Thomas N. Bulkowski is a prominent technical analyst and author known for his rigorous, data-driven study of chart patterns. He built large catalogues of price formations—ranging from traditional chart patterns to candlestick configurations—and quantified their performance using long-run market data, notably from the S&P 500. Through systematic testing, he evaluated how reliably each pattern signals reversals or continuations, how often it appears, and typical price outcomes, publishing the findings in reference works such as the Encyclopedia of Chart Patterns. He found several reliable candle types that were reversal or continuation patterns.

There are various types of Japanese candlestick patterns, each with its own unique interpretation and predictive value. Some common patterns include doji, hammer, shooting star, and engulfing patterns. Traders use these patterns to identify potential trend reversals, continuation patterns, and key support and resistance levels. Understanding these patterns can help traders anticipate market movements and improve their trading performance.

Key Lesson Concepts:

• Japanese candlestick patterns are powerful confirmations of either reversals or continuation, depending on where they occur.
• These patterns provide insights into market sentiment and potential price movements.
• Common patterns include doji, hammer, shooting star, and engulfing patterns
• Traders use these patterns to identify trend reversals, continuation patterns, and key support/resistance levels
• Candlestick patterns are a confirmation of what a trader is expecting to happen at a particular level of support or resistance.
  
  

The following shows two candlesticks, one green and the other red. The price bar’s high is at the top of the candle, and the low is at the bottom. Between those extremes are the opening and closing prices, the order of which determines the candle body’s shade.

The thin bars at either end are the shadows or wicks, with a body sandwiched in between. A candle does not need to have a shadow, and the body can be represented by a flat line, as in a four-price doji. In those situations, all four prices are the same.

a) Anatomy of a Candle.

b) Bullish & Bearish Patterns

1. A single candlestick pattern is called a hammer if it has a long shadow and a small body (red or green) that is very close to the high of the day. At the end of a downtrend, the hammer is considered a bullish reversal signal.
2. At the end of an uptrend, the same single candlestick pattern is called the hanging man. This pattern is also a reversal pattern. Both patterns should have a long shadow; ideally, the shadow/wick should be three times as long as the body.

Bullish & Bearish Engulfing Patterns.
Figure 3. & 4. always need a pair of candlesticks to form the pattern.

3. Bullish Engulfing Pattern is a reversal pattern at the end of a downtrend.

4. Bearish Engulfing Pattern is a reversal pattern at the end of an uptrend

5.The bullish belt-hold is a candlestick formation with a green body - meaning that price opened very low and a rally closed the price much higher. A bearish belt hold is the opposite of a red candle price opened high and closed lower. The larger the body of these candle types the more important signal they provide for trend reversals.

6.Harami patterns require 2 candles to form a pattern. A small body, either green or red, that fits completely into the previous candle body. The shadow/wick is not important, whether it is higher or lower than the previous candle's shadow.
7. The Harami pattern is a stronger signal at the end of a downtrend if the previous candle is red and the next candlestick is green. Even stronger if the next candle body is very small, such as a cross.

8.Doji pattern signals that market momentum is slowing down. Doji's have very small body's (opening and closing prices are almost identical) and there is often a long shadow/wick either above or below the candlestick body. They are only important at the end of an upswing or downswing. They provide a stronger signal if the next pattern or candle is an Engulfing pattern/type.
9. Piercing Pattern looks like the bullish engulfing pattern, the previous day's candle is covered by more than 50% of the next candle in the pattern. This is only valid at the end of a downtrend, the more the previous red candle is covered by the green candle, the stronger the signal. Dark-Cloud Cover candlestick formation is important as a reversal signal in an uptrend. The big red candle body must cover at least 50% of the previous green candle to be a valid signal.
10. A Morning Star pattern is formed by 3 candlesticks. The first candlestick has a big red body from the current downtrend, the second candlestick is a star a very small body; this is below the previous candlestick and has no connection to the previous body. The third candlestick has a big green body that should cover at least 50% of the first candle. Ideally,y the third candlestick should trade the gap to the body of the star from the previous day. This is a valid trend reversal signal.
11. An Evening Star pattern is also formed from three types of candles. Often seen at the top of an uptrend, signalling a reversal. The first candle should have a long green body, the next (middle) a small green or red candle (star doji) that has no connection to the previous candlestick. The third candlestick had a big red body and must cover at least 50% of the first candle's body to provide a valid reversal signal. A bearish engulfing pattern in the constellation signals an uptrend reversal.