21 Candlesticks Every Trader Should Know
Author: Dr. Melvin Pasternak Categories: Technical Analysis, Forex, Beginners
Quick Summary
A concise guide to the 21 most frequently occurring and actionable candlestick patterns, from dojis and hammers to engulfing patterns and morning/evening stars. Pasternak introduces the concept of candlesticks as "anticipatory" indicators that lead momentum signals and trendline confirmations, integrating them with moving averages, Bollinger Bands, and oscillators like stochastics and CCI.
Detailed Summary
Dr. Melvin Pasternak's 21 Candlesticks Every Trader Should Know (2006, Marketplace Books) distills the vast universe of Japanese candlestick patterns (some catalogs list over 100) into the 21 that the author has found most frequent and most actionable in his own trading practice.
The introduction establishes a hierarchy of technical signals: "Candlesticks Anticipate, Indicators Follow, Trendlines Confirm." Pasternak coins the term "anticipatory indicator" to describe candlesticks' ability to signal reversals before momentum oscillators or moving average crossovers confirm them. He explains candlestick anatomy (real body, upper shadow, lower shadow), the equivalence of candlestick and bar chart data, and a unique interpretive framework mapping the open to amateur sentiment, the close to professional sentiment, the high to optimism, and the low to pessimism.
The 21 candles are organized systematically. Candles 1-4 are the four doji variants, signaling indecision and potential stalling. Candles 5-6 are the hammer and hanging man, which signal key reversals at bottoms and tops respectively. Candles 7-8, the bullish and bearish engulfing patterns, spot key trend changes before they develop fully. Candle 9 (dark cloud cover) and Candle 10 (piercing pattern) are two-bar reversal patterns for tops and bottoms. Candles 11-12, the evening and morning star three-candle patterns, signal major reversals. Candle 13 (shooting star) and Candle 14 (inverted hammer) address upper and lower reversal signals. Candle 15 (harami) signals consolidation within a prior bar. Candle 16 (marubozu) represents maximum directional conviction. Candles 17-18 (high wave and spinning top) express doubt and confusion. Candle 19 (three black crows) is a powerful bearish continuation/reversal pattern.
The final sections cover gaps from a Japanese candlestick perspective (common, continuation, breakaway, and exhaustion gaps) and a synthesis chapter integrating Western technical analysis tools with Eastern candlestick insight. Pasternak emphasizes throughout the "Rule of Two" principle for confirmation and demonstrates how combining candlestick signals with oscillator readings and Bollinger Band positions dramatically improves signal reliability.
