Candlestick Pattern Recognition

TA-Lib provides 60+ candlestick pattern recognition functions that identify common Japanese candlestick patterns. These patterns can signal potential reversals or continuations in price trends.

Overview

Candlestick patterns are formed by one or more candlesticks and can indicate: - Potential trend reversals - Trend continuation signals - Market indecision - Bullish or bearish sentiment

Using Pattern Recognition

All pattern functions follow the same API:

require 'sqa/tai'

# OHLC data required
open   = [100.0, 101.0, 102.0, 101.5, 103.0]
high   = [102.0, 103.0, 104.0, 103.0, 105.0]
low    = [99.5, 100.0, 101.0, 100.5, 102.0]
close  = [101.0, 102.0, 101.5, 103.0, 104.0]

# Detect patterns
doji = SQA::TAI.cdl_doji(open, high, low, close)
hammer = SQA::TAI.cdl_hammer(open, high, low, close)
engulfing = SQA::TAI.cdl_engulfing(open, high, low, close)

Return Values

Pattern functions return an array of integers: - 0: No pattern detected - +100: Bullish pattern - -100: Bearish pattern - Some functions may return +200/-200 for stronger patterns

Featured Patterns

Single Candlestick Patterns

• Doji - Indecision, potential reversal
• Hammer - Bullish reversal after downtrend
• Shooting Star - Bearish reversal after uptrend
• Spinning Top - Indecision, small body

Two Candlestick Patterns

• Engulfing Pattern - Strong reversal signal
• Harami - Potential trend change
• Piercing Pattern - Bullish reversal
• Dark Cloud Cover - Bearish reversal

Three Candlestick Patterns

• Morning Star - Bullish reversal
• Evening Star - Bearish reversal
• Three White Soldiers - Strong bullish continuation
• Three Black Crows - Strong bearish continuation

Example: Scanning for Multiple Patterns

open, high, low, close = load_ohlc_data('AAPL')

# Check multiple patterns
patterns = {
  'Doji' => SQA::TAI.cdl_doji(open, high, low, close),
  'Hammer' => SQA::TAI.cdl_hammer(open, high, low, close),
  'Shooting Star' => SQA::TAI.cdl_shooting_star(open, high, low, close),
  'Engulfing' => SQA::TAI.cdl_engulfing(open, high, low, close),
  'Morning Star' => SQA::TAI.cdl_morning_star(open, high, low, close),
  'Evening Star' => SQA::TAI.cdl_evening_star(open, high, low, close),
  'Harami' => SQA::TAI.cdl_harami(open, high, low, close)
}

# Check current bar for patterns
patterns.each do |name, values|
  signal = values.last
  next if signal == 0

  sentiment = signal > 0 ? "Bullish" : "Bearish"
  puts "#{name}: #{sentiment} (#{signal})"
end

Example: Pattern with Trend Filter

open, high, low, close = load_ohlc_data('TSLA')

# Calculate trend
sma_50 = SQA::TAI.sma(close, period: 50)
uptrend = close.last > sma_50.last

# Detect patterns
hammer = SQA::TAI.cdl_hammer(open, high, low, close)
shooting_star = SQA::TAI.cdl_shooting_star(open, high, low, close)

# Only take reversal signals aligned with trend context
if hammer.last == 100 && !uptrend
  puts "Hammer in downtrend - Strong bullish reversal signal!"
  puts "Consider buying"
elsif shooting_star.last == -100 && uptrend
  puts "Shooting Star in uptrend - Strong bearish reversal signal!"
  puts "Consider selling"
end

Example: Pattern Confirmation with Volume

open, high, low, close, volume = load_ohlc_volume_data('MSFT')

engulfing = SQA::TAI.cdl_engulfing(open, high, low, close)

# Calculate average volume
avg_volume = volume[-20..-1].sum / 20.0

# Pattern detected?
if engulfing.last != 0
  pattern_type = engulfing.last > 0 ? "Bullish" : "Bearish"

  # Confirm with volume
  if volume.last > avg_volume * 1.5
    puts "#{pattern_type} Engulfing with high volume!"
    puts "Volume: #{volume.last.round(0)} (avg: #{avg_volume.round(0)})"
    puts "Strong confirmation - high probability setup"
  else
    puts "#{pattern_type} Engulfing but volume low"
    puts "Weaker signal - wait for confirmation"
  end
end

