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Candlestick patterns

Individual candlesticks provide indications of bullish or bearish moves similarly to how groups of candlesticks forming a chart pattern do. Traders identify candlestick patterns to determine one of two outcomes: continuation or reversal.

Continuation implies that the price will extend in the direction that it moves towards.

Reversal implies that the trend has come to a halt and that the price will reverse its direction.

Candlestick patterns cheatsheet for crypto markets

Candlestick patterns
Candlestick patterns

Some analysts believe that the advance of technology and algorithmic trading ruined the prospects of candlestick patterns. Institutional investors who trade big sizes and use algorithms front-run traders before the moment a pattern forms. However, a few patterns have stayed relevant due to their accuracy.

Note that certain patterns require multiple candlesticks (e.g. white soldier) while some require only one, such as doji variations.

When trading candlestick patterns, make sure to apply a level of importance depending on the time frame you’re trading. Patterns at HTFs are more likely to have long-term effects on the asset. The effects of LTF patterns last shortly and the trend can reverse its direction at any moment.

Hammer candlestick pattern

Hammer candlestick pattern
Hammer

The hammer is a one-candlestick pattern that indicates bullish reversal. The body of a hammer has a long lower shadow and a closing price above its opening price. The hammer pattern occurs when traders defend the price during a downtrend by buying the asset, hence the long lower shadow.

For confirmation, make sure that the hammer is followed by at least three candlesticks closed above it. Hammers are the perfect patterns for longing, but if you are in doubt, place a stop loss right at the lower end of the hammer.

Engulfing candlestick pattern

Engulfing candlestick pattern
Engulfing candlestick pattern

Candlesticks that engulf their previous candle indicate a trend reversal. Both bearish and bullish engulfing candlestick patterns exist. Like with hammers, engulfing candles are followed by several candlesticks moving in the new trend. You can trade the pattern by opening a long or short and placing a stop loss near the engulfed candle.

Three White Soldiers

The Three White Soldiers is a three-candle pattern formed after a downtrend. It consists of three candles making higher highs and higher lows. The candles within this pattern rarely have long shadows and open inside the real body of the previous candle. This is a bullish pattern that leads to a trend reversal. We call the bearish variation of this pattern the three black crows.

Three White Soldiers & Three Black Crows
Three White Soldiers & Three Black Crows

Doji candlestick patterns

Dojis are popular and rare one-candle patterns. The standard Doji has long shadows to the upper and lower sides. The opening and closing prices are nearly identical. Such a configuration signifies indecision by both bulls and bears. But although the price can head in either direction, the Doji pattern is more commonly a reversal pattern when played out during a long trend.

The famous Doji
The famous Doji
Morning Star Doji
Morning Star Doji

The Morning Star is a bullish variation made of one bearish candle, one doji, and one bullish candle. The doji represents indecisiveness in this downtrending setup. As long as the third candle closes green, the trader will confirm the pattern.

The Evening Star is a bearish variation that plays out similarly to the Morning Star. The only difference is that the Evening Star occurs during an uptrend.

Here you can find a great video guide about candlestick patterns:

Also don’t forget to check out our article about crypto trading charts.