Trading Setups & Chart Patterns
A reference guide to the candlestick patterns, chart formations, and technical setups detected by the Shounya analysis engine. Each entry explains what it is, how to identify it, and the market psychology behind it.
I. Candlestick Patterns
Candlestick patterns are formed by one to three price bars and signal potential reversals or continuations. They are most reliable when they appear at key support/resistance levels, in the context of an existing trend, and are confirmed by volume.
Hammer
BULL1-barA single-bar reversal pattern found at the bottom of downtrends. The long lower shadow shows sellers pushed the price down, but buyers fought back and closed near the open.
Small real body near the high of the bar. Lower shadow at least 2× the body. Little or no upper shadow.
Sellers drove the price lower intraday but were overwhelmed by buyers, signaling exhaustion of selling pressure.
Inverted Hammer
BULL1-barAppears after a decline. The long upper shadow shows buyers attempted to push higher. Though they failed initially, the pattern signals a potential reversal when confirmed.
Small real body near the low. Long upper shadow at least 2× the body. Little or no lower shadow.
Buyers tested higher levels. Although the close was near the open, the buying attempt itself signals shifting sentiment.
Shooting Star
BEAR1-barMirror image of the hammer, found at the top of uptrends. The long upper shadow indicates buyers lost control to sellers by the close.
Small real body near the low. Long upper shadow at least 2× the body. Little or no lower shadow.
Buyers pushed price higher but sellers overwhelmed them, closing near the open — a warning that the uptrend may be ending.
Doji
NEUTRAL1-barThe open and close are virtually equal, creating a cross shape. It signals indecision between buyers and sellers — a potential turning point.
Extremely small real body (open ≈ close). Can have upper and lower shadows of varying length.
Neither side gained ground. After a strong trend, this can signal exhaustion. After consolidation, it reinforces uncertainty.
Dragonfly Doji
BULL1-barA doji with a long lower shadow and no upper shadow. Open, high, and close are at the same level. Found at bottoms, it signals strong buyer rejection of lower prices.
Open = High = Close, with a long lower shadow.
Sellers pushed price significantly lower, but buyers drove it all the way back to the open — a powerful rejection of the downside.
Gravestone Doji
BEAR1-barA doji with a long upper shadow and no lower shadow. Open, low, and close are at the same level. Found at tops, it signals buyer failure.
Open = Low = Close, with a long upper shadow.
Buyers pushed price significantly higher but sellers drove it all the way back down — a powerful rejection of higher prices.
Bullish Engulfing
BULL2-barA two-bar pattern where a large green (bullish) candle completely engulfs the previous red candle. One of the most reliable reversal signals at support levels.
Bar 1 is bearish. Bar 2 is bullish and its body fully contains bar 1's body. Appears after a downtrend.
Buyers completely overwhelmed sellers in a single session, reversing the prior day's losses and then some.
Bearish Engulfing
BEAR2-barA large red candle engulfs the prior green candle. Signals strong selling pressure and potential reversal at resistance levels.
Bar 1 is bullish. Bar 2 is bearish and its body fully contains bar 1's body. Appears after an uptrend.
Sellers completely overwhelmed buyers, wiping out the prior day's gains and continuing lower.
Morning Star
BULL3-barA three-bar reversal: a long bearish candle, a small-bodied candle (the 'star' that gaps down), and a long bullish candle that closes above the midpoint of the first bar.
Bar 1: long bearish body. Bar 2: small body (gaps down from bar 1). Bar 3: long bullish body closing above bar 1's midpoint.
Day 1 shows continued selling. Day 2's small body signals indecision. Day 3's strong buying confirms the reversal.
Evening Star
BEAR3-barBearish counterpart of the morning star. A long bullish candle, a small-bodied candle at the top, and a long bearish candle confirm the reversal.
Bar 1: long bullish body. Bar 2: small body (gaps up from bar 1). Bar 3: long bearish body closing below bar 1's midpoint.
