7 Candlestick Patterns Every Trader Must Know — Psychology, Trading Guide & Tradetron Keywords

Introduction — Why Candlestick Patterns Still Matter

Every big move in the market leaves a trail. Every reversal, every breakout, every moment sellers give up and buyers take over — it all shows up on the chart before most traders even realize what is happening.

Candlestick patterns are how you read that trail.

These patterns have been used by traders for over 200 years. They work because they capture something that never changes — human psychology. Fear, greed, indecision, and panic all show up in the shape of candlesticks on your chart every single trading day.

In this guide we are covering 7 essential candlestick patterns that every trader should understand — what they look like, the psychology behind them, how to use them in real trading scenarios, and the exact keywords to detect them automatically inside Tradetron.

Whether you are a beginner trader or someone building automated strategies, this guide gives you everything you need.

What Are Candlestick Patterns and Why Do They Work?

A single candlestick tells you four pieces of information — the Open, High, Low, and Close of a given time period. But when candles start forming specific patterns — two candles together, three candles in a sequence — they tell you something far more valuable.

They tell you what buyers and sellers are doing right now.

Every candlestick pattern is essentially a snapshot of the battle between buyers and sellers during that time period. When one side suddenly overwhelms the other — that is where reversals happen. That is where the big moves begin.

This is why candlestick patterns are not just shapes on a chart. They are real-time market psychology made visible.

How Tradetron Uses Candlestick Pattern Keywords

Before we dive into each pattern, here is something important for Tradetron users.

Every pattern in this guide has a dedicated built-in keyword inside Tradetron's Strategy Builder under the Position function. This means you do not need to manually code any open or close price comparisons.

You simply select the keyword, set your instrument and timeframe, and define the output value. Tradetron then automatically detects the pattern for you.

How output values work:

• Output == 1 detects the pattern as a bullish signal for most patterns
• Output == -1 detects the bearish version where applicable
• The candle offset -1 always checks the previous completed candle — never a candle that is still forming

Now let us go through each pattern.

1. Shooting Star — The Bearish Rejection Signal

What It Looks Like

The Shooting Star is a single candle pattern with three defining features:

• Small body positioned at the bottom of the candle
• Long upper wick — typically at least twice the size of the body
• Little to no lower wick

This pattern appears after an uptrend.

The Psychology Behind the Shooting Star

During this candle buyers pushed price aggressively higher — creating that long upper wick. But before the candle closed sellers stepped in powerfully and pushed price all the way back down near the open.

The message is clear. Buyers tried to push higher. Sellers completely rejected it.

That long upper wick represents trapped buyers who chased price up only to find sellers waiting at those highs. Those trapped buyers will eventually need to sell — adding more downward pressure.

How to Use It in Real Trading

The Shooting Star is most powerful when it forms at a key resistance level — a previous high, a major moving average, or a strong supply zone.

Apple stock example: Imagine Apple stock has been rallying for several sessions and reaches a major resistance zone near a previous all-time high. A Shooting Star forms right at that level. That long upper wick tells you sellers showed up aggressively the moment price reached that resistance. That is your bearish signal.

Key rules:

• Always wait for the candle to fully close before entering
• The longer the upper wick relative to the body the stronger the rejection
• Works best at clearly defined resistance zones — not in random chart locations

Tradetron Keyword — SHOOTINGSTAR

2. Hammer — The Bullish Reversal at Support

What It Looks Like

The Hammer is a single candle pattern with three defining features:

• Small body positioned at the top of the candle
• Long lower wick — typically at least twice the size of the body
• Little to no upper wick

This pattern appears after a downtrend.

The Psychology Behind the Hammer

During this candle sellers pushed price aggressively lower — creating that long lower wick. But before the candle closed buyers stepped in powerfully and pushed price all the way back up near the open.

The message is equally clear. Sellers tried to push lower. Buyers completely defended the level.

That long lower wick represents trapped sellers who pushed price down only to find buyers absorbing every unit of selling pressure. Those trapped sellers will eventually need to buy back their positions — adding more upward fuel.

How to Use It in Real Trading

The Hammer is most powerful when it forms at a key support level — a previous low, a major moving average, or a strong demand zone.

