How to Identify Bullish Candlestick Patterns

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Contributor, Benzinga
October 15, 2023

Stock candlestick patterns provide valuable insights into a stock’s supply and demand dynamics, giving traders and investors a bird's-eye view of current market sentiment. Some traders may use candlestick patterns to understand market trends and plan entry or exit points. Bullish candlestick patterns indicate a potential price uptrend.

Being able to properly identify bullish candlestick patterns can help tell you when a security is about to reverse upwards, go long or take profits. This article explores what bullish candlestick patterns are and how you can use them to time your trades. 

What Are Bullish Candlestick Patterns?

Bullish candlestick patterns are candlestick patterns that indicate buying pressure on a security. They are usually represented as hollow white or green candlesticks on the chart. 

A single candlestick represents the trading activity of a particular security for a day. It consists of a body and a wick, with the body representing the range between the opening and closing price of the security and the wick representing the high and low prices for the period. If the body is green or white, it indicates that the security closed higher than it opened, and if it is red or black, it means that the security closed lower than it opened.

Over time, these daily candlesticks may form an identifiable pattern traders can help to estimate future price movements. 

A bullish candlestick forms when the closing price for the period is higher than the opening price. This is different from a bearish candlestick where the closing price for the period is lower than the opening price. 

A period in technical analysis is the timeframe on the chart. Depending on the trading strategy, traders can adjust their charts to different timeframes or periods — 1-min, 5-min, 15-min, 1-hour, depending on the timeframe being used by the trader. 

Each time period is represented by a candlestick. For example, in a 15-min chart, a candle represents the price movements of the security within 15 minutes. 

List of Bullish Candlestick Patterns

Bullish candlestick patterns can be used by traders and investors to identify potential buying opportunities. Some common bullish candlestick patterns include the following signals.

1. The Hammer

The hammer is a bullish candlestick pattern that indicates when a security is about to reverse upwards. The hammer is characterized by a small-bodied candle with a long shadow (wick). It is named "hammer" because it looks like a hammer with a long handle.

The long shadow indicates that though sellers were trying to push the price of the security lower, buyers are gaining strength. Despite the selling pressure, the small-bodied candle indicates that buyers have gained marginal strength over sellers. Even though the security sold off during the period, it still closed near the high.

Experienced traders look for confirmation of an uptrend from the next two candles that follow a hammer. 

2. The Inverted Hammer

The inverted hammer usually appears at the end of a downtrend and indicates that buyers are beginning to gain strength. It is similar to the hammer but in an inverted form. 

An inverted hammer is characterized by a long upper wick with a small lower body. The long upper wick shows sellers are aggressively pushing prices lower but don't have enough strength to push the security below its opening price because buyers are gaining strength. 

Just like the hammer, experienced traders usually wait for confirmation of an uptrend from the next candle before making their move. 

3. The Bullish Engulfing

The bullish engulfing pattern consists of two candles — a bearish (red or black) candlestick followed by a longer bullish (white or green) candlestick that is longer than the preceding bearish candlestick. The appearance of a longer bullish candlestick looks like it engulfs the shorter bearish candlestick, which gives the pattern its name. It suggests that the bears (sellers) were in control initially before buyers came.

The longer bullish candlestick indicates that buyers have now taken over and are aggressively pushing the price of the security higher above the previous closing price. Some traders may consider entering a long position when the next candle opens higher than the close price of the engulfing candle.

4. Bullish Abandoned Baby

The bullish abandoned baby is a three-candlestick bullish pattern. It consists of a large bearish candle, a doji candlestick and then a strong bullish candle that gaps up. The bullish candlestick is roughly the same size as the bearish candlestick. 

This bearish candlestick indicates strong selling pressure. The doji that appears next indicates indecision with opening and closing prices that are nearly equal — buyers and sellers are tussling for control over price movement. Sometimes, the doji may appear two or three times.

The appearance of the bullish candlestick after the doji confirms that buyers have taken over and sellers have lost momentum.  

Analysts consider the bullish abandoned baby pattern to be a bullish reversal as it indicates a potential trend reversal from bearish to bullish. The long black candlestick and doji candlestick suggest that the bears (sellers) were in control at the beginning of the period. But the bulls (buyers) were able to take over after and push the price higher.

5. The Morning Doji Star

A morning doji star is another bullish reversal pattern characterized by three candlestick sequences. It consists of a long bearish candle, followed by a doji, then a third bearish or bullish candle. This third candle is smaller, with its price range (opening and closing prices) contained within the body of the first candle. 

The appearance of the doji after the first bearish candle indicates indecision between buyers and sellers. The trend is confirmed by the third smaller candlestick, which is either bearish or bullish. If bearish, it shows that sellers are losing strength since the size of the candlestick is smaller. If bullish, it shows that buyers are gaining strength. This candlestick closes above the middle of the first long black body and indicates buyer intention to push prices higher.

