Constructing candlestick reversals from body, shadow, and trend location

Build the candle before naming the pattern

One candlestick represents a complete open-high-low-close cycle, drawn with a thick real body between open and close and thin shadows for the high and low.

A white candle is constructed when the close is above the open. A black candle is constructed when the open is above the close. Pattern strength is read from where the close sits relative to the open and from the current candle’s size compared with prior candles.

The three basic candle classes are white, black, and doji. A doji forms when open and close are equal or nearly equal and is treated as neutral unless it appears inside a stronger multi-cycle pattern or at a trend top or bottom.

Umbrella geometry depends on trend location

An umbrella line has a tight open-close range and a lower shadow at least twice the body length. The same geometry is a hammer at a market bottom and a hangman at a market top.

A hammer is defined only in a downtrend and is treated as a bullish construction at or near a bottom. A hangman is that same umbrella-line geometry located at a market top. Without the trend location, the shape is only an umbrella line.

Engulfing is a cover across cycles

An engulfing construction is presented as a strong reversal pattern and is bearish when it appears in an uptrend. A hangman can complete into a bearish engulfing on the same session.

Multi-candle patterns can span from two cycles to as many as 30 to 60 cycles. A hammer can be followed by an inverted hammer that covers it, forming a bullish engulfing construction.

Confirm the implied direction

Chart reading is instructed to inspect the last 7 to 15 cycles, then check that a later cycle confirms the implied direction, that a continuation pattern keeps that reading intact, and that several candles and other indicators concur.

In this workflow, confirmation is a follow-up cycle that matches the direction implied by the prior candlestick construction. Continuation is a later, usually shorter pattern that keeps the already confirmed directional reading intact. Confluence is several candles and other indicators inside a short recent window that all point the same way.

Many calculated indicators are described as coincident or lagging, whereas certain candlestick formations are described as able to mark a potential reversal before the turn and can be read alongside oscillators.