Apple stock example: Imagine Apple stock has been selling off for several days and reaches its 50 day moving average support zone. A Hammer forms right at that level. That long lower wick tells you buyers defended that support level aggressively. That is your bullish signal.

Key rules:

• Always wait for the candle to fully close before entering
• The longer the lower wick relative to the body the stronger the signal
• Works best at clearly defined support zones

Tradetron Keyword — HAMMER

3. Hanging Man — The Warning Sign at the Top

What It Looks Like

The Hanging Man looks identical to the Hammer:

• Small body at the top of the candle
• Long lower wick
• Little to no upper wick

The only difference — and this is critical — is that it appears after an uptrend not a downtrend.

The Psychology Behind the Hanging Man

This is where many beginners go wrong. They see the same candle shape as the Hammer and assume it is bullish. But context changes everything.

During this candle sellers managed to push price significantly lower. Buyers recovered before close — but the warning is already on the chart. The uptrend is losing steam. Sellers are starting to appear.

Think of it this way — in a downtrend the Hammer says buyers are stepping in to defend a level. In an uptrend the Hanging Man says sellers are starting to test the resolve of buyers at the highs.

How to Use It in Real Trading

The Hanging Man is most powerful when it forms at a resistance zone after a strong rally.

Apple stock example: Imagine Apple stock has been in a strong uptrend and the Hanging Man forms right at a major resistance zone. Even though price recovered by the close — the fact that sellers pushed it that far lower during the session is a red flag. Wait for the next candle to close red as your confirmation before entering a short position.

Key rules:

• Always wait for a confirmation red candle after the Hanging Man
• Never enter based on the Hanging Man alone
• Works best at clearly defined resistance zones after extended rallies

Tradetron Keyword — HANGINGMAN

4. Harami — The Momentum Stall Pattern

What It Looks Like

The Harami is a two-candle pattern:

• Candle 1 — A large candle showing strong momentum
• Candle 2 — A much smaller candle whose entire body sits completely inside the body of Candle 1

The word Harami means pregnant in Japanese. The small second candle is the baby sitting inside the larger first candle.

It comes in two versions — Bullish Harami and Bearish Harami.

The Psychology Behind the Harami

The large first candle represents strong directional momentum. The tiny second candle sitting inside it represents a sudden and complete stall in that momentum.

Neither buyers nor sellers are taking confident control during that second candle. That hesitation after a strong move is a warning — the trend may be about to reverse.

Bullish Harami — appears after a downtrend. Large red candle followed by a small green candle inside it. Sellers were dominant but suddenly lost momentum.

Bearish Harami — appears after an uptrend. Large green candle followed by a small red candle inside it. Buyers were dominant but suddenly lost momentum.

How to Use It in Real Trading

Apple stock example — Bullish Harami: Apple stock has been dropping and a large red candle forms. The very next candle is tiny and sits completely inside that red candle's body. That pause in selling momentum is your early warning that buyers may be stepping in. Look for a green confirmation candle to follow before entering.

Apple stock example — Bearish Harami: Apple stock has been rallying and a large green candle forms. The next candle is tiny and sits completely inside the green candle. That stall in buying momentum after a strong rally warns you the uptrend may be losing energy.

Key rules:

• Always look for confirmation from the candle after the Harami
• Works best at key support or resistance levels
• The smaller the second candle relative to the first the stronger the signal

Tradetron Keyword — HARAMI

5. Inverted Hammer — The First Sign of a Comeback

What It Looks Like

The Inverted Hammer is a single candle with:

• Small body at the bottom of the candle
• Long upper wick
• Little to no lower wick

It looks identical to the Shooting Star — but it appears after a downtrend not an uptrend.

The Psychology Behind the Inverted Hammer

During this candle buyers tried to push price significantly higher — creating that long upper wick. Sellers pushed it back down before the close. On the surface that sounds bearish.

But here is the key insight — this buying attempt happened after a sustained downtrend. That matters enormously. It signals the first signs of buying interest returning. Sellers are not as dominant as they were.

How to Use It in Real Trading

Because buyers did not fully succeed during this candle the Inverted Hammer is less reliable on its own. Confirmation from the next candle is essential.

Apple stock example: Apple stock has been falling and an Inverted Hammer forms near a support zone. Buyers made a strong attempt during that candle. Wait for the next candle to close green before entering. That green confirmation tells you buyers followed through.