Day 1 shows continued buying. Day 2's small body signals indecision at the top. Day 3's strong selling confirms distribution.
Three White Soldiers
BULL3-barThree consecutive long-bodied bullish candles, each opening within the prior body and closing near its high. A strong continuation/reversal pattern.
Three consecutive bullish bars with progressively higher closes. Each opens within the prior bar's body.
Sustained buying pressure across three sessions signals strong institutional accumulation and trend conviction.
Three Black Crows
BEAR3-barThree consecutive long-bodied bearish candles, each opening within the prior body and closing near its low. Signals heavy distribution.
Three consecutive bearish bars with progressively lower closes. Each opens within the prior bar's body.
Sustained selling pressure across three sessions signals institutional distribution and loss of confidence.
Piercing Line
BULL2-barA bearish candle followed by a bullish candle that opens below the prior low but closes above the midpoint of the bearish candle. Signals a potential bottom.
Bar 1: bearish. Bar 2: opens below bar 1's low, closes above bar 1's midpoint.
Despite a gap lower at the open, buyers rallied the price to close above the prior bar's midpoint — a sign of emerging strength.
Dark Cloud Cover
BEAR2-barA bullish candle followed by a bearish candle that opens above the prior high but closes below the midpoint. The bearish counterpart of the piercing line.
Bar 1: bullish. Bar 2: opens above bar 1's high, closes below bar 1's midpoint.
Despite a gap higher, sellers drove the price below the prior bar's midpoint — a sign that buyers are losing control.
Tweezer Bottom
BULL2-barTwo candles with matching lows. The first is bearish. The second is bullish. The equal lows create a support level that held twice.
Two consecutive bars with approximately equal lows. Bar 1 is bearish, bar 2 is bullish.
Price tested the same low twice and rejected it both times, confirming support at that level.
Tweezer Top
BEAR2-barTwo candles with matching highs. The first is bullish. The second is bearish. The equal highs create a resistance level.
Two consecutive bars with approximately equal highs. Bar 1 is bullish, bar 2 is bearish.
Price tested the same high twice and was rejected both times, confirming resistance.
II. Chart Patterns
Chart patterns are larger formations that develop over weeks or months. They represent the collective behavior of market participants — accumulation, distribution, continuation, or reversal. The TA engine auto-detects these on daily charts and derives entry, stop, and target levels.
Double Bottom
BULLPrice hits a support level twice, forming a 'W' shape. The pattern completes when price breaks above the neckline (the peak between the two bottoms). One of the most reliable reversal patterns.
Two distinct troughs at roughly the same price level, separated by a peak. Volume typically decreases on the second bottom and surges on the breakout.
Enter on a close above the neckline. Stop below the second bottom. Target is the neckline plus the distance from the bottom to the neckline.
Double Top
BEARPrice hits a resistance level twice, forming an 'M' shape. Completes when price breaks below the neckline. Signals that buyers failed to push higher and distribution is occurring.
Two distinct peaks at roughly the same price level, separated by a trough. Volume often decreases on the second peak.
Enter on a close below the neckline. Stop above the second peak. Target is the neckline minus the distance from the peak to the neckline.
Head & Shoulders
BEARThree peaks: a higher middle peak (head) between two lower, roughly equal peaks (shoulders). The neckline connects the troughs. A classic topping pattern with high reliability.
Left shoulder peak → trough → higher head peak → trough → right shoulder peak (≈ left shoulder height). Volume typically diminishes on the head and right shoulder.
Enter on a close below the neckline. Stop above the right shoulder. Target is the neckline minus the distance from the head to the neckline.
Inverse Head & Shoulders
BULLThe mirror image of head & shoulders, found at bottoms. Three troughs with the middle one being the deepest. One of the most reliable bullish reversal patterns.
Left shoulder trough → peak → deeper head trough → peak → right shoulder trough (≈ left shoulder depth). Volume surges on the breakout above neckline.
