CANDLESTICK PATTERNS : BULLISH PATTERNS

1. BELT HOLD : A white day occurs with no lower shadow and a close near the day’s high. The Belt Hold occurs fairly often and is not very reliable. The fact that the day’s opening price holds as the low of the day and the stock trends up all day leans bullish, but one really needs to make note of the overall trend and receive
confirmation with an additional up day.

Pattern: reversal - Reliability: low

2. ABANDONED BABY : A long black day is followed by a Doji that gaps in the direction of the trend. Then a white day occurs gapping in the opposite direction with no overlapping shadows.

In a downtrend or within a pullback of an uptrend, the market gaps down but does not continue its downward movement. Instead enough bulls step up to bring supply and demand back into equilibrium and the stock churns in place. This isn't necessarily bullish, but it's certainly less bearish. The pattern is confirmed by the next day's gap up and rally.

Pattern: reversal - Reliability: high

3. BREAKAWAY : A long black day is followed by a black day that gaps below the first day. The next two days continue in the same direction with lower consecutive closes. The final day is a long white day that closes in the gap between the first and second days.

In a downtrend or within a pullback of an uptrend, the stock exhausts itself with a gap down, but although the downward movement continues, it slows noticeably. The long white day suggests a possible reversal in the making to at least fill the overhead gap. Declining volume on the three middle days with a pickup in volume on the white day serve as confirmation.

Pattern: reversal - Reliability: moderate

4. CONCEALING BABY SWALLOW : The first two days are Black Marubozu days (open is the high of the day and the close is the low of the day). The following day is a black day that gaps in the same direction but trades up into the body of the second day. The final day is a Black Marubozu that gaps up and sells off to engulf the third day.

In a downtrend or within a pullback of an uptrend, the two consecutive Black Marubozus indicate the bears are in complete control. The gap down on the third candle is bearish and attempt #1 is made to rally the stock (as evidenced by the upper shadow). Attempt #2 comes on the next day’s gap up, but the stock sells off again to indicate the bulls are throwing in the towel. But this is why the pattern works. Once the bulls are given up, there are no more sellers, so the down trend stops. Once the shorts start to cover, there are no sellers to stand in the way of a bounce.

Pattern: reversal - Reliability: high

5. DOJI STAR : A long black day is followed by a Doji that gaps in the direction of the trend. The shadows of the Doji should not be long.

In a downtrend or within a pullback of an uptrend, the market gaps down but does not continue its downward movement. Instead enough bulls step up to bring supply and demand back into equilibrium and the stock churns in place. The halt of the downtrend signifies the possibility of a reversal, so confirmation is needed with a strong third day (preferably with volume behind it).

Pattern: reversal - Reliability: moderate

6. ENGULFING : A black day is completely “engulfed” by a large white day that gaps below the black day’s low and rallies to close above its high.

In a downtrend or within a pullback of an uptrend, the gap down may be the blow out that causes the bulls to throw in the towel. When selling abates, bottom fishers and shorts rally the stock to close above the previous day’s high. The bullish Engulfing pattern is very common…literally dozens occur every day and many are just incidental. Watch volume for confirmation.

Pattern: reversal - Reliability: moderate

7. HARAMI : Long black day is followed by a white day which gaps opposite the trend and is completely engulfed by the real body of the first day.

In a downtrend or within a pullback of an uptrend, a long black day occurs. The next day’s gap up comes as a surprise to the shorts who thought they were sitting on a great position the previous day. The stock closes where it opens to signify a churn day with neither the bulls nor bears showing much force after the opening gap up. Reliability of the bullish Harami Cross is low, so a strong following day is needed for confirmation.

Pattern: reversal - Reliability: low

8. HARAMI CROSS : A long black day is followed by a Doji which gaps opposite the trend and is completely engulfed by the real body of the first day.In a downtrend or within a pullback of an uptrend, a long black day occurs. The next day’s gap up comes as a surprise to the shorts who thought they were sitting on a great position the previous day. The stock closes where it opens to signify a churn day with neither the bulls nor bears showing much force after the opening gap up. Reliability of the bullish Harami Cross is low, so a strong following day is needed for confirmation.

Pattern: reversal -  Reliability: low

9. HOMING PIDGEON : A long black day is followed by another black day which gaps opposite the trend and is completely engulfed by the real body of the first day.In a downtrend or within a pullback of an uptrend, a long black day occurs. The next day’s gap up comes as a surprise to the shorts who thought they were sitting on a great position the previous day, but the stock gives some of its gap up back causing the candle to be filled in. This relaxes the bears and worries the bulls, and this is the exact recipe needed for a possible bounce. Confirmation is needed with a strong following day on solid volume.

