Advanced Candlestick Patterns

Building on candlestick basics, this guide covers advanced patterns and nuances that help experienced traders identify higher probability setups.

Advanced Single Candle Patterns

Long-Legged Doji

Appearance:

• Very small body (or none)
• Very long upper and lower wicks
• Equal length wicks ideally

Significance:

• Extreme indecision
• Battle between buyers and sellers
• Often at major turning points
• More significant than regular doji

Dragonfly Doji

Appearance:

• Open, high, and close same/near
• Long lower wick
• No upper wick

Significance:

• Bullish at bottom of downtrend
• Sellers pushed down, buyers recovered
• Strong rejection of lows

Gravestone Doji

Appearance:

• Open, low, and close same/near
• Long upper wick
• No lower wick

Significance:

• Bearish at top of uptrend
• Buyers pushed up, sellers recovered
• Strong rejection of highs

Four Price Doji

Appearance:

• Open = High = Low = Close
• Just a horizontal line

Significance:

• Complete indecision
• Very rare
• Watch for next candle direction

Complex Two-Candle Patterns

Bullish Harami

Appearance:

• Large bearish candle
• Small bullish candle inside first body

Significance:

• Selling pressure diminishing
• Possible reversal
• Less strong than engulfing

Bearish Harami

Appearance:

• Large bullish candle
• Small bearish candle inside first body

Significance:

• Buying pressure diminishing
• Possible reversal
• Less strong than engulfing

Bullish Harami Cross

Appearance:

• Large bearish candle
• Doji inside first body

Significance:

• Stronger than regular harami
• Indecision after selling
• Better reversal signal

Matching Low

Appearance:

• Two bearish candles
• Same closing price

Significance:

• Support established
• Potential bullish reversal
• Buyers defending level

In Neck Line

Appearance:

• Bearish candle
• Bullish candle opening lower and closing slightly inside the first candle's body, just above its close

Significance:

• Weak bullish attempt
• Continuation pattern
• Bears still in control

On Neck Line

Appearance:

• Bearish candle
• Bullish candle opening lower and closing at or near the first candle's low

Significance:

• Very weak bullish attempt
• Usually continuation
• Bears maintain control

Advanced Three-Candle Patterns

Three Inside Up

Appearance:

1. Large bearish candle
2. Small bullish candle inside first
3. Bullish candle closing above the first candle's open

Significance:

• Strong bullish reversal
• Confirmation of harami
• Higher probability

Three Inside Down

Appearance:

1. Large bullish candle
2. Small bearish candle inside first
3. Bearish candle closing below the first candle's open

Significance:

• Strong bearish reversal
• Confirmation of harami
• Higher probability

Three Outside Up

Appearance:

1. Small bearish candle
2. Large bullish engulfing candle
3. Bullish candle closing above second

Significance:

• Very strong bullish reversal
• Confirmation of engulfing
• High reliability

Three Outside Down

Appearance:

1. Small bullish candle
2. Large bearish engulfing candle
3. Bearish candle closing below second

Significance:

• Very strong bearish reversal
• Confirmation of engulfing
• High reliability

Rising Three Methods

Appearance:

1. Long bullish candle

2-4. Small bearish candles (staying within first's range)

1. Long bullish candle closing above first

Significance:

• Bullish continuation
• Brief consolidation then continuation
• Strong pattern

Falling Three Methods

Appearance:

1. Long bearish candle

2-4. Small bullish candles (staying within first's range)

1. Long bearish candle closing below first

Significance:

• Bearish continuation
• Brief consolidation then continuation
• Strong pattern

Pattern Quality Factors

Location

Most Effective:

• At key support/resistance
• After extended moves
• At trend lines
• At moving averages

Less Effective:

• In the middle of nowhere
• No context
• Random occurrence

Trend Context

Better Patterns:

• Reversal patterns at trend extremes
• Continuation patterns within trends

Worse Patterns:

• Reversal patterns mid-trend
• Fighting the larger trend

Volume Confirmation

Stronger Signals:

• High volume on reversal candle
• Volume confirms direction
• Climax volume at extremes

Candle Size

More Significant:

• Larger candles = more significant
• Small candles = less conviction
• Compare to recent candles

Pattern Failure Recognition

When Patterns Fail

Signs:

• Immediate reversal of expected direction
• Opposite candle follows
• Level doesn't hold

Trading Failures

Strategy:

• Failed patterns often give opposite signals
• Quick reversal = trade the failure
• Trapped traders fuel move

Managing Trades

When Pattern Fails:

• Exit quickly
• Don't average down
• Reassess direction

Combining Patterns

Pattern + Level

Better Setup:

• Pattern at support/resistance
• Multiple reasons for trade
• Higher probability

Pattern + Indicator

Confirmation:

• Pattern + RSI oversold
• Pattern + MACD divergence
• Multiple factors align

Pattern + Trend

Ideal:

• Pattern in trend direction
• Trade with larger trend
• Higher probability

Reading Candle Clusters

Congestion Areas

Shows:

• Indecision
• Building energy
• Watch for breakout

Sequential Dojis

Meaning:

• Extreme indecision
• Major move coming
• Direction uncertain

Spinning Tops Sequence

Interpretation:

• Continued indecision
• Wait for resolution
• Breakout direction matters

Practical Application

Scanning for Patterns

Process:

1. Check higher timeframe trend
2. Identify key levels
3. Look for patterns at levels
4. Confirm with other factors

Entry Approach

Method:

1. Pattern identified
2. Wait for confirmation
3. Enter on break of pattern high/low
4. Stop beyond pattern

Risk Management

Rules:

• Stop beyond pattern boundary
• Risk based on pattern size
• Target based on support/resistance

Key Takeaways

• Advanced patterns add nuance
• Location and context crucial
• Three-candle patterns often more reliable
• Combine patterns with other analysis
• Watch for pattern failures
• Volume adds confirmation
• Trade with larger trend
• Confirmation increases probability

What's Next?

Learn about market structure and price action.

This article is for educational purposes only and does not constitute financial advice.