Key rules:

• Never enter based on the Inverted Hammer alone
• Always wait for a green confirmation candle to close after it
• Works best at key support zones after a meaningful downtrend

Tradetron Keyword — INVERTED HAMMER

6. Dragonfly Doji — Complete Buyer Recovery

What It Looks Like

The Dragonfly Doji is a unique single candle where:

• The open and close are at the very top of the candle — at the same or nearly the same level
• Long lower wick
• Almost no upper wick
• It looks like the letter T

The Psychology Behind the Dragonfly Doji

During this candle sellers pushed price all the way down — creating that long lower wick. But buyers came back so powerfully that price closed right back at exactly where it opened.

This is not just buyer recovery. This is complete buyer domination by the end of the session. Sellers threw everything they had at this price level — and buyers absorbed every single unit of that selling pressure and brought price all the way back.

When this appears after a downtrend it is one of the most powerful single-candle bullish signals available.

How to Use It in Real Trading

Apple stock example: Apple stock is in a multi-day pullback and a Dragonfly Doji forms right at a major support zone on the daily chart. That long lower wick with a close right back at the top tells you sellers were completely absorbed at that support level. Buyers are firmly in control.

Key rules:

• The longer the lower wick the more powerful the signal
• Most effective on daily charts at major support levels
• Treat entry and stop loss the same way as a Hammer — stop goes below the low of the wick

Tradetron Keyword — DRAGONFLY DOJI

7. Gravestone Doji — Complete Seller Takeover

What It Looks Like

The Gravestone Doji is the exact mirror image of the Dragonfly Doji:

• The open and close are at the very bottom of the candle
• Long upper wick
• Almost no lower wick
• It looks like an upside down T

The Psychology Behind the Gravestone Doji

During this candle buyers pushed price all the way up — creating that long upper wick. But sellers came back so powerfully that price closed right back at exactly where it opened.

This is complete seller domination by the end of the session. Buyers pushed as hard as they could — and sellers absorbed every single point of that buying pressure and brought price all the way back down.

When this appears after an uptrend it is one of the most powerful single-candle bearish signals available.

How to Use It in Real Trading

Apple stock example: Apple stock has been in a strong uptrend and a Gravestone Doji forms right at a major resistance zone on the daily chart. That long upper wick with a close right back at the bottom tells you buyers were completely rejected at that resistance. Sellers are firmly in control.

Key rules:

• The longer the upper wick the more powerful the rejection signal
• Most effective on daily charts at major resistance levels
• Treat entry and stop loss the same way as a Shooting Star — stop goes above the high of the wick

Tradetron Keyword — GRAVESTONE DOJI

Complete Quick Reference — All 7 Patterns

The Golden Rules for Using Any Candlestick Pattern

Before you start using any of these patterns in live trading — here are the rules that apply to every single one of them:

Rule 1 — Location is everything. A pattern at a key support or resistance level carries far more weight than the same pattern appearing randomly in the middle of a chart. Always identify your key levels first.

Rule 2 — Always wait for the candle to fully close. Never enter a trade based on a pattern that is still forming. Candles can look completely different mid-session compared to where they actually close.

Rule 3 — Confirmation improves reliability. Patterns like the Hanging Man, Harami, and Inverted Hammer are significantly more reliable when followed by a confirmation candle in the direction of the expected move.

Rule 4 — Context beats the pattern. A bullish pattern in a strong downtrend carries less weight than the same pattern appearing after a meaningful pullback in an overall uptrend. Always consider the bigger picture.

Rule 5 — No pattern works 100 percent of the time. Every pattern produces false signals. Risk management and stop losses are always your protection — regardless of how perfect the setup looks.

Key Takeaways

✅ All 7 patterns are built into Tradetron as dedicated keywords under the Position function

✅ Shooting Star and Gravestone Doji signal bearish reversals at resistance

✅ Hammer and Dragonfly Doji signal bullish reversals at support

✅ Hanging Man looks like a Hammer but appears after an uptrend — bearish warning

✅ Inverted Hammer looks like a Shooting Star but appears after a downtrend — bullish first sign

✅ Harami detects momentum stalls — output 1 for bullish and negative 1 for bearish

✅ Always use these patterns at key levels and wait for full candle close

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Updated on: 27/05/2026