Highlights: — CHART PATTERNS AND CANDLESTICK FORMATIONS

This part explains common candlestick formations and chart patterns. These are probability-based observations, not guarantees of future price direction.

221. Doji

Meaning: A doji is a candlestick in which opening and closing prices are equal or very close. Its real body is small, while its upper and/or lower wick may be long.

How it works: It suggests buyers and sellers ended the period near balance. Its meaning depends on the surrounding trend and candle shape.

Practical example: A Nifty 50 stock rises for several sessions and forms a doji near resistance. A trader may wait for the next candle to confirm direction.

Important caution: Doji candles are not automatically bullish or bearish. Consider volume, support/resistance, and follow-through.

Formula terms explained: This pattern has no fixed formula. Open = first traded price of the candle; Close = last traded price; High = highest price; Low = lowest price. Real body = the distance between Open and Close. Wick (or shadow) = the thin line between the real body and a candle's High or Low.

222. Hammer Candlestick

Meaning: A hammer usually has a small real body near the top of the candle's range and a long lower wick, often about twice the body length or more. It commonly appears after a decline.

How it works: Sellers pushed price lower, but buyers recovered much of the decline before the candle closed. At support, this can hint at a bullish reversal if confirmed.

Formula / pattern rule

Practical example: A stock falls toward support, forms a hammer, and then closes above its high on stronger volume.

Important caution: The hammer alone does not guarantee a reversal.

Formula terms explained: Lower wick length = Close − Low for a bullish candle, or Open − Low for a bearish candle; more generally, it is the distance from the lower end of the real body to the candle's Low. Real body length = |Close − Open|, the absolute difference between opening and closing prices. The “about twice” rule is a common visual guideline, not a strict law.

223. Hanging Man Candlestick

Meaning: The hanging man resembles a hammer but appears after an advance.

How it works: It shows sellers pushed price down during the session, although buyers recovered some ground. After an uptrend, it can warn that buying pressure may be weakening.

Formula / pattern rule

Practical example: After a sustained rise, a stock forms a hanging man near resistance. A later close below its low may add evidence of a pullback.

Important caution: The candle alone does not confirm a reversal.

Formula terms explained: Lower wick length measures the distance from the lower edge of the real body to Low. Real body length = |Close − Open|. A hanging man has a hammer-like shape but appears after an advance; context distinguishes the interpretation.

224. Inverted Hammer

Meaning: An inverted hammer has a small body near the lower end of the range and a long upper wick. It is typically discussed after a decline.

How it works: Buyers attempted to push price upward, but the session closed well below its high. After a downtrend, it can indicate an early attempt by buyers to regain control.

Formula / pattern rule

Practical example: A stock reaches support and forms an inverted hammer. A subsequent bullish candle closing above its high may strengthen the reversal case.

Important caution: Without bullish follow-through, the upper wick may reflect rejection of higher prices.

Formula terms explained: Upper wick length = High minus the higher of Open and Close. Real body length = |Close − Open|. The long upper wick shows that price traded higher during the candle but did not hold near the High.

225. Shooting Star

Meaning: A shooting star has a small body near the lower end of the candle, a long upper wick, and usually a small lower wick. It often appears after a rise.

How it works: Buyers lifted price, but sellers pushed it back toward the open. Near resistance, it may warn of weakening upside momentum.

Formula / pattern rule

Practical example: A stock approaches a previous swing high and forms a shooting star. A later break below its low may be bearish confirmation.

Important caution: It is not a guaranteed sell signal.

Formula terms explained: Upper wick length = High minus the higher of Open and Close. Real body length = |Close − Open|. A shooting star has this shape after an advance; the prior trend and confirmation matter.

226. Bullish Engulfing Pattern

Meaning: A bearish candle is followed by a larger bullish candle whose real body covers the previous candle's real body.

How it works: The second candle shows buyers overcoming the prior candle's selling pressure. It can be more meaningful after a decline or near support.

Formula / pattern rule

Practical example: A stock forms a bullish engulfing candle at support with volume above average. A trader may wait for a break of the pattern high.

Important caution: It can fail in a strong downtrend; engulfing usually refers to real bodies.

Formula terms explained: Open₁ and Close₁ are the opening and closing prices of the first candle; Open₂ and Close₂ refer to the second candle. In a bullish engulfing pattern, candle 1 is bearish (Close₁ < Open₁) and candle 2 is bullish (Close₂ > Open₂). The second candle's real body covers the first candle's real body. Exact equality rules can vary by charting convention.

227. Bearish Engulfing Pattern

Meaning: A bullish candle is followed by a larger bearish candle whose real body covers the previous candle's real body.

How it works: Sellers overwhelm the prior session's buying pressure. Near resistance, this may warn of a potential reversal or pullback.

Formula / pattern rule

Practical example: A stock rallies into resistance and forms a bearish engulfing candle. A close below the pattern low may add confirmation.

Important caution: One bearish engulfing candle can be only a temporary pause.

