Three Basic Candlestick Formations to Improve Your Timing

by Michael C. Thomsett

The study of candlestick charts is mysterious to many. You might recognize the basic significance of the chart patterns, but not know how to spot strong and reliable reversal signals.

This article demonstrates and explains three of the strongest candlestick reversal patterns. These are the bullish or bearish abandoned baby, the bullish white soldiers and the bearish black crows, and the bullish and bearish engulfing pattern.

These simple but powerful indicators are formed as chart patterns, giving you a lot of information just with a glance. The more time you spend studying candlestick patterns, the more comfortable you are going to be. The origin of candlesticks traces back several hundred years. Candlesticks originally were developed in Japan to track rice futures. Many of the early candlestick experts were able to demonstrate an ability to anticipate market trends and reversals.

...To continue reading this article you must be registered with AAII.

Gain exclusive access to this article and all of the member benefits and investment education AAII offers.
JOIN TODAY for just $29.
Register for FREE
to read this article and receive access to future articles.

Log in
Already registered with AAII? Login to read the rest of this article.
Michael C. Thomsett is author of over 70 books, including “Bloomberg Visual Guide to Candlestick Charting” (John Wiley & Sons, 2012) and “Getting Started in Options,” 8th edition (John Wiley & Sons, 2010). He lives in Nashville, Tennessee, and writes full time (


Gary from California posted over 2 years ago:

Any recomendations as to the free on-line site to visit for continuing candelstick education?

Wilfred from Oregon posted over 2 years ago: has an extensive free "chartschool" including candlesticks. I would recommend them as a starting point.

Werner from Pennsylvania posted over 2 years ago:

Is there any information on how well these signals work on indexes, such as the S&P 500, etc.?

George from Michigan posted over 2 years ago:

a graph of an active chart with items of study being circled to illustrate the effectiveness would be nice.

Daniel from Florida posted about 1 year ago:

How does number of shares traded rate as an indicator in relation to MACD?

Donald from Kansas posted about 1 year ago:

There must be some serious statistical studies of the predictive efficiency of these "candlestick" signals. Anyone know where I could find them?

Edward from Virginia posted about 1 year ago:

Very well written. Thank you.


Robert from Texas posted about 1 year ago:


Eric from Connecticut posted about 1 year ago:

is it just me or are all of the Figures extremely small, difficult to read, and even more blurry when you enlarge them?

Jean from Illinois posted about 1 year ago:

Eric, after you enlarge the figure, you will see a button that says "Click here to view the full image." This opens the figure in its own window, where it should be large and clear. Jean, AAII

Vaidy Bala from posted about 1 year ago:

As a newcomer senior to this site, I wish to ask how does this compare with other techniques, any technical evaluation study in any journal?

Neil from Ohio posted 4 months ago:

It should be noted that in abandoned babies, the real bodies AND shadows cannot overlap from bar 1 to 2 and 2 to 3. This makes this pattern very unique, rare, and reliable at the same time. This is very similar to the morning star and evening star (small real bodies, and shadows can overlap). Rallies off an abandoned baby bottom can be very rapid as short sellers will be forced to cover fast.

Sanford Levey from Massachusetts posted 4 months ago:


You need to log in as a registered AAII user before commenting.
Create an account

Log In