Enter on a close above the neckline. Stop below the right shoulder. Target is the neckline plus the distance from the head to the neckline.
Rising Wedge
BEARBoth support and resistance lines slope upward, but converge. The narrowing range and rising pattern typically resolve with a downside breakout.
Higher highs and higher lows, but the highs are rising more slowly than the lows. The trading range narrows. Volume diminishes as the wedge progresses.
Enter short on a break below the support line. Stop above the most recent high. Target is the base of the wedge (the widest point projected downward).
Falling Wedge
BULLBoth support and resistance lines slope downward, but converge. Despite the falling price, the pattern typically resolves with an upside breakout.
Lower highs and lower lows, but the lows are falling more slowly than the highs. The range narrows. Volume diminishes then surges on breakout.
Enter long on a break above the resistance line. Stop below the most recent low. Target is the base of the wedge projected upward.
Ascending Triangle
BULLFlat resistance line with rising support. Each pullback finds buyers at higher levels. The flat top acts as a ceiling that eventually breaks under increasing buying pressure.
Horizontal resistance with ascending lows creating a rising support line. At least two touches on each line. Volume contracts then expands on breakout.
Enter on a break above the flat resistance. Stop below the most recent higher low. Target is the height of the triangle added to the breakout point.
Descending Triangle
BEARFlat support line with declining resistance. Each rally meets sellers at lower levels. Typically resolves with a breakdown through the flat support.
Horizontal support with descending highs creating a falling resistance line. At least two touches on each line.
Enter on a break below the flat support. Stop above the most recent lower high. Target is the height of the triangle subtracted from the breakdown point.
Symmetrical Triangle
BULL / BEARConverging trendlines with lower highs and higher lows. Represents a period of consolidation where neither buyers nor sellers dominate. Breaks in the direction of the prior trend ~65% of the time.
A series of lower highs and higher lows forming converging trendlines. Volume typically contracts as the apex approaches.
Enter on a break above resistance or below support. Stop on the opposite side of the triangle. Target is the widest part of the triangle projected from the breakout point.
III. Trading Setups
Trading setups combine price action with technical indicators to identify high-probability entry points. These are the signals detected by the Shounya chart engine and TA analysis backend. Best used in confluence — when multiple signals align.
Volatility
BB Squeeze Breakout
BULL / BEARBollinger Bands (20, 2)Bollinger Bands contract to their narrowest width, indicating a low-volatility regime. When price explodes out of the squeeze, a new directional move begins.
Bandwidth drops below a threshold. When price closes above the upper band → bullish. Below the lower band → bearish.
Momentum
RSI Divergence
BULL / BEARRSI (14)Price makes a new high/low but RSI does not confirm. This divergence signals weakening momentum and a potential reversal. One of the most powerful mean-reversion signals.
Bullish: price makes a lower low, RSI makes a higher low. Bearish: price makes a higher high, RSI makes a lower high.
MACD Divergence
BULL / BEARMACD (12, 26, 9)Similar to RSI divergence but uses MACD histogram. Price and MACD histogram move in opposite directions, signaling that the trend's momentum is fading.
Bullish: price makes a lower low, MACD histogram makes a higher low. Bearish: price makes a higher high, MACD histogram makes a lower high.
MACD Cross
BULL / BEARMACD (12, 26, 9)The MACD line crosses its signal line. This is one of the most commonly used momentum signals, best suited for trending markets.
Bull cross: MACD line crosses above signal line. Bear cross: MACD line crosses below signal line.
Stochastic Cross
BULL / BEARStochastic (14, 3, 3)The %K line crosses the %D line in oversold or overbought territory. More reliable when the cross happens at extreme levels.
Bull: %K crosses above %D below 20. Bear: %K crosses below %D above 80.
Mean Reversion
Oversold Bounce / Overbought Pullback
BULL / BEARRSI (14)RSI reaches extreme levels (below 30 or above 70) and then reverses. These extremes represent stretched conditions that tend to snap back.
