is actually hammer candle turned upside down very much like the inverted hammer pattern. The difference is that the shooting star occurs at the top of an uptrend. It’s bearish chart pattern as it helps end the uptrend. The inverted hammer on the other hand is a bullish chart pattern that can be found at the bottom of a downtrend and signals that the price is likely to trend upward.

List of all the Single Candlestick Pattern

1. Marubozu Candlestick Pattern

• In Japanese, marubozu means ‘the bald’. Hence, a marubozu candle only has its main body and has no upper shadow or lower shadow. Also for marubozu, there are two types marubozu candlestick chart patterns: the bullish marubozu and the bearish marubozu.

As we go further, let have a look at the three main rules applicable for candlestick patterns. Here are they:

• Buying strength and selling weakness.
• Being flexible with patterns.
• Looking for prior trend.

But marubozu is the candle that doesn’t follow the last rule of candlestick patterns, that means it doesn’t depend on the prior trend and it can appear anywhere in the middle of a candlestick chart.

2. Spinning Top Candlestick Pattern

• Alike the name, it looks like a top spinning, with a small real body and almost equal upper and lower shadow. It may not give trading signal with specific entry or an exit point but it provides the useful information with regarding the current situation in the market.

3. Doji Candlestick Pattern

• A doji is much similar to a spinning top; however the difference is that a doji doesn’t have a real body. As it doesn’t have a real body, we can say that the open and close price of the stock is almost equal. A doji provides crucial information about a stock and helps with the trading decisions.
• A candle with a very thin body can also be considered as a doji as there isn’t much difference between the open and close price of the stock. As a doji has difference between the open and close price, the color of the candle doesn’t matter much. What matters most is that the open and close price is almost equal to each-other. If you see some contiguous dojis in a candlestick chart of a stock, it means there is and indecision in the market and it may swing either ways.

Conclusion

Thus Single Candlestick Pattern is generated by single candle. Typically traders use the 1-day candlestick chart to identify a single candlestick pattern. Single Candlestick Patterns are Japanese Candlestick Formations. They are traded independently and come in three main types, each of which has a bullish and a bearish version.