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Candlestick Patterns: Doji, Hammer, Engulfing, Star Rules Explained

The exact rules Vyreon uses to detect doji, marubozu, hammer, engulfing, harami, morning/evening star and more, plus inside bars, NR7 and gaps.

Reviewed · Sources at the end · How Vyreon measures
Vyreon's per-security reports are not live yet; this page describes what they will measure. Examples are illustrative.

Candlestick patterns are named shapes formed by one to three daily price bars, from each bar's open, high, low and close. Vyreon detects each one only when the latest bar meets a fixed numeric rule, listed below.

Candlestick Terms

  • Body: open to close; bullish if the close is above the open, bearish if below.
  • Range: high minus low. Shadows: the parts of the range above and below the body.
  • Trend context: the 5-session close change ending the session before today's bar (for morning and evening stars, ending at the first bar's close). Negative is a prior decline, positive a prior rise.

Single-Candle Patterns

  • Doji: body ≤ 10% of the range.
  • Marubozu: body ≥ 95% of the range (bullish or bearish).
  • Hammer / hanging man: a body above zero and ≤ 30% of the range, a lower shadow ≥ 2× the body, and an upper shadow ≤ 10% of the range. Hammer after a decline; hanging man after a rise.
  • Shooting star / inverted hammer: the same with the long shadow on top. Shooting star after a rise; inverted hammer after a decline.

Illustrative example: open 100, close 100.8, high 101, low 97 gives a range of 4, a body of 0.8 (20%), a lower shadow of 3 and an upper shadow of 0.2: a hammer after a decline.

Two- And Three-Candle Patterns

  • Bullish engulfing: a bearish bar, then a bullish bar whose larger body covers the first body, after a decline. Bearish engulfing is the mirror after a rise.
  • Bullish harami: a bearish bar whose body is ≥ 50% of its range, then a bullish bar whose body sits strictly inside it, after a decline. Bearish harami is the mirror.
  • Morning star: a bearish bar with body ≥ 50% of its range, a small middle bar (body ≤ 30% of its range), then a bullish bar closing above the midpoint of the first body, after a decline. Evening star is the mirror. No gap between bars is required.
  • Three white soldiers: three bullish bars, each with body ≥ 50% of its range, each opening and closing higher than the one before. Three black crows is the bearish mirror.

Bar Geometry

  • Inside bar: today's high is lower and its low higher than the previous session's.
  • Outside bar: the reverse; today's range extends beyond the previous one on both sides.
  • NR7: today's range is narrower than each of the previous six sessions'.
  • Gap: today's open ÷ the previous close − 1.

How Vyreon Calculates Them

All rules run on the latest session's daily bars, adjusted for splits and dividends. A bar can match several patterns; NONE means no rule matched.

What Candlestick Patterns Do Not Tell You

"Bullish" and "bearish" are traditional labels for shapes, not forecasts. Published tests of whether candlestick patterns predict later returns have reached conflicting results (see Sources), and the patterns are not established as reliable forecasts.

Related: pivot points · ATR · relative volume · RSI

Sources

  • Steve Nison, Japanese Candlestick Charting Techniques (New York Institute of Finance, 1991): pattern names and their traditional readings. The numeric thresholds above are Vyreon's own fixed rules.
  • G. Caginalp and H. Laurent, "The Predictive Power of Price Patterns", Applied Mathematical Finance (1998): reported predictive power for some three-day reversal patterns in S&P 500 stocks, 1992–1996.
  • Ben R. Marshall, Martin R. Young and Lawrence C. Rose, "Candlestick Technical Trading Strategies: Can They Create Value for Investors?", Journal of Banking & Finance (2006): found no value in candlestick strategies for Dow Jones Industrial Average stocks.

Inside bars, outside bars, NR7 and gaps are charting conventions with no single academic source.