Candle Patterns on charts

This article is only informative

Bullish reversal patterns

Hammer

A candlestick with a long lower wick at the bottom of a downtrend, where the lower wick is at least twice the size of the body.

A hammer shows that even though the selling pressure was high, the bulls drove the price back up close to the open. A hammer can be either red or green, but green hammers may indicate a stronger bull reaction.

Inverted hammer

Also called the inverse hammer, it’s just like a hammer, but with a long wick above the body rather than below. Similar to a hammer, the upper wick should be at least twice the size of the body.

An inverted hammer occurs at the bottom of a downtrend and may indicate a potential reversal upward. The upper wick shows that price stopped its continued downward movement, even though the sellers eventually managed to drive it down near the open. As such, the inverted hammer may suggest that buyers soon might gain control of the market.

Three white soldiers

The three white soldiers pattern consists of three consecutive green candlesticks that all open within the previous candle’s body, and close at a level exceeding the previous candle’s high.

Ideally, these candlesticks shouldn’t have long lower wicks, indicating that continuous buying pressure is driving the price up. The size of the candles and the length of the wicks can be used to judge the chances of continuation or a possible retracement.

Bullish harami

A bullish harami is a long red candle followed by a smaller green candle that’s entirely contained within the body of the previous candle.

The bullish harami can unfold over two or more days, and it’s a pattern indicating that selling momentum is slowing down and might be coming to an end.

Bearish reversal patterns

Hanging man

The hanging man is the bearish equivalent of a hammer. It typically forms at the end of an uptrend with a small body and a long lower wick.

The lower wick indicates that there was a large sell-off, but bulls managed to take back control and drive the price up. Keeping that in mind, after a prolonged uptrend, the sell-off may act as a warning that the bulls might soon be losing control of the market.

Shooting star

The shooting star is made of a candlestick with a long upper wick, little or no lower wick, and a small body, ideally near the low. The shooting star is a similar shape as the inverted hammer but is formed at the end of an uptrend.

It indicates that the market reached a high, but then sellers took control and drove the price back down. Some traders prefer to wait for the next few candlesticks to unfold for confirmation of the pattern.

Three black crows

The three black crows are made of three consecutive red candlesticks that open within the previous candle’s body, and close at a level below the previous candle’s low.

The bearish equivalent of three white soldiers. Ideally, these candlesticks shouldn’t have long higher wicks, indicating continuous selling pressure driving the price down. The size of the candles and the length of the wicks can be used to judge the chances of continuation.

Bearish harami

The bearish harami is a long green candle followed by a small red candle with a body that’s entirely contained within the body of the previous candle.

The bearish harami can unfold over two or more days, appears at the end of an uptrend, and may indicate that buying pressure is decreasing.

Dark cloud cover

The dark cloud cover pattern consists of a red candle that opens above the close of the previous green candle but then closes below the midpoint of that candle.

It can often be accompanied by high volume, indicating that momentum might be shifting from the upside to the downside. Traders might wait for a third red candle for confirmation of the pattern.

Candlestick patterns based on price gaps

There are many candlestick patterns that use price gaps. A price gap is formed when a financial asset opens above or below its previous closing price, which creates a gap between the two candlesticks. Since cryptocurrency markets trade round the clock, patterns based on these types of price gaps are not present. Even so, price gaps can still occur in illiquid markets. However, since they happen mainly because of low liquidity and high bid-ask spreads, they might not be useful as actionable patterns.