Reversal Candlestick Patterns

Candlestick patterns come in various forms. Some push the trend forward. Some pause the move. Some flip the market. Reversal candlestick patterns fall in the third category. 

You can use reversal patterns to catch possible turning points when price loses strength in one direction and shifts toward the other.

Key Takeaways:

• Reversal candlestick patterns signal a shift after a clear uptrend or downtrend.
• Each pattern shows exhaustion, pressure change, and control shifting to the opposite side.
• Examples like Hammer, Morning Star, and Engulfing give early cues when placed at the right location.
• A single pattern means little unless the structure, volume, and price zone align.
• Confirmation strengthens the setup—via next candle, momentum, or market reaction.
• Trading the pattern requires discipline: entry after confirmation, stop beyond the zone, and realistic targets.
• Mistakes happen when you jump early, ignore context, or forget to validate the setup.

What are Reversal Candlestick Patterns?

Reversal candlestick patterns are chart formations that signal a possible shift in market direction after a sustained uptrend or downtrend. Each pattern reflects a loss of momentum and a potential takeover by the opposite side—buyers or sellers—before the new trend begins.

Confusing? Let’s break it down step by step.

Suppose EUR/USD trades in an uptrend. Price moves from 1.0800 to 1.0950 over five sessions. Each daily candle closes higher. On the sixth day, price opens at 1.0950, rallies to 1.1000, but closes at 1.0940. That candle shows a long upper wick and a small red body. On day seven, a strong red candle opens at 1.0935 and closes at 1.0880, which suggests buyers failed to hold control near 1.1000. Sellers step in and the sequence forms a potential reversal pattern, similar to a Shooting Star followed by confirmation.

Now flip the trend. GBP/USD falls from 1.3000 to 1.2800 across several sessions. On the next day, price opens at 1.2780, drops to 1.2740, but closes at 1.2795. That candle forms a long lower wick and a small green body—similar to a Hammer. Next session, price opens at 1.2800 and closes at 1.2870. Buyers recover, which confirms the reversal setup. Traders now expect a possible move back toward 1.2950 or higher.

So, with reversal patterns, you need to:

• Watch the candle structure closely
• Confirm that the market shows clear movement before the pattern
• Look for signs of exhaustion in candle bodies and wicks
• Note the pattern’s location near support or resistance
• Check for strong price reaction after the setup
• Observe if volume rises during the shift

Each point builds trust in the signal. The pattern sets the tone and the market responds.

Why Do Reversal Patterns Matter in Trading?

Reversal patterns make it simpler to catch market shifts before price takes a new direction. Each formation marks where momentum fades and where pressure starts to flip.

Let’s say you don’t have any insights to identify or use reversal patterns. How will you do in trading? Here’s how it will be for you:

• You keep holding after a long rally, unaware that buyers just lost steam
• You enter short after a deep drop, missing signs that sellers already stepped back
• You react to price after the move begins, instead of preparing in advance
• You enter too late and exit too late—both directions lose value
• You take trades at extreme points, thinking momentum continues
• You hold during clear rejection candles, unaware the trend already flipped

No pattern knowledge means chasing price, not reading it. Reversal setups offer the map and signals that help you prepare right before the move.

Top Reversal Candlestick Patterns to Know

Each reversal candlestick pattern carries its own signal, structure, and purpose. Once price moves in one direction long enough, a good reversal pattern can expose the shift. Let’s walk through the most effective ones step by step.

Doji

A Doji forms when the open and close sit at almost the same level. The body looks flat, with long wicks on both sides. That shape shows balance between buyers and sellers. Neither side takes full control.

In a trend, a Doji marks hesitation. After a long move, price pauses. Exhaustion builds. The market cools. You often see a Doji near the top or bottom, right before a reversal begins. Use it near strong levels. Confirmation from the next candle gives the real signal. Doji alone only sets the tone.

Hammer

A Hammer appears at the bottom of a downtrend. It has a small body near the top and a long lower shadow. That structure tells you sellers tried to push price down, but buyers fought back and forced a close near the top.

The recovery from the low shows potential strength. Traders look for this setup after a series of bearish candles. Location matters. When it forms near support or after a steep fall, a Hammer becomes powerful. Confirmation comes through a bullish candle that breaks above the Hammer’s high. Entry follows and stop goes below the wick.

Hanging Man

A Hanging Man mirrors the Hammer but appears after a rise. It has the same structure—a small body above a long lower shadow—but context changes its meaning.

Here, sellers begin to show strength. After a strong uptrend, a Hanging Man tells you that buyers failed to hold the session’s gains. Selling pressure enters the picture. You place it near resistance or after an extended push upward. The next candle must confirm weakness. A bearish close below the Hanging Man’s low completes the setup.

Engulfing Pattern

The Engulfing setup involves two candles. One small candle followed by a larger candle in the opposite direction that fully covers the first one’s body.

A Bullish Engulfing appears after a drop. Sellers open strong, but buyers step in and reverse control. The second candle closes above the first candle’s high. That signals strength.

A Bearish Engulfing comes after a climb. Buyers open strong, but sellers dominate and close well below the first candle’s low. That shift confirms pressure reversal. Volume, support-resistance zones, or trendline breaks help validate the setup.

Morning Star

Morning Star is a three-candle bullish reversal pattern. First comes a strong bearish candle. Then a small candle follows—a pause. Last comes a strong bullish candle that closes well above the midpoint of the first candle.

