Mastering Japanese Candle Patterns: A Complete Visual Guide for Trading Beginners

Japanese candlestick charts are one of the most powerful tools for analyzing price movements in real-time. Unlike other display formats, the Japanese candlestick provides an instant understanding of market dynamics through its four key elements: open price, close price, high, and low of a given period. This method, originating from Japanese rice markets and popularized by Steve Nison in 1989, remains dominant among technical traders worldwide.

Why Japanese Candlesticks Dominate Technical Analysis

The strength of Japanese candlestick charts lies in their ability to tell the story of a battle between buyers and sellers. Across all timeframes—from hourly charts to monthly charts—these formations reveal not only the price but also the sentiment driving it. Professional traders rely on these patterns to detect major market turning points and anticipate consolidation phases.

Anatomy of a Japanese Candlestick: Understanding Its Three Essential Components

Each candlestick tells a story through three distinct visual elements: color, body, and wick.

Color as a Directional Indicator
The hue of the candle reflects the price dynamics during the observed period. Green (or white) candles indicate an upward movement, while red (or black) candles express bearish pressure. This instant coding allows traders to quickly identify the trend without prior calculation.

The Body: Open and Close Prices
The central rectangle of the candle delineates the range between open and close. For a green candle, the bottom of the body represents the open, and the top the close. This relationship reverses for red candles, revealing who—buyers or sellers—maintained control until the close.

The Wick: Extreme Limits of Movement
Thin lines above and below the body indicate the highest (upper wick) and lowest (lower wick) reached during the period. These extensions reveal attempts at price action and friction points between opposing camps.

Body-Wick Interaction: Key to Decoding Sentiment

The relative length of the body compared to the wicks reveals the underlying force balance.

Clear Dominance vs. Indecision
When the body dominates the wicks, the movement was decisive: buyers or sellers faced little resistance. Conversely, long wicks surrounding a small body indicate marked hesitation—the two camps tested extremes without creating lasting conviction.

Buying and Selling Strength
A long, thick bullish body with short wicks confirms buyers’ dominance over the entire period. The inverse scenario—a long, robust bearish body with reduced wicks—betrays determined selling pressure. In both cases, the body length quantifies intensity.

Wicks as Rejection Zones
A prolonged upper wick after a rally indicates sellers pushed back against the advance. Buyers drove the price to the limit, but momentum was broken at resistance. Similarly, a long lower wick reveals buyers regained control after an extreme bearish test, forcing a rebound.

Classification of Patterns: Three Major Categories

Japanese candlestick formations are categorized by their directional significance:

Bullish Reversal Patterns
These emerge after a downtrend and signal a polarity reversal. Traders interpret them as imminent buy signals, justifying long positions.

Bearish Reversal Patterns
Occurring after a prolonged ascent, these formations mark a structural resistance. Sentiment shifts: sellers begin to dominate, prompting professional traders to close longs and initiate shorts.

Continuation Patterns
Unlike reversals, these patterns indicate a temporary pause without changing direction. The market remains indecisive, accumulating volatility before resuming the initial move.

Unique Patterns: Foundations of Technical Language

Rounded Top Candle: Consolidated Indecision

This formation features a short body between two balanced wicks. It perfectly embodies a deadlock: buyers and sellers neutralize each other. Although neutral by nature, it often signals that a previous trend is losing momentum. Traders interpret it as a rest period after increased volatility, suggesting a new direction will emerge soon.

Doji Candle: The Symbol of Neutral Conflict

When open and close prices coincide, the candle takes a cross shape (+). This pattern, called Doji, symbolizes perfect balance—no camp imposes its authority.

Variants of the Doji deserve attention:

• Long-legged Doji: extended upper and lower wicks, revealing extreme volatility without direction
• Gravestone Doji: upper wick only, body at the bottom, no lower wick—sellers regain control after a bullish test
• Dragonfly Doji: major lower extension, no upper projection—buyers recover after a plunge
• Four-price Doji: rare, no wicks at all, indicating absolute stagnation

Alone, the Doji remains neutral. But when placed after a long move, it gains significant predictive power: it signals a possible trend breakout.

Marubozu Candle: Unambiguous Certainty

The Japanese term “Marubozu” (bald) describes a candle without wicks. The open price represents one extreme of a direction, the close the other.

The green Marubozu: open at the lowest, close at the highest. Buyers control every tick, pushing relentlessly. The longer the body, the purer the bullish momentum.

The red Marubozu: open at the highest, close at the lowest. Selling pressure dominates entirely. This clarity often predicts trend continuation.

Hammer Candle: Rebound After Extreme Bearish Test

This formation features a long lower wick (2-3 times the body) and an almost nonexistent upper wick. The underlying scenario: sellers pushed the price to a low point, but buyers counterattacked strongly, forcing the close well above the low. Although initially bearish, the Hammer signals a potential reversal. Cautious traders wait for confirmation (e.g., a strong subsequent bullish candle) before acting.

Inverted Hammer: Rejected Bullish Test

Symmetrical to the Hammer, this pattern shows a long upper wick and a tight lower body. Price rises, then trades sideways, closing well below the peak. Sellers gradually take control, suggesting a bearish transition. The Inverted Hammer is interpreted as a loss of buyer control.

Hanging Man: Bearish Warning After Uptrend

Morphologically identical to the Hammer, but fundamentally different in context. While the Hammer appears after a decline, the Hanging Man emerges after an ascent. It indicates resistance accumulation: sentiment shifts toward selling. A red Hanging Man is a stronger signal than a green one, reinforcing the bearish message.

Shooting Star: Drop After Bullish Peak

After a slight upward gap, the price rises, then plunges, closing below the open—like a falling star. The body remains small, with an elongated upper wick. Sellers intercepted and canceled the advance. Whether it closes green or red, the Shooting Star predisposes a reversal.

Double Patterns: Predictive Reinforcement via Two Consecutive Candles

Engulfing Candle: Directional Overlap

When a new candle completely engulfs the previous one in the opposite direction, it signals a major momentum change.

Bullish Case: a bearish candle preceded by a much larger bullish candle—the extension engulfs the bearish range. The larger the gap, the stronger the presumed bullish reversal. This signal is amplified if it occurs after a prolonged decline or at a strong support level.

Bearish Case: a bullish candle preceded by a dominant bearish candle exceeding the previous range. Timing and context are equally important: maximum signal after a prolonged rise or at major resistance.

Piercing Pattern: Bullish Breakout After a Downtrend

This sequence begins with a long red candle, followed by a long green one. A bearish gap separates the close of the first from the open of the second, revealing aggressive buying pressure pushing the price upward. Key criterion: the close of the second candle exceeds the midpoint of the first candle’s body. The Piercing pattern embodies a reversal following a downtrend.