Chapter 4: Advanced Candlestick Patterns & Combinations (Audio)

This is Chapter 4: Advanced Candlestick Patterns and Combinations.

In this chapter, we’re going deeper into the world of candlestick analysis. You’ve already learned the basics. Now, we’ll look at more advanced formations and how they can help you make better trading decisions.

Advanced candlestick patterns are not just shapes—they’re a window into market psychology. They can tell us when buyers are getting stronger, when sellers are running out of steam, and when the market is about to make a big move.

Let’s begin with multi-candlestick patterns. These involve three or more candles and give us stronger signals because they develop over time.

One example is the Three White Soldiers pattern. It shows up at the bottom of a downtrend and consists of three bullish candles, each opening inside the previous body and closing higher. It signals strong buying pressure and possible reversal to the upside.

The opposite is the Three Black Crows. You’ll see this at the top of an uptrend. It’s made of three bearish candles in a row, each opening within the last one’s body and closing lower. This pattern warns of strong selling and a potential reversal downward.

Next are the Morning Star and Evening Star formations. These are also three-candle patterns. The Morning Star appears after a downtrend. First, there’s a big bearish candle. Then a small candle of indecision, like a doji. Finally, a strong bullish candle closes the pattern. This suggests a shift from selling to buying.

The Evening Star is the reverse. It shows up after an uptrend and can signal a shift from buying to selling.

Another pattern to know is the Harami Cross. This is when a small doji candle is completely inside the body of the previous candle. It shows indecision. When followed by a strong move in the opposite direction, it becomes a reliable signal of reversal.

Sometimes, we get multiple Harami candles in a row. That usually means the market is pausing and building energy before a breakout.

Now, let’s talk about how candlestick patterns interact with technical structures like trendlines, support and resistance.

For example, a bullish engulfing pattern that forms right at an uptrend line can be a strong sign that the trend will continue. Or if you see a bearish shooting star at a resistance level, it might mean the market is about to fall.

The same goes for chart patterns. If a reversal candle appears right as a triangle breaks out, that can give you extra confirmation to enter the trade.

Volume is another key factor. Patterns are much stronger when they happen with high volume. For example, a high-volume bullish engulfing candle is more reliable than the same candle on low volume.

Also, if price is rising but volume is falling, it may be a warning sign that the trend is weakening.

We can also use volume profile tools to understand where most of the trading has taken place. When candlestick patterns appear at those high-volume price zones, the signal is more meaningful.

Now let’s talk about failed patterns. Yes, even the best patterns fail sometimes. But if you can spot a pattern that fails—like a hammer that doesn’t lead to a reversal—it can actually give you an opportunity to trade in the opposite direction. These failures often lead to fast, strong moves because many traders are caught on the wrong side.

Next, we have contextual analysis. This means understanding the environment around the pattern. A candle that looks like a reversal might be strong if it’s at the top of an extended move, but not very useful if it forms in the middle of a range.

We also have to think about volatility. In high-volatility conditions, patterns might resolve quickly and need wider stops. In low-volatility conditions, they may take longer to play out.

Certain times of day or week can also affect how well patterns work. For example, a pattern that forms just before major news may be less reliable than one that forms during regular trading hours.

Now let’s move on to some advanced combinations.

One is the Three-Drive Pattern. This involves three pushes in the same direction, with each push showing weakening momentum. The final push often ends with a strong reversal candle, giving you a great entry signal.

Another is the 2B Pattern. This happens when price breaks a key level but then quickly comes back. It shows a failed breakout and often leads to a reversal.

There’s also the Hikkake Pattern. This is when price makes a false breakout from an inside candle and then reverses strongly. It can trap traders who entered early.

The Island Reversal is a rare but powerful pattern. It forms when price gaps down, trades sideways for a bit, then gaps up again—leaving a set of candles isolated in the middle. This shows a strong change in market direction.

Let’s look at some practical strategies that use these patterns.

The Momentum Reversal Strategy looks for exhaustion after a strong move, followed by a reversal pattern. This works well after several big candles in a row and an overbought or oversold reading on your indicators.

Another is the Failed Pattern Breakout Strategy. Here, we look for a common pattern like a bullish engulfing that looks good at first—but then fails. When the pattern breaks down, we trade in the opposite direction.

The Multi-Timeframe Strategy uses confirmation across different timeframes. For example, if the daily chart is in an uptrend, and the one-hour chart forms a morning star at support, that’s a strong signal to go long.

And finally, the Candlestick Divergence Strategy combines candlestick patterns with indicator divergence. If price is making new highs but your indicator isn’t, and you get a bearish candle like a shooting star, that’s a warning of reversal.

In summary, these advanced patterns and combinations give you more precision, more confirmation, and better opportunities to time your entries and exits.

Keep in mind—no pattern works every time. But when you combine price action, structure, volume, and context, your trading decisions will be more informed and more confident.