Bullish reversal candlestick patterns

 Bullish reversal candlestick patterns signify that buyers are momentarily in control. 

However, it doesn’t mean you should go long immediately when you spot such a pattern because it doesn’t offer you an “edge” in the markets. 

Instead, you want to combine candlestick patterns with other tools so you can find a high probability trading setup (more on that later). 

For now, these are 5 bullish reversal candlestick patterns you should know:

• Hammer 

• Bullish Engulfing Pattern 

• Piercing Pattern

 • Tweezer Bottom 

• Morning Star 

 Let me explain…

Hammer

A Hammer is a (1-candle) bullish reversal pattern that forms after a decline in price. Here’s how to recognize it: 

 • Little to no upper shadow 

• The price closes at the top ¼ of the range 

• The lower shadow is about 2 or 3 times the length of the body 

 And this is what a Hammer means… 

1. When the market opens, the sellers took control and pushed price lower

 2. At the selling climax, huge buying pressure stepped in and pushed price higher 

3. The buying pressure is so strong that it closed above the opening price 

In short, a hammer is a bullish reversal candlestick pattern that shows rejection of lower prices

Now, just because you see a Hammer doesn’t mean the trend will reverse immediately. 

You’ll need more “confirmation” to increase the odds of the trade working out and I’ll cover that in detail later. 

Moving on…

Bullish Engulfing Pattern

A Bullish Engulfing Pattern is a (2-candle) bullish reversal candlestick pattern that forms after a decline in price. 

Here’s how to recognize it: 

• The first candle has a bearish close 

• The body of the second candle completely “covers” the body of first candle (without taking into consideration the shadow) 

• The second candle closes bullish 

And this is what a Bullish Engulfing Pattern means…

1. On the first candle, the sellers are in control as they closed lower for the period

 2. On the second candle, strong buying pressure stepped in and closed above the previous candle’s high — which tells you the buyers have won the battle for now 

In essence, a Bullish Engulfing Pattern tells you the buyers have overwhelmed the sellers and are now in control. 

And lastly, a Hammer is usually a Bullish Engulfing Pattern on the lower timeframe because of the way candlesticks are formed on multiple timeframes

Piercing Pattern

A Piercing Pattern is a (2-candle) reversal candlestick pattern that forms after a decline in price.

Unlike the Bullish Engulfing Pattern which closes above the previous open, the Piercing Pattern closes within the body of the previous candle. 

Thus in terms of strength, the Piercing Pattern isn’t as strong as the Bullish Engulfing pattern. 

Here’s how to recognize it: 

• The first candle has a bearish close 

• The body of the second candle closes beyond the halfway mark of the first candle 

• The second candle closes bullish

  And this is what a Piercing Pattern means…

1. On the first candle, the sellers are in control as they closed lower for the 
period

2. On the second candle, buying pressure stepped in and it closed bullishly 

(more than 50% of the previous body) — which tells you there are buying 

pressure around

Next…

Tweezer Bottom

When I say Tweezer, I don’t mean the tool you use to pick your nose hair (although it sure looks like it). Instead… 

A Tweezer Bottom is a (2-candle) reversal candlestick pattern that occurs after a decline in price.

 Here’s how to recognize it: 

• The first candle shows rejection of lower prices 

• The second candle re-tests the low of the previous candle and closes higher 

And this is what a Tweezer Bottom means… 

1. On the first candle, the sellers pushed price lower and were met with some buying pressure 

2. On the second candle, the sellers again tried to push price lower but failed, and was finally overwhelmed by strong buying pressure 

In short, a Tweezer Bottom tells you the market has difficulty trading lower (after two attempts) and it’s likely to head higher. 

Morning Star

A Morning Star is a (3-candle) bullish reversal candlestick pattern that forms after a decline in price.

 Here’s how to recognize it: 

• The first candle has a bearish close 

• The second candle has a small range 

• The third candle closes aggressively higher (more than 50% of the first candle) 

And this is what a Morning Star means… 

1. On the first candle, the sellers are in control as the price closes lower

 2. On the second candle, there is indecision in the markets as both the selling and buying pressure are in equilibrium (that’s why the range of the candle is small)

 3. On the third candle, the buyers won the battle and the price closes higher

 In short, a Morning Star tells you the sellers are exhausted and the buyers are momentarily in control,