Master the main candlestick patterns in your trading strategy

What you need to know

Candlestick charts are fundamental in technical analysis of cryptocurrencies, providing traders with visual tools to anticipate market movements. Among the most commonly identified patterns are the hammer, bullish harami, hanging man, shooting star, and doji—each reveals critical information about possible changes in direction or confirmation of ongoing trends.

It is important to remember that these candlestick patterns should never be used in isolation. Trading volume, market liquidity, and the general sentiment of investors play equally decisive roles in making effective trading decisions.

Understanding the fundamental structure of candles

A candlestick is the visual representation of price action over a specific period—whether it's an hour, a day, or a week. This graphical technique, originating from Japan in the 18th century, has become the standard for analyzing historical price data and projecting possible future movements in cryptocurrencies.

Each candle consists of a central body and two extensions called wicks or shadows. The body represents the range between the opening and closing price during that time interval. The upper and lower wicks indicate the respective highs and lows reached.

A green body indicates that the price closed above the opening—bullish movement. A red body indicates a close below the opening—bearish movement. Multiple candles in sequence create patterns that reveal the balance between buyers and sellers, allowing the identification of reversal, continuation, or indecision points in trading.

How to interpret information in candlestick charts

The patterns that emerge from candle sequences provide insights into market dynamics, although they never constitute definitive buy or sell signals. They are tools for reading current trends to anticipate future opportunities.

To minimize the risk of losses, many traders integrate these patterns with complementary methodologies such as Wyckoff Analysis, Elliott Wave Theory, or Dow Theory. They also combine with technical indicators such as trend lines, the RSI (Relative Strength Index), Ichimoku Clouds, or the Parabolic SAR.

Support and resistance levels are key references: support represents prices where demand exceeds supply; resistance indicates where supply exceeds demand. Using candles within these contexts amplifies the effectiveness of the analysis.

Bullish patterns indicating an upward reversal

Hammer: recovery signal from lows

The hammer appears at the end of bearish trends, characterized by a long lower wick that is double or triple the size of the body. This pattern reflects the buyers' ability to regain control of the price after strong selling pressure. Green hammer candles generally indicate more decisive bullish reactions than their red counterparts.

Inverted Hammer: declining selling pressure

Similar to the hammer but inverted—with the long wick at the top—the inverted hammer emerges in bearish trend backgrounds. The elongated upper wick shows that although sellers pushed the price down again towards the open, the bearish pressure is waning. This suggests that buyers might take control in the short term.

Three white soldiers: clear dominance of buyers

This pattern consists of three consecutive green candles, where each one opens within the previous body and closes above its high. With minimal lower wicks, this pattern demonstrates that buyers significantly outweigh sellers. Larger bodies enhance the validity of the pattern, indicating sustained buying pressure.

Bullish Harami: the bearish momentum is exhausting

A long red candle followed by a smaller green one, completely contained within the previous body, forms the bullish harami. This pattern typically develops over several days and indicates that the selling momentum is losing strength, potentially nearing its end.

Bearish patterns that warn of a downward reversal

Hanging man: warning at trend highs

The hanging man is the bearish counterpart of the hammer, developing after prolonged bullish trends. It features a small body and an extended lower wick, revealing significant selling following the previous rise, although buyers temporarily regained the price. It represents the point where uncertainty dominates—buyers try to maintain the trend while fresh sellers flow in. After a prolonged rise, this formation warns that the bulls may lose momentum soon, foreshadowing a possible bearish reversal.

Shooting star: the local maximum has been reached

The shooting star emerges at the peak of bullish trends, showing an extended upper wick, minimal lower wick, and a small body close to the base. This pattern indicates that the market reached a peak, but sellers regained control, pushing the price down again. While some traders close long positions immediately, others wait for confirmation in subsequent candles.

Three black crows: selling pressure continues

Three consecutive red candles that open within the body of the previous one and close below the minimum of the last one constitute this bearish pattern. It is the negative mirror of the three white soldiers. The absence of extended upper wicks confirms that selling pressure continues to push prices downwards consistently. The size of the candles provides clues about the durability of the bearish continuation.

Bearish Harami: buyers are losing ground

A large green candle followed by a smaller red one completely contained within it constitutes this pattern. It typically emerges at the end of bullish trends, indicating that buyers are losing momentum—a precursor to potential bearish reversal.

Dark cloud cover: impending momentum shift

This pattern is formed when a red candle opens above the close of the previous green candle but closes below the midpoint of it. It is especially relevant when trading volume is high, suggesting an imminent transition from bullish momentum to bearish. Many traders wait for the appearance of a third red candle to confirm the reversal.

Patterns that Indicate Continuation of Trends

Triple bullish formation: confirmation of upward momentum

In bullish trends, three consecutive red candles with small bodies are followed by a resumption of upward movement. The red candles ideally do not exceed the range of the previous candle. A robust green candle confirms that bullish investors have regained direction, perpetuating the trend.

Triple bearish formation: continuation of the decline

This pattern mirrors the previous one but in a bearish context, confirming the continuation of downward trends through a similar but inverted structure.

The doji: indecision crystallized in candle

A doji forms when the opening and closing converge at the same price ( or very similar ). Despite fluctuations during the session, the price returns to the starting point, symbolizing a perfect balance between buyers and sellers—point of indecision.

The interpretation of the doji critically depends on the context. There are variations depending on the position of the open-close line:

Gravestone Doji: Upper wick extended with open-close at the lows. Typically bearish, warning of a reversal.

Long-legged Doji: Upper and lower wicks extended with open-close at the midpoint. Represents genuine indecision between opposing forces.

Dragonfly Doji: Long lower wick with open-close at highs. Its interpretation depends on the prior context—it can be bullish or bearish.

Technical note: In extremely volatile cryptocurrency markets, exact dojis are rare, so the “spinning top” is used interchangeably with doji to refer to similar formations.

Why Price Gaps Are Rare in Cryptocurrencies

Price gaps—when an asset opens significantly above or below the previous close—are common in markets with defined hours. However, cryptocurrency trading operates 24/7, minimizing these discontinuities. When they do occur, they generally reflect low liquidity and high bid-ask spreads, serving as indicators more of market frictions than of valid opportunities.

Practical strategies for using candles in your trading

Master the fundamentals first

Before risking capital, make sure you deeply understand how to read candlestick charts and recognize the variety of existing patterns. Unfounded risk is guaranteed ruin.

Integrates multiple analysis tools

Candlestick patterns provide valuable but incomplete information. Combine them with moving averages, RSI, MACD, and other technical indicators to gain holistic insights into the market.

Analyze across multiple time frames

Examine candle patterns on daily, hourly, and 15-minute charts simultaneously. This multi-timeframe approach reveals divergent patterns that alert to short-term manipulations or confirmations of strong trends.

Implement discipline in risk management

Set stop-loss orders to protect your capital. Avoid overtrading. Only enter positions with favorable risk-reward ratios, ideally 1:2 or higher. Profit comes from discipline, not from boldness.

Final reflection

Mastering candle reading and its patterns is invaluable for any trader, even those who do not centrally integrate them into their strategies. Although they are useful indicators that convey the tug-of-war between buyers and sellers that ultimately move markets, they are never infallible.

Its maximum potential is realized when combined with other analytical tools and rigorous risk management. Candle patterns are a compass, not a map—useful for orientation, but insufficient to guarantee a safe destination.