Formula terms explained: Open₁ and Close₁ belong to the first candle; Open₂ and Close₂ belong to the second. In a bearish engulfing pattern, candle 1 is bullish (Close₁ > Open₁), and candle 2 is bearish (Close₂ < Open₂). The second real body covers the first real body.

228. Morning Star Pattern

Meaning: A three-candle pattern often seen after a decline: a strong bearish candle, a small-bodied candle, and a strong bullish candle.

How it works: The sequence suggests selling pressure may be slowing and buyers returning. The third candle's recovery into the first candle's body matters.

Formula / pattern rule

Practical example: After a decline, a stock forms a morning star near support. Check whether the next session holds above the pattern's low.

Important caution: Gaps are less common in continuously traded markets; context matters.

Formula terms explained: Candle 1, Candle 2, and Candle 3 are the three consecutive candles. Bearish = Close < Open; bullish = Close > Open. Small body means the Open and Close are relatively close. The midpoint of Candle 1's body is (Open₁ + Close₁) ÷ 2. A traditional morning star's third candle closes well into the first candle's body; exact criteria vary.

229. Evening Star Pattern

Meaning: A three-candle pattern often seen after an advance: a strong bullish candle, a small-bodied candle, and a strong bearish candle.

How it works: The sequence can show buying momentum fading and sellers taking control, especially near resistance.

Formula / pattern rule

Practical example: A stock forms an evening star near a previous high and then trades below the pattern's low.

Important caution: It can fail if price quickly recovers above the pattern.

Formula terms explained: Candle 1, Candle 2, and Candle 3 are the three consecutive candles. The first candle is bullish, the second has a small body, and the third is bearish. The midpoint of Candle 1's body is (Open₁ + Close₁) ÷ 2. A third-candle close below this midpoint is a common traditional criterion.

230. Piercing Line Pattern

Meaning: A two-candle bullish pattern after a decline. A bearish candle is followed by a bullish candle closing above the midpoint of the previous real body.

How it works: Buyers recover a substantial portion of the previous candle's losses, suggesting a possible shift in short-term control.

Formula / pattern rule

Practical example: Near support, a stock forms a piercing line and the next candle holds above its low.

Important caution: Exact gap conditions vary in intraday charts.

Formula terms explained: Close₂ is the second candle's closing price. Open₁ and Close₁ define the first candle's real body; its midpoint is (Open₁ + Close₁) ÷ 2. The first candle is bearish, and the second is bullish. “Piercing” means the second candle closes above the first candle body's midpoint.

231. Dark Cloud Cover Pattern

Meaning: A two-candle bearish pattern after an advance. A bullish candle is followed by a bearish candle closing below the midpoint of the prior real body.

How it works: The second candle reverses much of the previous candle's gain, indicating sellers may be gaining strength.

Formula / pattern rule

Practical example: A stock forms dark cloud cover at resistance and then falls below the pattern low.

Important caution: A single pattern cannot predict a sustained decline.

Formula terms explained: Close₂ is the second candle's close. Open₁ and Close₁ define the first candle's real body; its midpoint is (Open₁ + Close₁) ÷ 2. The first candle is bullish and the second bearish. “Dark cloud cover” means the second candle closes below the first candle body's midpoint.

232. Three White Soldiers

Meaning: Three consecutive strong bullish candles, each generally closing higher than the previous one.

How it works: It can indicate persistent buying pressure, particularly after a decline or base.

Formula / pattern rule

Practical example: Following a base, a stock forms three strong bullish candles and moves above resistance.

Important caution: After a sharp rally, the pattern may signal an overextended move.

Formula terms explained: Close₁, Close₂, and Close₃ are the closing prices of the first, second, and third candles. Close₃ > Close₂ > Close₁ means each candle closes higher than the previous one. Closeᵢ > Openᵢ means each candle is bullish. The index i = 1, 2, 3 means apply the condition to all three candles.

233. Three Black Crows

Meaning: Three consecutive strong bearish candles, each generally closing lower than the previous one.

How it works: It suggests sustained selling pressure and can warn of further weakness after an uptrend or failed breakout.

Formula / pattern rule

Practical example: A stock fails near resistance and prints three strong bearish candles. Look for nearby support.

Important caution: After a large decline, the stock may be near support.

Formula terms explained: Close₁, Close₂, and Close₃ are the closing prices of the three candles. Close₃ < Close₂ < Close₁ means each candle closes lower than the previous one. Closeᵢ < Openᵢ means each candle is bearish; i = 1, 2, 3 applies the rule to all three candles.

234. Spinning Top

Meaning: A spinning top has a small real body and relatively long upper and lower wicks.

How it works: Price moved both upward and downward but finished near the opening price. It often indicates indecision.

Formula / pattern rule

Practical example: A spinning top forms after a strong move; a trader may wait for a range break.

Important caution: It has limited meaning in isolation.

Formula terms explained: Real body = |Close − Open|; the vertical bars mean absolute value, so the result is never negative. Upper wick = High minus the higher of Open and Close. Lower wick = the lower of Open and Close minus Low. High and Low are the candle's highest and lowest traded prices.

