Most traders miss early entries because they ignore candlestick patterns. That’s a mistake. Some patterns offer strong, statistically backed bullish signals—perfect for catching trend reversals or breakouts. For example, a study by Thomas Bulkowski shows that patterns like the morning star and engulfing candle can have 70%+ success rates in bullish markets.
1. Bullish Engulfing
The bullish engulfing pattern is a powerful reversal signal. It forms when a small red (bearish) candlestick is followed by a larger green (bullish) candlestick that completely “engulfs” the previous candle’s body. The shift from sellers to buyers is instant and obvious.
It typically shows up after a downtrend or during a pullback in an uptrend. Traders love this pattern because it shows aggressive buying pressure. It tells you that demand has overpowered supply within one session.
Real-World Example:
Apple (AAPL) formed a textbook bullish engulfing pattern on March 16, 2020. The green candle closed well above the previous day’s red candle. That setup marked the bottom of the COVID crash for AAPL and the stock surged more than 60% over the following months.
Why It Works:
It reflects a sudden reversal in market sentiment. When buyers show strength after a period of weakness, that can be an early signal of trend change.
How to Trade It:
Use support levels to validate the signal. If the engulfing pattern forms near a major demand zone, the probability of a reversal increases. Add volume analysis—rising volume during the engulfing candle confirms buyer strength.
2. Morning Star
The morning star is a three-candle formation. It begins with a long red candle, followed by a small-bodied candle that gaps lower (this one shows indecision) and ends with a strong green candle that closes deep into the first candle’s body. It indicates a shift in momentum from bearish to bullish.
Market Context:
It works best after a significant downtrend when the market is showing signs of exhaustion. The second candle represents a pause, while the third confirms the reversal.
Real-World Example:
In March 2023, the S&P 500 dropped significantly and then formed a morning star on the daily chart. That led to a sharp rally of over 7% in less than 10 trading days.
What to Watch For:
The strength of the third candle is key. If it closes above 50% of the first candle’s body, the pattern is stronger. It’s also important that the second candle gaps down from the first, creating a “void” that enhances the pattern’s meaning.
Trading Tip:
Pair it with RSI. If the morning star forms when RSI is below 30, that’s an extra signal of a bullish reversal.
3. Hammer
The hammer is a simple yet powerful reversal pattern. It has a small body near the top and a long lower wick, usually forming after a downtrend. It shows sellers pushed the price down, but buyers regained control before the close.
Best Use:
It works best at support zones or after sharp declines, signaling potential reversal.
Example:
Tesla (TSLA) showed a hammer on June 3, 2021, near $572. It rallied over 20% in the next two weeks.
Key Details:
The lower wick should be at least twice the body, with little to no upper wick. High volume strengthens the signal.
Risk Tip:
Use a stop-loss just below the wick—if broken, the setup is invalid.
4. Piercing Line
The piercing line is a bullish reversal pattern made of two candles. The first is a strong red candle. The second opens below the red candle’s low but closes more than halfway into the red candle’s body.
This move shows that buyers have stepped in aggressively after a bearish session.
Market Behavior:
This pattern reflects a “fake-out” to the downside, where bears are caught off guard and bulls take control quickly. It often causes short-covering, which can add momentum to the move.
Real-World Example:
Bank of America (BAC) formed a piercing line on the weekly chart in May 2022. It reversed off support and bounced 12% in a few weeks.
When to Use It:
Look for this pattern after oversold conditions or at strong support levels. If it forms with rising volume and a bounce in RSI (Relative Strength Index), it becomes more reliable.
Bonus Tip:
If the second candle closes above the 61.8% retracement of the first candle, it’s an even stronger signal.
5. Three White Soldiers
The Three White Soldiers is a strong but rare bullish reversal pattern. It features three long green candles, each opening within the previous body and closing higher—signaling steady buying pressure.
Why it works:
Unlike one-candle patterns, it shows follow-through. It means bulls are in control.
Example:
Bitcoin showed this in Nov 2023, rising from $26K to over $30K—marking a breakout after a downtrend.
Caution:
Avoid chasing it after steep runs or near resistance—pullbacks can follow.
Smart strategy:
Wait for a brief pullback or pause after the third candle to enter with less risk.
As if this wasn’t enough, you can find other 50 top candle formations to add to your trading toolbox, but remember—recognizing patterns is only part of the process. To truly trade them well, you need to combine setups with context: support and resistance zones, volume spikes, and momentum shifts.
The real edge comes from understanding why a pattern works, not just spotting it. Master the conditions around each signal, and you’ll increase your odds of catching high-probability moves consistently.
