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Candlestick patterns explained, and how to write them as conditions

Price action · 5 min read

A candlestick pattern is a shape made by one or two bars. Each one in SixOne8 is its own indicator with a single comparison — it appears, or it does not — which makes them the simplest conditions in the catalogue to write and the easiest to over-trust. This guide is what each shape is, exactly.

Six candlestick patterns drawn as specimens: a bullish engulfing pair, a hammer, a shooting star, a doji, an inside bar pair and an outside bar pair
The six shapes as specimens. Each is a condition that is true on the bar it completes and on no other.

The shapes

  1. Bullish engulfing. Two candles: a down candle, then an up candle whose body completely covers the previous body. Everything the first bar lost was recovered, and more. Bearish engulfing is the mirror — an up candle, then a down candle that covers it.
  2. Hammer. One candle with a small body near the top of its range and a long lower wick. Price traded well below where the bar eventually closed.
  3. Shooting star. The hammer upside down: a small body near the bottom of the range and a long upper wick. Price traded well above where it closed.
  4. Doji. A candle that opens and closes at almost the same price, whatever the range in between. The bar finished where it started.
  5. Inside bar. Two candles: the second's whole range — high and low — sits inside the first's. The market did less than it did the bar before.
  6. Outside bar. The reverse: the second candle's range covers the first's on both ends. It did more, in both directions.
  7. Consecutive candles. A run of up candles, or of down candles, of a length you set — the one pattern in the group with a setting.

These are shapes, defined by the bar's own open, high, low and close. The app checks the geometry and nothing else: a hammer at the top of a rise is a hammer, and so is one at the bottom of a fall. Where the shape sits is for the other conditions in the strategy to say.

Writing them as a condition

One comparison, in the builder's own words, for every pattern.

  1. Appears. The pattern is present on the bar that just closed. True only on that bar.

Hammer on 4h  ·  appears

Read it as a sentence: the 4-hour bar that just closed is a hammer. That is what the scanner evaluates at each 4-hour close. Because the condition is a moment, it is the natural trigger of a strategy, and because it is only true for one bar, a strategy that needs two patterns at once will almost never be satisfied: pair a pattern with states — price above an average, structure bullish, ADX above a level — not with another pattern.

Why they are easy to over-trust

Shapes are everywhere. A doji is a common bar on any timeframe, and an inside bar follows any large bar more often than not. A pattern condition on its own matches constantly, and the stories attached to the names — "the hammer shows buyers stepping in" — are descriptions of what the bar looked like, not of what came after it. What came after it, on the market you watch, is a measurable fact, and the entry check measures it: the bars after a hammer on this market, over the history tested, against the bars after any other moment. That number is the only thing about a pattern worth believing.

Before you trust them

Run an entry check. It will tell you whether, on the market you care about, the moments this condition fired moved any differently from a random moment over the history tested. That is a fact about the past on that market, and it is the only kind of fact a test here produces.

Next

Market structure explained The context a pattern is usually read in: where the swing is, and which way the sequence runs. Build your first strategy Turn a pattern and a context condition into a strategy, and count how often it would have matched.