6. The Piercing Line

A piercing line pattern is a two-candlestick bullish pattern that marks a potential reversal. It is characterized by a long bearish candle, followed by a long bullish candle. The opening and closing prices of the bullish candles are lower than that of the bearish candle. However, the bullish candlestick closes above the midpoint of the bearish candle. Traders usually wait for a second bullish candlestick after the first to confirm an uptrend.

The piercing line pattern indicates a potential reversal of the downtrend and a shift in buying pressure. It suggests that the bears were in control during the first candle, but the bulls appear to be in the driver's seat and pushing the price higher during the second candle. 

7. Bullish Counter Attack

A bullish counterattack is a two-candle bullish pattern. It appears as a long bearish candlestick, with a second bullish candlestick, which is similar in size to the bearish candlestick. 

It is called a counterattack because the second (bullish) candle gaps down at the open but reverses upwards. This movement shows that while sellers tried to send the price of the security downwards, buyers regained strength and sent the prices higher.  

Though it looks like the piercing pattern, the bullish counterattack is a stronger reversal signal because the bullish candlestick closes above the high of the bearish candlestick. 

8. Bullish Harami

A bullish harami candlestick pattern is a two-candle pattern used to predict a reversal in the current trend. It is considered a bullish pattern because it appears at the bottom of a downtrend and may indicate that the trend is to reverse to an uptrend.

The pattern consists of two candlesticks — the first is a long candle with a large body and short wicks, and the second is a smaller candle with a much shorter body that is contained within the body of the first candle, indicating a potential reversal in the trend.

This pattern is often seen as a sign of indecision or uncertainty in the market. The first candle shows a strong move in one direction (downward in this case), followed by the second candle's smaller body and lack of a clear path. If the trend reverses and starts moving upwards after a bullish harami pattern appears, it could be a sign that the bulls (buyers) are beginning to regain market control.

9. Rising Three Methods

Rising three methods is a bullish candlestick pattern characterized by a series of smaller-bodied candlesticks (bullish or bearish) then followed by a larger bullish candlestick, followed by another series of small-bodied candle sticks (bullish or bearish), then followed by another larger bullish candlestick. 

The candlestick pattern has smaller candlesticks suggesting that sellers and buyers are struggling for control. But the overall outlook indicates an uptrend, as shown by the appearance of a decisive larger bullish candle. This movement confirms that sellers did not have enough strength to reverse the uptrend, and it may be a good time to consider entering long positions.  

10. The Three White Soldiers

Three white soldiers are made up of three consecutive large bullish candles typically with short shadows (wicks) after a bearish trend. This pattern shows increasing buying pressure illustrated by the higher closing prices of the following candles. 

The short shadows (wicks) and consecutive higher closes indicate that buyers are able to sustain the uptrend. The strength of the buying pressure is also confirmed by the large size of the candles which are usually the same size. The three white soldiers' pattern is a strong sign of an uptrend.

Trading Risks with Stock Candlestick Pattern

Though candlestick patterns are used to help indicate market trends, they are not fool-proof, and you still need to manage your trading risks. Using them alone does not guarantee a successful trade. Other factors like other market participants, trading psychology and emotions, trading size and volume combine to influence the price of a security. 

As such, though you may use candlesticks to get an idea of market direction, you can combine these with other stock chart patterns such as the MACD Histogram or RSI Stochastic oscillator to get more complete readings. You can also combine technical analysis with fundamental analysis.

What Are Candlestick Patterns Generally Used For? 

Traders use candlestick patterns to understand the market trend within a given timeframe. Candlesticks give a visual representation of the prevailing trading psychology in the market. 

This article looks at various bullish candlestick patterns that may signal potential buying opportunities. These patterns signal when there is a change in direction and potential entry or exit points in the market.  

Bullish candlestick patterns cannot always tell the whole story. To get a more complete reading, it may be better if you combine your chart readings with other indicators and market analysis for a more well-rounded trading strategy.

Frequently Asked Questions

Q

Which candlestick pattern is most bullish?

A

The three soldiers pattern is arguably the most bullish candlestick pattern because it shows the continuous strength of buyers as evidenced by large bodies and higher closing prices of each following candle.

Q

Is a bullish candlestick pattern a sell or buy signal?

A

This depends on individual circumstances, but a bullish candlestick pattern is generally a signal to buy if you want a long position. If you are shorting a security, it can be a signal to buy to cover the position. 

Q

How do you look for bullish patterns?

A

Bullish patterns can be identified by the appearance of bullish candlesticks. Ideally, you can detect the bullish trend using other indicators also.

About Anna Yen

Anna Yen, CFA is an investment writer with over two decades of professional finance and writing experience in roles within JPMorgan and UBS derivatives, asset management, crypto, and Family Money Map. She specializes in writing about investment topics ranging from traditional asset classes and derivatives to alternatives like cryptocurrency and real estate. Her work has been published on sites like Quicken and the crypto exchange Bybit.