Pattern: reversal - Reliability: moderate

10. KICKING : A Black Marubozu (open is the high of the day and the close is the low of the day) day is followed by a White Marubuzo (open is the low of the day and the close is the high of the day) day that gaps in the opposite direction.

The current trend is not very important with a bullish Kicking pattern. The fact that the stock can gap up and rally to close at its high is bullish regardless of the previous trend. Use volume on the white day to confirm the movement.

Pattern: reversal - Reliability: high

11. LADDER BOTTOM : Three black days occur with successive lower opens and lower closes. Then a black day forms with some noticeably upper shadow. The final day is a white day that gaps against the trend and opens above the body of the fourth day.

In a downtrend or during a pullback within an uptrend, the bears are certainly in control. The buying that takes place on the forth day that forms the long upper shadow hints at buyers starting to bottom fish and shorts possibly taking some profits, but the intraday sell-off that closes the stock at the lows likely wipes out the bulls, and with the lack of sellers available, there isn’t much resistance left when the shorts start to cover.

Pattern: reversal - Reliability: moderate

12. MAT HOLD : A long white day in an uptrend is followed by a relatively small black day that gaps in the direction of the trend. The next two days continue the brief pullback and are small days that stay within the range of the first day. The fifth day is a long white day that closes above the close of the first day and continues the uptrend.

In an uptrend, a long white day is followed by a brief pullback (preferably on lightish volume). The fifth day simply continues the trend. The brief pullback is nothing more than a few days off for the bulls.

Pattern: continuation - Reliability: high

13. MATCHING LOW : A long black day is followed by another black day with equivalent closes both days.

In a downtrend or during a pullback within an uptrend, a long black day occurs signaling the bears being in control. The stock gaps up the next day but then sells off to close at the same level as the previous day. The more times a stock can successfully test and hold a low, the higher the chance a reversal will occur once the seller become exhausted. Strength the following day with volume would confirm the pattern.

Pattern: reversal -  Reliability: high

14. MEETING LINES : A long black day is followed by a long white day that gaps in the direction of the trend but then rallies to close at the same price as the black day’s close.In a downtrend or during a pullback within an uptrend, a long black day occurs. The next day gaps down in the direction of the trend and most likely causes the remaining bulls to throw in the towel. The stock then rallies as bottom fishers step in and shorts start to cover. The author considers the identical close of the two candles to be incidental and not extremely important. The fact remains the bulls were washed out and now short covering may cause the stock to bounce.

Pattern: reversal - Reliability: moderate

15. MORNING DOJI STAR : A long black day is followed by a Doji that gaps in the direction of the trend. The third day is a white day which closes in the top half of the black day.In a downtrend or during a pullback within an uptrend, the market gaps down but does not continue its downward movement. Instead enough bulls step up to bring supply and demand back into equilibrium and the stock churns in place. This is the bullish Doji Star formation. A subsequent follow through gap up that closes above the midpoint of the black day completes the Morning Doji Star and confirms the reversal.

Pattern: reversal - Reliability: high

16. MORNING STAR : A long black day is followed by a small day that gaps in the direction of the trend. The third day is a white day which closes in the top half of the black day.

In a downtrend or during a pullback within an uptrend, the market gaps down but enough buyers step in to halt the weakness. The lack of ability of the bears to press the issue indicates the downtrend may be weakening. The gap up and rally that closes the white day above the top half of the black day confirms the reversal if accomplished with a surge in volume.

Pattern: reversal -  Reliability: high

17. PIERCING LINE : A long black day is followed by a white day that gaps below the black day’s low and closes within and above the midpoint of the black day’s body.

In a downtrend or during a pullback within an uptrend, the stock gaps down, finds some buyers and then rallies. This simply signifies the possibility of a reversal that is more reliable if the gap down occurs at support and the white day is accompanied by a surge in volume.

Pattern: reversal - Reliability: moderate

18. THREE RISING METHODS : A long white day in an uptrend is followed by three relatively small candles that move opposite the overall trend but stay within the range of the first day. The fifth day is a long white day that closes above the close of the first day and continues the uptrend.In an uptrend, a long white day is followed by a brief pullback (preferably on lightish volume). The fifth day simply continues the trend. The brief pullback is nothing more than a few days off for the bulls.

Pattern: continuation -  Reliability: high

19. SEPARATING LINES : A black day is followed by a white day that has the same opening price.

In an uptrend, the underlying issue gaps up and falls to produce a black day. This proves to be simple profit taking within the uptrend when the issue gaps up the next day and rallies to close near its high.

