Cryptocurrency Advance Trading Guide: Top 9 Candlestick Patterns

9 Candlestick Patterns for Trading Bitcoin Profitably

By Michael Brown Apr 26 2021 3:34PM 662 Read
9 Candlestick Patterns for Trading Bitcoin Profitably

A candlestick is a single bar that shows the price movements of a particular asset for a certain period. Candlestick patterns were developed by a Japanese rice trader in the late 1800s.

Candlestick patterns give a trader a lot of information about the assets. A candlestick pattern shows you the opening, closing, and high-low price movement of a stock or asset for a certain time.

Candlestick patterns are easy to understand, and when you see them frequently, they will seem similar to you, but they aren’t. Every candlestick pattern has a different meaning. Candlestick charts play an important role in decision-making when a trader buys or sells a particular asset.

9 Top Candlestick Patterns

According to the encyclopedia of candlestick charts, there are around 103 candlestick patterns. But there is no need to memorize all 103 patterns. You can remember these top candlestick patterns and be ready to make an entry into a trade.

DOJI CANDLESTICK

The DOJI candlestick pattern looks like a cross or plus sign. It is essential as it tells that the market opened and closed with the same prices, which means there is no net gain and loss for both parties.

If it shows during an uptrend or downtrend, it means that the market is about to reverse one way or another.

What does it mean?

  • If it shows during a downtrend, then there is a possibility that the market will reverse to the upside.
  • If it shows while an uptrend, then there is a possibility that the market will flip to the downside.
SHOOTING STAR/INVERTED HAMMER CANDLESTICK

Shooting star candlestick is also known as an inverted hammer stick. The inverted hammer is visually identical to a shooting star. Where a shooting star is a bearish signal and an Inverted hammer is a bullish signal.

The shooting star pattern is straightforward to identify, and one can make a significant profit while trading. That’s why it is one of the powerful signals that traders look in the market while trading.

What does it mean?

  • The Inverted Hammer is a bullish pattern.
  • A shooting star is a bearish pattern.
  • The start of a new downtrend and end of the uptrend
  • If it occurs near a resistance level, the probability of this one playing out is intense.
ENGULFING CANDLESTICK

The Engulfing pattern is just the opposite of the Harami pattern. The body of the second stick engulfs the body of the first.

What does it mean?

  • Strong reversal signal.
  • In Bearish engulfing, it indicates to sell.
  • In bullish engulfing, it indicates to buy.
PIERCING LINE/DARK CLOUD CANDLESTICK

‘Piercing Line’ is a bullish signal; on the other hand, Dark cloud is a bearish signal.

The first candlestick is bearish for the Piercing Line pattern. The second candlestick opens below from the low of the first candlestick and closes above the center of the first candlestick.

The first candlestick is bullish for the Dark Cloud Cover pattern, and the second candlestick opens above the high end of the first candlestick; and closes below the center of the first candlestick.

What does it mean?

  • It means some traders are agonizingly disappointed.
MORNING STAR / EVENING STAR

Both the patterns are three bar patterns. Where the morning star is a bullish signal and the evening star is a bearish signal.

It is identified as a small body that does not overlap with other candles and maintains a gap. It makes a star below(either bullish or bearish) and a star above(either bullish or bearish).

What does it mean?

  • Often shows at the end of a DOWNTREND/UPTREND.
  • A powerful trend reversal signal has just arisen.
  • Morning Stars and Evening Stars don’t usually occur in intraday charts.
THREE WHITE SOLDIERS / THREE BLACK CROWS

In both patterns, three consecutive sticks with small wicks open and close progressively higher/lower than the previous day.

Three white soldiers are a bullish signal, and three black crows are a bearish signal.

What does it mean?

  • Buy above three white soldiers.
  • Sell below three black crows.
HAMMER / HANGING MAN CANDLESTICKS

Both the hammer and the hanging man look the same. Hammer is a bullish signal, and the hanging man is a bearish signal. A hammer is found at the bottom of a downward trend, and a hanging man pattern appears at the end of an uptrend.

What does it mean?

  • A hammer shows that there were selling pressures during the day. Finally, an intense buying pressure drove the price back up.
  • Hanging man shows that there was a notable sell-off during the day but that buyers could push the price up again.
MARUBOZU CANDLESTICK

The Marubozu pattern does not have any wicks or shadows. Visually it is just a block. White Marubozu is bullish and black Marubozu is a bearish signal.

What does it mean?

  • It shows that a stock has traded fully in one direction all over the session and closed at its high/low price of the day.
DOUBLE TOP/DOUBLE BOTTOM CANDLESTICK

The double top pattern looks like two mountain peaks of similar width and height, at or near the same level as the alphabet “M.” Double bottom is just opposite of double top. It is a bullish signal and looks like the alphabet “W.” Both are clean, easy to remember patterns.

What does it mean?

  • Whenever you see the double top, consider a quick exit before the price falls.
  • The double bottom gives chances to investors to gain profits from a bullish rally.
Bottom Line

These are the most frequently used candlestick charts. Understanding the basics of the candlestick pattern is essential before moving towards more complex ones. If you are looking to gain deep knowledge of candlestick patterns, please click here to read more.

Michael Brown
Michael Brown View More Posts

I like to write about technology, finance, business, and entertainment. I like to meet people and love to explore niches over different fields. I’m currently a marketing head at an Australian MNC in the digital department and want to travel the world, especially Antarctica.

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