Top 3 Candlestick Patterns Every Trader Must Know

→4 MIN READ

Learn about the top 3 candlestick patterns that every trader should know for better trading decisions. These patterns offer insights into market trends and price reversals.


Candlestick patterns are a trader’s best friend when it comes to identifying potential price movements in the market. They give you key insights into whether a stock or index is likely to continue its current trend or reverse direction.

In this post, we’ll break down the top 3 candlestick patterns that every trader—whether you’re a beginner or a seasoned pro—should know.

1. The Bullish Engulfing Pattern 🐂

The Bullish Engulfing Pattern is one of the most reliable reversal patterns out there, signaling a potential shift from a downtrend to an uptrend. This pattern is created when a small red (bearish) candlestick is immediately followed by a large green (bullish) candlestick that completely "engulfs" the previous red candle.

This is important because it shows that the bulls (buyers) have stepped in strongly, reversing the previous bearish sentiment.

What to Look For:

  • A small red candle followed by a large green one.
  • The green candle fully engulfs the body of the red candle.
  • It usually appears at the bottom of a downtrend.

What It Means for Traders:

A bullish engulfing pattern signals that buyer momentum is growing, and you may want to consider entering a long (buy) position.

2. The Bearish Engulfing Pattern 🐻

On the flip side, the Bearish Engulfing Pattern is a powerful indicator of a potential reversal from an uptrend to a downtrend. It forms when a small green candlestick is followed by a large red candlestick that completely engulfs the previous green candle.

This shows that the bears (sellers) have overtaken the bulls, signaling a potential price drop.

What to Look For:

  • A small green candle followed by a large red one.
  • The red candle fully engulfs the body of the green candle.
  • It usually appears at the top of an uptrend.

What It Means for Traders:

This pattern is a warning that the bullish momentum might be over, and a downtrend could be coming. It’s a signal to consider selling or shorting a position.

3. The Doji Candlestick Pattern ⚖️

The Doji Pattern is a unique candlestick that indicates indecision in the market. A Doji forms when the opening and closing prices of an asset are nearly identical, resulting in a candle that looks like a cross or a plus sign.

This pattern suggests that neither the bulls nor the bears are in control, which could lead to a potential reversal, depending on the following candlesticks.

What to Look For:

  • The candle’s body is very small, sometimes appearing as just a line.
  • Long wicks on both sides, indicating market indecision.
  • Can appear at the top or bottom of trends or in consolidation zones.

What It Means for Traders:

A Doji alone isn’t a strong indicator, but when combined with other patterns, it signals indecision in the market and the possibility of a trend reversal. It’s a sign to pay close attention to what comes next.

Bonus: How to Spot These Patterns on the Punch Trading App 🖥️

With so many charts and data points, it can be overwhelming for traders to analyze the market. That’s where the Punch trading app comes in. Punch makes it easy for you to set up candlestick charts and identify key patterns like the ones we’ve discussed here.

Whether you’re trading on the go or at home, Punch gives you the tools you need to make smarter trading decisions.

 


Conclusion: Master Candlestick Patterns for Better Trading

Candlestick patterns are one of the most important tools in a trader’s arsenal. By learning to recognize these top 3 patterns—Bullish Engulfing, Bearish Engulfing, and Doji—you’ll be better equipped to understand market sentiment and make informed trading decisions.

Remember: No single candlestick pattern is perfect on its own. The key is to combine your knowledge of these patterns with other indicators and your overall trading strategy.

Watch Our Free Video Series

Check out our Move Like Arshad video series for quick tips on options trading, with 3-minute videos packed with valuable insights. https://punn.ch/mla/playlist