Pattern: continuation - Reliability: low

20. SIDE BY SIDE WHITE LINES : A white day is followed by another white day that gaps in the direction of the trend. The third candle is also white and is almost identical to the previous day.

In an uptrend the second white candle that gaps up could signify the last of the bulls getting in “at any price.” The gap down the next day could be the start of a pullback, but since the stock rallies again, the bulls obviously are not done yet. As a continuation pattern, this formation hints at more upside to come.

Pattern: reversal - Reliability: high

21. STICK SANDWICH : A black day is followed by white day that gaps against the downtrend and closes above the black day’s high. The third day is a black day whose close is equivalent to that of the first day.After two consecutive higher opens, the stock is right back where it started. One can sense the stock wants to move up, but it needs to solidify support first. As long as support holds a reversal is possible.

Pattern: reversal - Reliability: moderate

22. THREE INSIDE UP : A bullish Harami pattern is followed by a white day that has a higher close than the second day.

In a downtrend or during a pullback within an uptrend, a bullish Harami pattern forms. This pattern has low reliability, but when it is followed up with another white day, a reversal becomes much more probable – especially when accompanied by volume.

Pattern: reversal - Reliability: high

23. THREE LINE STRIKE : Three long white days with consecutively higher closes are followed by a fourth day that gaps open in the direction of the trend and closes below the open of the first day.

In an uptrend the Three Line Strike pattern has low reliability. The large black day can really scare the bulls and many contrarians will cite this as bullish. If indeed the uptrend is strong, the one black day should not ruin the pattern. Hence, if the next day is up, the uptrend should continue.

Pattern: continuation - Reliability: low

24. THREE OUTSIDE UP : A bullish Engulfing pattern is followed by a white day whose close is higher than the second day.In a downtrend or during a pullback within an uptrend, a bullish Engulfing pattern forms. By itself the pattern has moderate reliability as a reversal indicator, but when the it is followed by another white day (preferably on strong volume), the overall pattern becomes much more reliable.

Pattern: reversal - Reliability: high

25. THREE STARS IN THE SOUTH : A long black day with a long lower shadow is followed by a similar but smaller black day whose lower shadow is shallower than the first day. The third day is a small Black Marubozu (open is the high of the day and the close is the low of the day) that lies within the second day’s trading range.Three Stars in the South is a bottoming pattern. Each of the successive black candles is slightly less bearish that the previous one, so the trend is slowly weakening. As long as the low of the first candle is held, and a white candle on volume can form soon after, a reversal may be in the works.

Pattern: reversal - Reliability: moderate

26. THREE WHITE SOLDIERS : Three long white days occur with each successive open being within the body of the previous day and each successive close being higher than the previous day and near the day’s high.

In a downtrend or during a pullback within an uptrend, the three long white candles speak for themselves. If volume accompanies the move, the reliability of the pattern increases significantly.

Pattern: reversal - Reliability: high

27. TRI STAR : Dojis occur on three consecutive trading days with the second gapping down and the third gapping back up.

In a downtrend or during a pullback within an uptrend, a battle begins. The bears start to back off while the bulls step up. Dojis indicate an even battle between the bulls and bears. The formation of three Dojis within a downtrend hints that the bulls may be starting to reassert themselves. A white day with volume is needed to confirm the reversal.

Pattern: reversal - Reliability: moderate

28. UNIQUE THREE RIVER BOTTOM : The first day is a long black day, followed by a Homing Pigeon whose lower shadow makes a new low. The last day is small and white, and closes below the second day’s close.

In a downtrend or during a pullback within an uptrend, a black day occurs. The second black day that has a long lower black shadow indicates the possibility of an intraday washout of the bulls. Since the third day gaps down, the bears are still thought to be somewhat in control, but the higher close (inability of the bears to push the stock down) suggests the bearish tone may be changing.

Pattern: reversal - Reliability: moderate

29. UPSIDE GAP THREE METHODS : A long white day is followed by a second long white day that gaps in the direction of the trend. The third day is black and fills the gap between the first two days.

In an uptrend a gap is simply filled. As long as the white candles have higher volume than the black, the one black profit taking day shouldn’t be a big concern. The uptrend should continue if indeed the stock is strong.

Pattern: continuation - Reliability: moderate

30. UPSIDE TASUKI GAP : A long white day is followed by a second long white day that gaps in the direction of the trend. The third day is black and opens within the body of the second day and closes within the gap.

In an uptrend a gap is partially filled. This is simply a profit taking scenario. We have a strong stock in an uptrend that pulls back. As long as the black day is on lighter volume, the bulls will most likely retake control soon after.

Pattern: continuation -  Reliability: moderate