Candlestick patterns are one of the most powerful and visual tools in technical analysis. They not only show the high, low, open and close prices of a trading session, but also reflect market psychology: investors' hesitation, expectations, fear and greed. Understanding and correctly identifying candlestick patterns helps traders identify trend reversal or continuation signals with high reliability.
Below are popular single and combination Japanese candlestick patterns that frequently appear in the crypto market:
1. Doji – Indecision Candle
Doji candlesticks are one of the most unique Japanese candlestick patterns and are fundamental to understanding market sentiment. A Doji candlestick forms when the opening and closing prices are almost the same, or very close together, creating an extremely small or even no body. Meanwhile, the upper and lower shadows can be long or short depending on the price movement during the time period of that candlestick.
Psychologically, Doji candlesticks reflect indecision , balance , or a tug-of-war between buyers and sellers. Both sides try to push the price in their direction, but eventually the market closes almost at the starting point, with no clear winner. This is why Doji are often XEM as an early warning sign of a possible trend reversal or a pause in the current trend .
Example of a typical Doji candlestick
However, the Doji candlestick itself is not a standalone trading signal . Its meaning is only truly valuable when placed in the context of the previous trend and confirmed by subsequent price action (e.g. a subsequent bullish/bearish confirmation candle, support/resistance breakout, or a signal from another technical indicator).
Common Doji Types and Their Meanings
Standard Doji (Traditional Doji):
The opening and closing prices are almost equal, the upper and lower shadows are of relatively equal length.
Often appears during market consolidation or transition phases, reflecting extreme indecision.
If it appears after a chain of strong bullish candles → warns of a possible bearish reversal.
If it appears after a strong downtrend → warns of a possible recovery.
Longing-legged Doji:
Has unusually long upper and lower shadows, extremely small body.
Shows an extremely fierce tug of war between buyers and sellers during the session, but neither side won.
If it appears at a strong resistance/support zone → can be a reliable reversal signal if there is confirmation afterwards.
Dragonfly Doji:
Long lower shadow, almost no upper shadow, body at the top.
Appears after a downtrend → shows that the sellers once had complete control but were pushed back up by the buyers → bullish reversal signal if confirmed by the next strong bullish candle.
Gravestone Doji:
Long upper shadow, no lower shadow, body at Dip.
Appears after an uptrend → shows that the initial buying force has been completely repelled by the selling force → a bearish reversal warning signal if there is a confirming bearish candle.
Notes when using Doji
Do not trade based on Doji alone : Doji should be placed in the context of a trend and other confirmation signals should be used.
Location is more important than shape : A Doji at a support/resistance zone will be much more valuable than a Doji that randomly appears in the middle of the chart.
The larger the timeframe, the stronger the signal : Doji on D1 or W1 timeframe is more reliable than Doji on M5 or M15 timeframe.
Combining technical indicators : For example, Doji appearing at the same time as RSI is overbought/oversold or diverging with MACD will increase the reliability of the signal.
2. Hammer – Hammer Candlestick (and Inverted Hammer)
Hammer – also known as hammer candlestick – is one of the single candlestick patterns that has special significance in technical analysis. Hammer candlesticks often appear at the end of a downtrend and are a potential signal of a bullish reversal . Although it is only a single candle, when placed correctly and accompanied by other confirming factors, it can provide a high probability, low-risk entry point.
The structure of the Hammer candle is very characteristic:
The small candle body is on top (red or green is fine).
The lower shadow is long, usually at least twice the length of the candle body.
Short upper shadow or no upper shadow .
Appears after a clear chain of declines.
Market Psychology Behind the Hammer Candlestick:
The Hammer candlestick represents a volatile trading session. Initially, sellers continued to push prices lower, following the previous decline. However, during the same session, buyers stepped in strongly, absorbing all the selling pressure and pushing prices back to close near the opening level – creating a long lower shadow and a small upper body. This development shows the strength of the Dip fishing buyers and the potential for a trend reversal.
However, it is important to note that a Hammer candle does not always lead to a reversal , it needs to be confirmed by the next candle – usually a large-bodied bullish candle that closes above the high of the previous Hammer. This confirmation shows that the buyers are in control and the market is starting to truly reverse.
Hammer Candle
Ideal conditions for a reliable Hammer candle:
Appears after a clear downtrend, not in a sideways range.
Has a lower shadow at least twice as long as the candle body, indicating a strong reaction from the buyers.
Located near or at strong support or an uptrend line.
Comes with larger than normal volume .
There is a bullish confirmation candle behind, closing higher than the Hammer's high.
Compare with Inverted Hammer pattern:
The Inverted Hammer also has a small body and appears after a downtrend, but the long shadow is located above. Although it is still a potential bullish reversal signal, the reliability of the Inverted Hammer is lower than that of the regular Hammer, because it reflects weaker buying pressure (pushed down at the end of the session). Therefore, the Inverted Hammer usually needs stronger confirmation from the following candles.
