Price Action Trading: How to Read Candlesticks Like a Pro
Price action is the purest form of technical analysis—reading market psychology directly from candlesticks without lagging indicators. Master the patterns, understand the psychology.
- Price action reads raw candlesticks and market structure—no lagging indicators needed. Each candle tells a story.
- Patterns work best at key levels (support/resistance). Context is everything—random patterns have no edge.
- Thrive detects price action patterns at significant levels and alerts you to high-probability setups.
Explore Candlestick Patterns
Click through key price action patterns to understand their psychology:
Large bullish candle completely engulfs the previous bearish candle.
Structure
Red candle followed by larger green candle that opens below and closes above red body.
Market Psychology
Sellers pushed price down but buyers overwhelmed them completely. Total shift in control. The bigger the engulfing candle, the stronger the signal.
Enter on close of engulfing candle or on break of its high. Stop below engulfing low. Target next resistance or 1.5-2R. Best at support levels.
What Is Price Action?
Price action trading reads the raw story of the market through candlesticks. No RSI, no MACD, no Bollinger Bands. Just price, structure, and context. The belief: everything is already reflected in price—indicators just lag behind.
Each candlestick represents a battle between buyers and sellers. The body shows who won that period. The wicks show rejected prices. Multiple candles form patterns that reveal market psychology and predict likely next moves.
Key Candlestick Patterns
Engulfing Patterns
A candle that completely engulfs the previous candle's body. Bullish engulfing: green engulfs red—buyers overwhelmed sellers. Bearish engulfing: red engulfs green—sellers overwhelmed buyers. Strong reversal signal.
Pin Bars
Long wick, small body showing price rejection. Hammer: long lower wick, bulls defended. Shooting star: long upper wick, bears defended. The wick shows where price tried and failed—key information.
Inside Bars
Candle contained within previous candle's range. Consolidation pattern. Neither buyers nor sellers dominated. Breakout of mother bar determines direction. Often precedes explosive moves.
Doji
Open and close at same level. Perfect balance—indecision. After trends, doji signals potential exhaustion. Don't trade alone—wait for confirmation candle. Context determines meaning.
| Pattern | Type | Signal | Best Location |
|---|---|---|---|
| Engulfing | Reversal | Strong directional shift | Support/resistance |
| Pin Bar | Reversal | Price rejection | Key levels, trend lines |
| Inside Bar | Continuation | Breakout coming | After strong moves |
| Doji | Indecision | Potential reversal | After extended trends |
Context Is Everything
Patterns without context are meaningless. An engulfing candle in the middle of a range has little significance. The same pattern at major support after a downtrend is highly significant.
High-Probability Contexts
- At support/resistance: Patterns at key levels are most reliable
- At trend lines: Rejection patterns at tested trend lines
- At Fibonacci levels: Especially the golden pocket (61.8%)
- After extended moves: Exhaustion patterns after big trends
Low-Probability Contexts
- Random location in the middle of price range
- Against strong trending market
- On very low timeframes (too much noise)
Trading Price Action Patterns
Entry
Enter on close of pattern candle or on break of pattern high/low (depending on direction). Some traders wait for confirmation candle. More conservative = more confirmation, but may miss some moves.
Stop Loss
Beyond the pattern extreme. For pin bar: stop beyond the wick (that's the rejection level). For engulfing: stop beyond the engulfed candle. If price breaks pattern extreme, pattern failed.
Targets
Next key level—previous swing high/low, support/resistance, round numbers. Or use R:R based on stop distance. 1.5-2R minimum for reversal patterns.
Reading Market Structure
Price action is more than individual patterns—it's understanding market structure.
- Higher highs + higher lows: Uptrend structure—look for long setups
- Lower highs + lower lows: Downtrend structure—look for short setups
- Break of structure: Trend change signal when HH/HL or LH/LL pattern breaks
- Range structure: Price bouncing between levels—fade the boundaries
Patterns are most powerful when aligned with structure. Bullish pattern in uptrend structure = high probability. Bullish pattern in downtrend = counter-trend, lower probability.
Related reading: Market Structure Breaks
Common Price Action Mistakes
- Pattern without context: Trading patterns at random locations = no edge
- Confirmation bias: Seeing patterns that aren't there because you want to trade
- Wrong timeframe: Patterns on 1m chart are mostly noise
- Ignoring structure: Bullish patterns in downtrends often fail
- No confirmation: Some patterns need the next candle to confirm
Frequently Asked Questions
What is price action trading?
Price action trading reads the raw price movements on a chart—candlesticks, patterns, and market structure—without relying on lagging indicators. The belief: everything is reflected in price. Clean charts, fewer distractions.
What is a candlestick pattern?
A candlestick pattern is a recognizable formation of one or more candles that signals potential price direction. Patterns reflect the battle between buyers and sellers. Common patterns: engulfing, pin bar, doji, inside bar.
What is an engulfing pattern?
An engulfing pattern occurs when a candle completely covers ("engulfs") the previous candle's body. Bullish engulfing: green candle engulfs previous red. Bearish engulfing: red candle engulfs previous green. Shows momentum shift.
What is a pin bar?
A pin bar has a long wick and small body, showing price rejection. Hammer (bullish): long lower wick, price rejected downside. Shooting star (bearish): long upper wick, price rejected upside. Powerful at key levels.
Does candlestick trading actually work?
Context matters. Patterns at random locations have low edge. Patterns at significant levels (support/resistance, trend lines, Fibonacci) have much higher probability. Price action + location + structure = edge.
Should I use indicators with price action?
Purists say no—price tells you everything. Practical approach: use minimal indicators for confluence. Volume confirms patterns. RSI divergence adds probability. But price structure is primary.
What timeframe is best for price action?
Higher timeframes (4H, daily) produce cleaner patterns with less noise. 1m/5m patterns are often unreliable. Most price action traders use daily for patterns and lower timeframes only for entry timing.
How do I learn price action trading?
Study historic charts. Mark patterns. See what worked and what failed. Focus on context—why did this pattern work? Paper trade before risking real money. Takes months to develop pattern recognition.