235. Marubozu Candlestick

Meaning: A marubozu has a large real body and little or no wick. A bullish marubozu closes near its high; a bearish one closes near its low.

How it works: It reflects strong directional control during the candle period.

Formula / pattern rule

Practical example: A bullish marubozu closes above resistance on strong volume. Monitor whether price holds above the breakout area.

Important caution: A large candle can occur late in a move; assess risk/reward.

Formula terms explained: Open = opening price; Close = closing price; High = highest price; Low = lowest price. “Approximately” means close to, not necessarily exactly equal. A bullish marubozu opens near Low and closes near High; a bearish marubozu opens near High and closes near Low.

236. Head and Shoulders Pattern

Meaning: A bearish reversal structure with three peaks: a left shoulder, a higher head, and a lower right shoulder. The lows between peaks form a neckline.

How it works: It suggests the advance may be losing strength. A decisive break below the neckline is the usual confirmation.

Formula / pattern rule

Practical example: A stock forms three peaks near resistance and later closes below the neckline.

Important caution: False breaks occur; measured targets are estimates.

Formula terms explained: Neckline = a support line drawn through or connecting the reaction lows between the three peaks; it can be horizontal or sloping. Head High = the highest price at the central peak. The measured-move estimate subtracts the vertical distance from the Head High to the neckline from the neckline level. This is only a projection, not a guaranteed target.

237. Inverse Head and Shoulders

Meaning: A potential bullish reversal structure with three troughs: a left shoulder, a deeper head, and a higher right shoulder.

How it works: It can suggest selling pressure is weakening. A breakout above the neckline is the usual confirmation.

Formula / pattern rule

Practical example: After a downtrend, a stock forms three troughs and closes above the neckline.

Important caution: Without a neckline breakout, the pattern remains unconfirmed.

Formula terms explained: Neckline = a resistance line drawn through or connecting the reaction highs between the three troughs. Head Low = the lowest price at the central trough. The measured-move estimate adds the distance from Head Low up to the neckline to the neckline level.

238. Double Top Pattern

Meaning: A potential bearish reversal in which price reaches a similar high twice, with a trough between the peaks.

How it works: Repeated rejection near a similar price zone may indicate resistance. Confirmation usually comes on a break below the intervening trough.

Formula / pattern rule

Practical example: A stock tests ₹500 twice. A close below the intervening trough may confirm the pattern.

Important caution: Two similar highs alone do not confirm a double top.

Formula terms explained: Peak Level = the approximate price area of the two tops. Neckline = the trough/low between the two peaks; it acts as the pattern's confirmation level. The estimated target subtracts the height from Peak Level to Neckline from the Neckline after a confirmed breakdown.

239. Double Bottom Pattern

Meaning: A potential bullish reversal in which price tests a similar low twice, with a peak between the troughs.

How it works: Repeated defence of a price zone may indicate support. Confirmation usually comes on a break above the intervening peak.

Formula / pattern rule

Practical example: A stock tests ₹200 twice. A close above the intervening peak may confirm the pattern.

Important caution: A second test of support can still fail.

Formula terms explained: Bottom Level = the approximate price area of the two lows. Neckline = the peak/high between the two lows; it is the usual confirmation level. The estimated target adds the distance from Bottom Level up to the Neckline to the Neckline after a confirmed breakout.

240. Symmetrical Triangle Pattern

Meaning: A consolidation pattern in which successive highs descend and successive lows rise, creating converging trendlines.

How it works: The range narrows as buyers and sellers reach a temporary balance. A breakout or breakdown can indicate resolution; do not assume direction in advance.

Formula / pattern rule

Practical example: A stock forms converging highs and lows. Wait for a convincing close outside the triangle and check volume and nearby levels.

Important caution: False breakouts are common; a measured move is only an estimate.

Formula terms explained: Upper Boundary = the descending upper trendline; Lower Boundary = the rising lower trendline. Triangle Height = the vertical price distance between those boundaries, commonly measured at the triangle's widest part. Breakout Price = the price where price exits the triangle. The ± sign means add the height for an upside breakout or subtract it for a downside breakdown. The target is an estimate.

How to Use Chart Patterns Responsibly

• Start with context: identify the prevailing trend and nearby support/resistance before interpreting a candle or pattern.
• Wait for confirmation where appropriate: a candle pattern may need a subsequent close, neckline break, or breakout/retest.
• Check volume and liquidity: thinly traded shares can produce unreliable-looking formations and larger slippage.
• Plan risk before entry: define the price level that invalidates the setup, position size, and acceptable loss.
• Do not rely on one signal: combine chart structure with market conditions and other relevant evidence.
• Educational use only: chart patterns are probabilistic observations, not guarantees or personalized investment advice.

Summary

This part covers 20 common candlestick and chart formations, from doji and hammer candles to head and shoulders, double tops/bottoms, and symmetrical triangles. Patterns are most useful when interpreted in context and confirmed by subsequent price action; no formation guarantees a market move.