You must understand that morning star sequence shows a shift in pressure. Sellers push, market stalls, and buyers recover. The Morning Star usually forms at the bottom of a trend, especially near major support or psychological levels. Once confirmed, it gives a reliable entry cue. Place stops below the middle candle.

Evening Star

Evening Star follows the opposite structure of Morning Star. It signals a bearish reversal after an uptrend.

You start with a strong bullish candle. Then a small-bodied candle forms—a sign of indecision. Finally, a strong bearish candle closes deep into the first candle’s range. That sequence shows buyers losing strength and sellers gaining command.

The Evening Star works best near resistance. Combine it with volume spikes, RSI overbought levels, or a completed move near Fibonacci extension. Entry comes after confirmation. Stop stays above the middle candle.

Shooting Star

Shooting Star appears at the top of a bullish move. It has a small body near the low and a long upper wick. Buyers push price up, test new highs, but sellers strike back and drag price lower before the close.

It is important to note that a shooting star pattern shows clear rejection. The high fails to hold and momentum fades. If it forms after a strong rally, especially near resistance or round numbers, it often precedes a sharp reversal. Let the next candle break below the Shooting Star’s low. You’ll then know that it gives the trigger and the stop sits above the wick.

Reversal Vs Continuation Vs Neutral Candlestick Patterns 

How to Identify and Confirm Reversal Candlestick Patterns?

A reversal setup must form after a strong directional move, react near an important level, and follow through with price confirmation. One candle does not create the trade. You need to consider the full sequence.

Start by checking the market’s recent behavior. A reversal pattern only makes sense if the market shows a clean direction beforehand. If price keeps rising across several candles without much pullback, that signals bullish momentum. On the other hand, if price keeps falling without relief, it signals bearish pressure.

Now, the setup begins to form. You notice price slowing down near a key level. Candle bodies get smaller. Wicks stretch out, either above or below. That’s the first sign of exhaustion.

If you see a small-bodied candle with a long upper wick after an uptrend—near resistance—you could be looking at a Shooting Star. To confirm that, the next candle must open lower and close with strong bearish strength. That gives a proper reversal signal.

In a falling market, suppose price reaches support. A candle forms with a long lower wick and a short green body. That resembles a Hammer. If the next candle closes higher, it signals that buyers have taken control and the downtrend may be ending.

So, follow this approach when you identify and confirm a reversal pattern:

• Start with a strong trend—either rising or falling
• Spot a candle that shows hesitation: small body, long wick
• Focus on the zone—support, resistance, trendline, or round number
• Wait for the next candle to close in the opposite direction
• Use volume or RSI for added confirmation if needed

A proper reversal setup always includes trend, hesitation, key location, and confirmation. Leave out any one of those and the signal weakens.

How to Trade Reversal Candlestick Patterns?

Trading a reversal setup means applying structure, not reacting emotionally. First, identify a strong trend. Then confirm a valid reversal formation near a key level. Entry must follow confirmation. Exit must follow logic. Stop must follow structure.

Here’s a general approach to trading reversal candlestick patterns:

• Confirm a clear trend stretch: multiple same-color candles with range and momentum
• Spot a reversal formation at exhaustion: long wick, small body, hesitation candle
• Confirm with price reaction: strong close in opposite direction after the setup
• Align the level: support or resistance zone must match the reversal
• Enter with the break of confirmation candle: entry above or below the confirmation range
• Set stop using candle logic: just beyond the wick or full pattern
• Set target near previous structure: swing high or low gives a natural exit
• Adjust trade only after market shows distance: lock profit, shift stop

Here’s an example of trading Hammer Pattern:

GBP/USD drops from 1.2950 to 1.2800 over six candles. A hammer forms at 1.2785 with a long lower wick and small green body. Next candle closes at 1.2840. Entry activates at 1.2850. Stop goes under 1.2775. Target sets at 1.2940. Buyers gain control and confirm reversal.

Now, let’s consider an example of trading Evening Star Pattern:

USD/JPY climbs from 147.20 to 149.50 across five sessions. A strong bullish candle forms first, then a small indecision candle near 149.70, followed by a sharp bearish candle closing at 148.85. Entry works below 148.80. Stop sets above 149.80. Target projects near 147.60. Sellers reclaim direction, reversal plays out.

Common Mistakes to Avoid

• Entry made too early before a second candle confirms the reversal.
• Pattern taken without checking its position near key resistance or support.
• Strong trend ignored before expecting a reversal.
• Chart read with bias, leading to pattern misidentification.
• Candles are analyzed without checking for a rise in volume or supporting indicators.
• Decision made based only on the candlestick without technical context.
• Reversal assumed after every sharp move, even when trend structure remains intact.
• Trade executed without waiting for market reaction after pattern forms.
• Pattern applied on illiquid or low-volume markets where reliability drops.
• Strategy built on visual pattern alone without rule-based confirmation.

Final Words

Now it should be clear that reversal candlestick patterns help you catch the turning points. Yes, the pattern gives a clue, but you need to make sure the entire setup supports that signal. 

The reversal pattern loses value without context. So, you need to see exhaustion—candles shrinking, wicks stretching, momentum slowing down. You need proper market structure—swing high or low already formed, not forming in the middle of nowhere. And you need a strong price reaction from a key area—support, resistance, or a round level.

Only then the signal makes sense and you get something that fits the bigger story. So don’t simply see a candle and jump. You need context, structure, reaction.