Candlestick Patterns: The Complete Guide

Candlestick patterns are the foundation of price action trading. Originating from 18th-century Japanese rice traders, these visual representations of price movement reveal the battle between buyers and sellers within each time period. A single candlestick shows four data points: open, high, low, and close — but patterns formed by multiple candles tell a much richer story about market psychology.

Each candle's body shows the range between open and close (green/white = bullish close above open, red/black = bearish close below open). The wicks (shadows) show the high and low extremes reached during that period. The relationship between body size, wick length, and position reveals who won the battle.

Single-Candle Patterns

Doji: Open and close are nearly identical, forming a cross shape. Signals indecision — neither buyers nor sellers could gain control. Most significant after a strong trend, where it may signal exhaustion and reversal.

Hammer/Hanging Man: Small body at the top with a long lower wick (2x+ body length). A hammer at the bottom of a downtrend is bullish (buyers rejected lower prices). A hanging man at the top of an uptrend is bearish (selling pressure emerging).

Shooting Star/Inverted Hammer: Small body at the bottom with a long upper wick. A shooting star at the top of an uptrend signals rejection of higher prices. An inverted hammer at the bottom may signal a reversal if confirmed.

Marubozu: A candle with no wicks — the open is the low (bullish) or high (bearish) and the close is the high (bullish) or low (bearish). Shows complete dominance by one side.

Multi-Candle Reversal Patterns

Engulfing Pattern: A large candle that completely engulfs the previous candle's body. Bullish engulfing (green engulfs red) at support = strong buy signal. Bearish engulfing (red engulfs green) at resistance = strong sell signal.

Morning Star / Evening Star: Three-candle patterns. Morning star: large red candle → small-bodied candle (indecision) → large green candle. Signals bottom reversal. Evening star is the inverse at tops.

Three White Soldiers / Three Black Crows: Three consecutive strong candles in the same direction, each opening within the previous body and closing near its high (soldiers) or low (crows). Powerful trend confirmation.

Continuation Patterns

Rising/Falling Three Methods: A strong candle followed by 3-4 small counter-trend candles that stay within the first candle's range, then another strong candle in the original direction. Shows a brief pause before trend continuation.

Spinning Tops in Trends: Small-bodied candles with roughly equal upper and lower wicks during a trend. Brief indecision that typically resolves in the trend direction if no reversal pattern forms.

Applying Candlesticks to Crypto

Crypto markets trade 24/7, so daily candles close at midnight UTC (not market close like stocks). The 4-hour and daily timeframes produce the most reliable candlestick signals in crypto. Lower timeframes (1m, 5m) generate too much noise.

Volume confirmation is critical in crypto — a reversal pattern on high volume is far more reliable than one on low volume. Always check if the pattern aligns with key support/resistance levels and other indicators for confluence.