Bounce: RSI drops below 30 and crosses back above. Pullback: RSI rises above 70 and crosses back below.
Trend
Golden Cross / Death Cross
BULL / BEAREMA 50, EMA 200The 50-period EMA crosses above (golden) or below (death) the 200-period EMA. These are slow but widely followed trend signals used by institutional investors.
Golden cross: EMA 50 crosses above EMA 200. Death cross: EMA 50 crosses below EMA 200.
EMA Pullback
BULL / BEAREMA 21Price pulls back to a rising EMA in an uptrend (or rallies to a falling EMA in a downtrend) and bounces. The EMA acts as dynamic support/resistance.
Bullish: price touches or approaches EMA 21 from above and bounces in an uptrend. Bearish: price approaches from below and rejects.
Ichimoku TK Cross
BULL / BEARIchimoku Cloud (9, 26, 52)The Tenkan-sen (conversion line) crosses the Kijun-sen (base line). When above the Kumo, it's a strong bullish signal; below the Kumo, it's a strong bearish signal.
Bull: Tenkan crosses above Kijun. Bear: Tenkan crosses below Kijun. Signal strength depends on position relative to the cloud.
Kumo Breakout
BULL / BEARIchimoku CloudPrice breaks above or below the Ichimoku Cloud (Kumo). This is one of the strongest trend signals in Ichimoku analysis, as the cloud represents long-term equilibrium.
Bull: price closes above the upper cloud boundary (Senkou Span A/B). Bear: price closes below the lower boundary.
Trend Strength
ADX Trend Start
BULL / BEARADX/DMI (14)ADX rises above 25, confirming a trend is emerging. The direction is determined by whether +DI or −DI is dominant. Useful for confirming breakouts.
ADX crosses above 25. Direction: +DI > −DI → bullish trend. −DI > +DI → bearish trend.
Volume
Volume Climax Reversal
BULL / BEARVolume, SMA 20 (volume)An extreme volume spike (3×+ average) accompanied by a long candle wick. The climactic volume signals exhaustion — the last burst of panic selling or euphoric buying.
Volume exceeds 3× the 20-period average. The candle has a significant wick (rejection). Signals a potential reversal on the next bar.
Structure
Trendline Bounce
BULLTA Engine trendline detectionPrice approaches a rising support trendline with multiple touches and bounces. The more touches a trendline has, the more significant it becomes.
Price is within 4% above a rising support trendline that has 3+ touches. Entry at the trendline, stop 3% below.
Range Breakout
BULL / BEARTA Engine range detectionPrice breaks out of a well-defined consolidation range (rectangle pattern). The breakout typically leads to a measured move equal to the range height.
Price closes beyond the range boundary with above-average volume. Confirmed if the breakout holds for 2+ bars.
Key Concepts
Confluence
When multiple independent signals agree — e.g. a hammer at a trendline support with RSI oversold. Confluence dramatically increases the probability of a setup working.
Confirmation
Waiting for the next bar to close in the expected direction before acting on a signal. Reduces false positives at the cost of a slightly worse entry price.
False Breakout
Price breaks a key level but quickly reverses back inside the range. Common during low-volume sessions. Stop-losses protect against these.
Risk:Reward (R:R)
The ratio of potential profit to potential loss. A 2:1 R:R means you risk $1 to make $2. Professional traders typically require at least 1.5:1.
Support & Resistance
Price levels where buying (support) or selling (resistance) pressure has historically concentrated. The more times a level is tested, the more significant it becomes.
Volume Confirmation
Breakouts and reversals are more reliable when accompanied by above-average volume, signaling genuine participation rather than thin-market noise.
DISCLAIMER: This page is for educational purposes only and does not constitute financial advice. Pattern detection is probabilistic — no signal guarantees future price movement. Always use proper risk management, position sizing, and stop-losses. Past pattern performance does not predict future results.