Pattern Categories

Reversal Patterns

Indicate potential trend changes: - Hammer, Hanging Man - Engulfing Patterns - Morning Star, Evening Star - Piercing Pattern, Dark Cloud Cover

Continuation Patterns

Suggest trend will continue: - Three White Soldiers - Three Black Crows - Rising Three Methods - Falling Three Methods

Indecision Patterns

Show market uncertainty: - Doji - Spinning Top - Harami - High Wave

Best Practices

1. Use Trend Context

# Bullish patterns work best at support in uptrends
# Bearish patterns work best at resistance in downtrends

2. Confirm with Volume

# Patterns on high volume are more reliable
if pattern_detected && volume > avg_volume * 1.5
  # Higher probability trade
end

3. Wait for Confirmation

# Don't trade on pattern alone
# Wait for next bar to confirm direction

4. Combine Multiple Signals

# Pattern + RSI + Support/Resistance
# Multiple confirmations = higher probability

Example: Complete Pattern Analysis System

open, high, low, close, volume = load_ohlc_volume_data('NVDA')

# Trend context
sma_50 = SQA::TAI.sma(close, period: 50)
sma_200 = SQA::TAI.sma(close, period: 200)
trend = if close.last > sma_50.last && sma_50.last > sma_200.last
  "Uptrend"
elsif close.last < sma_50.last && sma_50.last < sma_200.last
  "Downtrend"
else
  "Sideways"
end

# Momentum
rsi = SQA::TAI.rsi(close, period: 14)

# Volume
avg_volume = volume[-20..-1].sum / 20.0
volume_ratio = volume.last / avg_volume

# Patterns to check
patterns_to_check = {
  'Hammer' => { func: :cdl_hammer, bullish: true },
  'Shooting Star' => { func: :cdl_shooting_star, bullish: false },
  'Engulfing' => { func: :cdl_engulfing, bullish: nil },  # Can be either
  'Morning Star' => { func: :cdl_morning_star, bullish: true },
  'Evening Star' => { func: :cdl_evening_star, bullish: false }
}

puts "Market Context:"
puts "Trend: #{trend}"
puts "RSI: #{rsi.last.round(2)}"
puts "Volume Ratio: #{volume_ratio.round(2)}x"
puts "\nPattern Analysis:"

patterns_to_check.each do |name, config|
  result = SQA::TAI.send(config[:func], open, high, low, close)
  signal = result.last

  next if signal == 0

  is_bullish = signal > 0

  # Score the setup
  score = 0
  score += 1 if volume_ratio > 1.5  # High volume
  score += 1 if trend == "Uptrend" && is_bullish  # Aligned with trend
  score += 1 if trend == "Downtrend" && !is_bullish
  score += 1 if is_bullish && rsi.last < 40  # RSI not overbought
  score += 1 if !is_bullish && rsi.last > 60  # RSI not oversold

  puts "\n#{name}: #{is_bullish ? 'Bullish' : 'Bearish'}"
  puts "Setup Score: #{score}/5"

  if score >= 4
    puts "HIGH PROBABILITY SETUP!"
  elsif score >= 3
    puts "Decent setup, monitor closely"
  else
    puts "Weak setup, low probability"
  end
end

Common Patterns Quick Reference

Pattern	Candles	Signal	Reliability
Doji	1	Reversal	Medium
Hammer	1	Bullish	High
Shooting Star	1	Bearish	High
Engulfing	2	Strong Reversal	High
Harami	2	Reversal	Medium
Morning Star	3	Bullish	High
Evening Star	3	Bearish	High
Three White Soldiers	3	Bullish	High
Three Black Crows	3	Bearish	High

See Also

• Doji Pattern
• Hammer Pattern
• Engulfing Pattern
• Back to Indicators
• Basic Usage