Strongest Japanese Candlestick Patterns

To understand the strongest Japanese candlestick patterns, start with what a candlestick chart actually is: a technical tool that packs data from multiple timeframes into single price bars called candles, which makes it more useful than traditional charts or simple lines that connect only closing prices.

Candlesticks also build patterns that forecast price direction once they complete, and color coding adds depth to this technical tool, which traces back to Japanese rice traders in the 18th century.

The first person to write about Japanese candlesticks was Steve Nison, in his well-known 1991 book “Japanese Candlestick Charting Techniques,” which enabled many traders to identify dozens of the strongest Japanese candlestick patterns with colorful names such as Dark Cloud Cover, Evening Star, and Three Black Crows, as well as single-candle patterns such as the Doji and the Hammer, across dozens of long- and short-term trading strategies.

Key Points on the Strongest Japanese Candlestick Patterns

• Japanese candlestick patterns are technical trading tools that have been used for centuries to forecast price direction.
• There are many strongest Japanese candlestick patterns used to identify price direction and momentum.
• Many signals from candlestick patterns may not work reliably in today’s electronic trading environment.

Reliability of the Strongest Japanese Candlestick Patterns

Not every type of Japanese candlestick gives a reliable signal. Their widespread use has reduced their reliability, because hedge funds and their algorithms analyze them, and these well-funded investors rely on lightning-fast execution to trade against retail investors and traditional fund managers who apply technical analysis strategies learned in conventional seminars and lessons.

Here, hedge fund managers use software to target participants who are chasing high-probability bullish or bearish outcomes. Even so, the strongest Japanese candlestick patterns keep appearing, which gives traders short- and long-term trading opportunities.

Below are five of the strongest Japanese candlestick patterns by performance, together with price-direction and momentum indicators, where each works within the context of live prices and points to a possible rise or fall in price. They are also very time-sensitive in two ways:

1. They only work within the boundaries of the chart timeframe they appear on, whether hourly, daily, weekly, or monthly.
2. The strength of the strongest Japanese candlestick patterns fades quickly, within three to five candles after the pattern completes.

Patterns Among the Strongest Japanese Candlesticks

This assessment is based on Thomas Bulkowski’s book, which built performance rankings for candlestick patterns in his 2008 book “Encyclopedia of Candlestick Charts,” which gives statistics for two types of expected pattern outcomes:

• Reversal, where candlestick reversal patterns forecast a change in price direction.
• Continuation, where continuation patterns forecast an extension of the current price direction.

Below are the strongest Japanese candlestick patterns, where a hollow white candle points to an uptrend while a black candle points to a downtrend.

1. Three Line Strike, One of the Strongest Japanese Candlestick Patterns

This is a bullish reversal pattern made up of three black candles in a downtrend, where each candle opens lower than the previous one and closes near the low of the candle before it. The fourth candle opens lower still, but reverses into a large bullish white candle body and closes above the top of the first candle in the pattern.

The pattern is confirmed when the fifth candle also opens above the close of the fourth candle. According to Bulkowski, this reversal pattern predicts higher prices with an accuracy rate of 83%.

2. Two Black Gapping, One of the Strongest Japanese Candlestick Patterns

The Two Black Gapping pattern appears bearish after a notable high in an uptrend, with a downward gap producing two black candles that mark lower lows. This pattern predicts the decline will continue toward lower levels and may lead to a long-term downtrend. According to Bulkowski, this pattern predicts lower prices with an accuracy rate of 68%.

3. Three Black Crows, One of the Strongest Japanese Candlestick Patterns

The Three Black Crows reversal pattern begins at or near the top of an uptrend, with three black candles posting lower closes that approach the open of the candle that follows. This pattern predicts the decline will continue toward its expected lowest levels and may lead to a long-term downtrend.

Prices begin falling sharply once a new opening high is reached on the next candle on the chart, because it traps buyers who enter under momentum pressure. According to Bulkowski, this pattern predicts lower prices with an accuracy rate of 78%.

4. Evening Star, One of the Strongest Japanese Candlestick Patterns

The bearish Evening Star reversal pattern begins with a long white candle in an uptrend that reaches a new high, where the next candle gaps up on the open, but new buyers fail to show up and take control, producing a small-bodied candle.

Then a gap down occurs, and the pattern completes with the third candle, predicting that the decline will continue toward the next lows and support levels in price, which may lead to a long-term downtrend. According to Bulkowski, this pattern predicts lower prices with an accuracy rate of 72%.

5. Abandoned Baby, One of the Strongest Japanese Candlestick Patterns

The bullish Abandoned Baby reversal pattern appears at the bottom of a downtrend, after a series of black candles with progressively lower closes. Market gaps push the next candle in the pattern lower still, but new sellers fail to show up and take control, producing a small or bodiless Doji candle that opens and closes at roughly the same price.

To confirm the pattern, an upward gap occurs on the third candle after the Doji, or abandoned baby, candle, predicting that the recovery and rally will continue toward higher highs and may lead to a long-term uptrend. According to Bulkowski, this pattern predicts higher prices with an accuracy rate of 49.73%.

Conclusion on the Strongest Japanese Candlestick Patterns

Candlestick patterns draw the attention of traders and investors in the market, but many of the reversal and continuation signals given off by these patterns do not work reliably in today’s electronic trading environment. Bulkowski’s statistics do show notably higher accuracy for a limited set of these patterns, giving traders buy and sell signals they can act on, though results are not guaranteed and outcomes vary trade to trade.

Turning the insight gained from studying the strongest Japanese candlestick patterns into an actual position also requires a brokerage account. [AFF-CTA: pending] To save you some research time, easytradeweb has put together a list of leading online brokers so you can find the broker that fits your needs as a trader.

Frequently Asked Questions

What is a reversal candle?

A reversal candle is a type of Japanese candlestick that signals a change in market direction, typically appearing after a downtrend or an uptrend. Reversal candles generally show a shift in market momentum and point to a possible opportunity to enter or exit a trading position.

What are the types of Japanese candlesticks?

There are three types of Japanese candlesticks:

• Bullish candle: a candle that signals a rising market.
• Bearish candle: a candle that signals a falling market.
• Continuation candle: a candle that signals the market direction is continuing.

How many Japanese candlestick patterns are there?

There are many different Japanese candlestick shapes, and they can be grouped into several categories based on their shape and meaning, but overall the total number of patterns used in candlestick analysis ranges from roughly 40 to 50 different candles.

How do you read Japanese candlesticks?

To read Japanese candlesticks, look at the candle’s shape and the colors used. For example, a bullish candle (green or white) means the price rose during that time period, while a bearish candle (red or black) means the price fell during that time period. You should also look at the candle’s length and its upper and lower wicks, since these can point to additional information about price direction and the relative strength of the move.

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