Inverted Hammer Candlestick Pattern
3. Engulfing – Engulfing candle
The Engulfing candlestick pattern – also known as the engulfing candle – is one of the most powerful and reliable reversal patterns in technical analysis. This pattern consists of two consecutive candlesticks, in which the second candle completely “engulfs” the body of the first candle. Depending on the position and color of the two candles, Engulfing can be a bullish or bearish reversal signal.
There are two main forms of the Engulfing pattern:
3.1. Bullish Engulfing – Bullish Engulfing Candle
This is a bullish reversal signal, appearing at the end of a downtrend.
Structure:
The first candle is a bearish candle (usually with a small body), showing that the sellers are still in control of the market.
The second candle is a bullish candle with a longer body, opens lower and closes higher than the entire body of the previous candle.
Bullish Engulfing Candlestick Pattern
Market psychology:
In a downtrend, the first bearish candle represents a continuation of selling pressure. However, the next day, the market opens lower – which initially seems negative – but buyers emerge in force, pushing prices higher and closing higher than the entire previous candle. This shows that buyers have firmly regained control. If the pattern appears at strong support, it usually signals the end of the downtrend and the beginning of a new uptrend.
3.2. Bearish Engulfing – Bearish Engulfing Candle
Is a bearish reversal signal, appearing at the end of an uptrend.
Structure:
The first candle is a small bullish candle, showing the extension of the uptrend.
The second candle is a bearish candle with a long body, opening higher and closing completely lower than the body of the previous bullish candle.
Bearish Engulfing Candlestick Pattern
Market psychology:
After a rally, the first bullish candle continues to show confidence from buyers. But soon after, the market opens higher but is sold off heavily and closes lower than the entire previous candle. This is a strong signal that sellers have taken over and the uptrend may be over.
Conditions for Engulfing pattern to be reliable:
Appears after a clear trend (down for Bullish Engulfing, up for Bearish Engulfing).
The second engulfing candle should have a really large body, covering at least the entire body of the first candle (not necessarily including the wick).
The increased volume on the second candle further reinforces the strength of the pattern.
Appears near support or resistance zones, or important price zones in the past.
Can be combined with indicators such as RSI, MACD to increase the probability of accuracy.
4. Three White Soldiers – Three White Soldiers
The Three White Soldiers pattern is one of the most reliable bullish reversal candlestick patterns in technical analysis. It consists of three consecutive bullish candles with a characteristic structure, usually appearing after a downtrend or a prolonged accumulation period, signaling a strong return of buyers and the possibility of a new uptrend.
This is a very popular pattern in the crypto market because it helps investors recognize real reversals, instead of just short-term price bounces. Especially when accompanied by large volume and appearing at important support zones, this pattern shows that the market has regained confidence after a period of price decline.
Structure of the Three White Soldiers pattern:
Consists of three consecutive bullish candles (green or white candle bodies depending on the platform).
Each candle closes higher than the previous candle.
Candles have long bodies and short or no upper shadows.
Each candle usually opens near the previous candle's closing price (i.e. there are few gaps).
Appears after a downtrend or accumulation zone.
Three White Soldiers Candlestick Pattern
The market psychology behind the model:
First candle: Buyers start to return to the market and push prices up strongly after a chain of declines. This is the first signal of change.
Second candle: Opens near the previous close and continues higher, confirming that buying is not random but is forming a trend.
Third candle: Continues to consolidate the dominance of the bulls. Three consecutive bullish candles show that the market sentiment has shifted from fear to growth expectations, which could lead to a new bullish cycle.
Meaning and power of the model:
Three White Soldiers is not only a bullish reversal signal, but also a pattern that shows strong momentum. In practice, many professional traders use this pattern as a confirmation that the downtrend has really ended and the market has entered a stable uptrend.
However, the reliability of the model will be higher if:
Appears after a period of sharp decline or prolonged accumulation.
There is increasing volume with each candle.
Appears near strong support zones or coincides with breakout points of price patterns such as triangles, sideways boxes...
How to use candlestick patterns effectively
Although candlestick patterns are powerful in identifying reversal points, they should not be used alone. To increase reliability, traders should combine candlestick patterns with:
Location of appearance (near support – resistance zone, trendline, or important price zone)
Volume (high Volume confirms strong signal)
Technical indicators like RSI, MACD to support decisions
Hammer candlestick pattern appearing at the Dip of a downtrend signals a potential trend reversal
Japanese candlestick patterns are one of the core analytical skills that any trader needs to master. Practicing pattern recognition regularly on real charts will help you develop quick reflexes, increase the probability of successful trading and avoid emotional entry.
