Technical analysis

4 Candlestick Patterns That Often Signal a Reversal

Astron Team · 09/24/2026 · 4 min read

A single candle tells you little about what happens next, but some shapes repeat often enough at trend turning points to deserve special attention. Four of them show up all the time on charts of any asset: the hammer, the engulfing pattern, the shooting star, and the harami.

Before listing each one, an important warning: no single candle guarantees a reversal. They're clues, and they gain strength when they appear in a relevant region of the chart — near a support, a resistance, or after a long, stretched-out move.

Hammer: selling pressure that didn't stick

The hammer has a small body near the top of the candle and a long lower wick, at least twice the size of the body. It appears at the end of a decline and shows that sellers pushed the price down during the period, but buyers reacted and recovered a good part of the loss before the close.

Imagine a stock trading at R$ 24.00 that falls to R$ 22.80 during the session but closes at R$ 23.70. The R$ 1.20 lower wick shows the rejection of the low, while the small body near the top of the candle reinforces that selling pressure lost strength over the course of the day.

Engulfing: when one candle overwhelms the previous one

The engulfing pattern is formed by two candles: the first, small, and the second, of the opposite color, with a body large enough to fully cover the body of the previous candle. In a bullish engulfing, a down candle is followed by an up candle that opens below and closes above the range of the previous candle — a sign that buyers took control abruptly.

This pattern tends to be considered more reliable the larger the second candle is relative to the first, and even more so when it appears after a sequence of several candles in the same direction, suggesting exhaustion of the previous move.

Shooting star: the hammer's mirror image, at the top

The shooting star has the same structure as the hammer — small body and long wick — but appears at the top of a rally, with the long wick pointing up instead of down. It shows that buyers tried to push the price even higher during the period, but sellers reacted and brought the close back near the open.

One example: a currency pair rises to 5.15 during the day after opening at 5.08, but closes at 5.09. The seven-cent upper wick, against a body of just one cent, is what characterizes the rejection of the high and triggers the alert for a possible pause or reversal of the rally.

Harami: the pause before the decision

The harami also uses two candles, but unlike the engulfing pattern, the second candle is small and sits contained within the body of the first, larger one. The name comes from Japanese and means pregnant — the small candle sits as if inside the previous candle. This shape indicates a sudden loss of momentum: after a strong candle, the market hesitates and forms a small body, signaling indecision.

A bearish harami, for example, shows up after an uptrend, with a small candle whose body is contained within the previous candle — a warning that buying strength lost steam, even without confirming the reversal yet.

How to use these patterns without relying on them alone

All four patterns gain more weight when they appear near a technical level already observed before, such as a support tested multiple times or a historical resistance. It also helps to wait for the next candle as confirmation: a hammer only becomes a stronger signal if the next candle actually closes higher, not just because the shape appeared on the chart.

The volume traded at the moment of the pattern is another useful filter, when available for the asset being analyzed. A bullish engulfing accompanied by volume well above the average of recent sessions carries more weight than the same shape occurring on a day of weak trading, because it shows that a larger number of market participants actually changed position during that period.

Common mistakes when interpreting candles

A common mistake is looking for these four patterns anywhere on the chart, including in the middle of an already established trend, where they lose much of their meaning. A hammer that appears in the middle of a long rally, for example, doesn't signal a reversal from down to up — because the rally was already underway. The context in which the pattern appears matters just as much as the shape of the candle itself.

Another mistake is trading the pattern as soon as it forms, without waiting for the candle to close. A long wick that looks like a hammer during the session can turn into something else by the close, if the price falls again before the final bell of that chart period.

It's worth reinforcing that candles are just one reading among several possible ones, and even patterns considered strong fail often — no chart reading eliminates the risk of loss. Practicing the identification of these shapes on historical charts, without rushing and without money on the line, is the safest way to learn to recognize them before using them in a real decision.