Candlestick patterns help traders predict market moves by reading price actions visually. Hereโs a step-by-step guide on 8 powerful candlestick patterns that every trader should know โ whether youโre trading crypto, stocks, or forex.
1. Bullish Engulfing
What It Is: A two-candle reversal pattern at the bottom of a downtrend.
Structure:
First candle: small and red (bearish).
Second candle: large and green (bullish), fully engulfs the first.
Meaning: Buyers have overtaken sellers, indicating a potential uptrend.
Pro Tip: Enter long positions after confirmation with higher volume.
2. Morning Star
What It Is: A 3-candle reversal signal after a downtrend.
Structure:
First candle: long red (bearish).
Second candle: small-bodied (can be red or green), showing indecision.
Third candle: strong green (bullish) closing above half of the first candle.
Meaning: Transition from sellers to buyers, signaling a bullish reversal.
3. Bullish Pin Bar
What It Is: A single candlestick with a long lower wick.
Structure:
Small body near the top.
Long lower shadow.
Meaning: Buyers rejected lower prices, preparing for a price bounce upwards.
4. Bullish Harami
What It Is: A two-candle reversal pattern.
Structure:
First candle: large red (bearish).
Second candle: small green (bullish) completely within the first candleโs body.
Meaning: Downtrend is weakening, and a potential bullish reversal is in play.
5. Bearish Engulfing
What It Is: A two-candle pattern signaling a bearish reversal at the top of an uptrend.
Structure:
First candle: small green (bullish).
Second candle: large red (bearish), completely engulfs the first candle.
Meaning: Sellers have overpowered buyers, price may drop soon.
6. Evening Star
What It Is: A 3-candle bearish reversal pattern after an uptrend.
Structure:
First candle: long green (bullish).
Second candle: small-bodied, indicating indecision.
Third candle: strong red (bearish), closing below the midpoint of the first candle.
Meaning: Indicates a shift from bullish to bearish momentum.
7. Bearish Pin Bar
What It Is: A single candlestick with a long upper wick.
Structure:
Small body near the bottom.
Long upper shadow.
Meaning: Buyers pushed the price up, but sellers rejected it sharply. Bearish pressure expected.
8. Bearish Harami
What It Is: A two-candle bearish reversal formation.
Structure:
First candle: large green (bullish).
Second candle: small red (bearish) fully within the first candleโs body.
Meaning: Uptrend may weaken, signaling a price reversal downwards.
โ Conclusion
These patterns are powerful for spotting reversals or continuations in crypto trading. Always combine candlestick patterns with volume analysis and support/resistance levels for stronger signals.