Bitcoin Technical Analysis: Top 10 Candlestick Patterns

In this crypto trading technical analysis guide, we highlight 10 essential candlestick patterns that every cryptocurrency trader should know, and show you how to apply this knowledge to the Bitcoin market.

Top 10 Candlestick Patterns

  • Single Candlestick Patterns
    • Spinning Tops & Dojis
    • Hammer & Shooting Star
    • Inverted Hammer & Hanging Man
  • Dual Candlestick Patterns
    • Bullish/Bearish Engulfing
    • Tweezer Bottoms/Tops
    • Inside Bar
  • Triple Candlestick Patterns
    • Morning Star & Evening Star
    • Three White Soldiers & Three Black Crows
    • Three Inside Up/Down
    • Bullish/Bearish Three-line Strike

Candlestick Patterns in the Bitcoin Markets

Bitcoin’s weekly candle closes at 00:00h GMT every Monday.

Today’s weekly close forms a dual candlestick pattern called the Inside Bar pattern, where the previous week’s bearish candle engulfs this week’s Doji candle.

The chart below highlights several instances that we’ve seen this Inside Bar candlestick pattern on the weekly in Bitcoin since 2017.

Doji & Inside Bar on BTC/USD Weekly

BTC/USD Doji Candlestick & Inside Bar Pattern

What does this mean for crypto traders?

Following a strong downtrend, a Doji represents indecision in the market. While the Inside Bar indicates that there is reduced volatility in the markets, is consolidating, and coiling up for a big move in either direction.

Depending on the price action in the follow weeks, we could see a reversal pattern form, or a breakout to the downside for continuation. A reversal pattern could look like a three candlestick pattern such as the Three Inside Up pattern or the Bullish Hikkake pattern.

Read on to find out about these candlestick patterns and more.

Note that the context within the macro environment, and confluence with other factors, should be given more importance than a pattern by itself.

What do Candlestick Patterns represent?

Candlestick patterns can give you an indication of how buyers and sellers behaved during the period of the candle. However, keep in mind that you should be concentrating more on the information that all of these candlesticks can give you, instead of just blindly buying/selling whenever you see one.

Candlestick patterns are generally more reliable when used on higher timeframes, such as on 1-day candles. Also, candlesticks by themselves do not provide a price target. Instead, traders will need to use other methods, such as indicators or trend analysis, for selecting a price target or determining when to get out of a profitable trade or cut your losses.

There are too many different candlestick patterns to list here, so we will only highlight a few important ones and ones that have a relatively high success rate.

Single Candlestick Patterns

Spinning Tops & Dojis

A candle with a spinning top and doji by itself is neutral. It shows indecision between the bulls and bears and it is telling you that the market can go either way. They should be interpreted in relation to the candles preceding and immediately after it, for example in the morning star and evening star pattern, which will be discussed later. 

After a strong price advance or decline, spinning tops and dojis can signal a potential price reversal, if the candle that follows confirms.

Hammer & Shooting Star

Whenever you see a hammer it shows that there is enormous buying power coming in at this level. As the session started it was a complete bear market, price easily made a new low, suddenly bulls stepped in and started to buy, pushing price all the way up. Thereby it is a strong reversal signal.

The same goes for a shooting star candle, only this time in an uptrend. It was a bull market, price made a new high, bears started to sell and pushed the price lower.

By definition, the hammer has a higher close than open price, while a shooting star has a lower close than open price. However, this is not as important as the long wick in the direction of the trend, showing that buyers/sellers stepped in attempting to stop the trend from going further.

Inverted Hammer & Hanging Man 

An inverted hammer is essentially the same as a shooting star, except that it appears in a downtrend. Similarly, a hanging man candle has the same structure as a hammer, except that it appears in an uptrend.

Although the inverted hammer is generally depicted as a downtrend reversal candle, while the hanging man as an uptrend reversal candle, I wouldn’t recommend trading these candlesticks as they can also interpreted as a continuation signal rather than reversal. For example, in a downtrend, an inverted hammer can also be interpreted as showing that buyers tried to step in, but were quickly pushed back down by the sellers back to near the open price.

Dual Candlestick Patterns

Bullish/Bearish Engulfing

The bullish engulfing pattern is a two-candle reversal pattern. It is characterized by a red (down) candle followed by a larger green (up) candle that eclipses or “engulfs” the smaller first candle. It indicates that buyers have overtaken the sellers and are pushing the price up more aggressively than the sellers were able to push it down, indicating that buyers have gained control and that there could be a strong up move after a recent downtrend or a period of consolidation..

The exact opposite is true for a bearish engulfing candlestick pattern.

Engulfing patterns are most useful following a clear trending market as the pattern clearly shows the shift in momentum to the opposite side. If the price action is choppy, even if the price is rising/falling overall, the significance of the engulfing pattern is diminished since it is a fairly common signal.

Since engulfing patterns are typically high-volume events, finding confluence with volume and other indicators can often lead to favorable trade entries.

Tweezer Bottoms/Tops

Tweezer patterns are reversal patterns and occur when two or more candlesticks touch the same bottom (top) for a tweezer bottom (top) pattern. Tweezer bottoms (tops) are considered to be short-term bullish (bearish) reversal patterns.

You can recognize a tweezer bottom when the first candle shows rejection of lower prices, while the second candle re-tests the low of the previous candle and closes higher.

This indicates that sellers pushed price lower and were met with some buying pressure, and on the second candle, the sellers again tried to push price lower but failed, and was finally overwhelmed by strong buying pressure. This can be interpreted as the market having difficulty trading lower after two attempts and is likely to head higher.

The exact opposite is true for a tweezer top candlestick pattern.

Inside Bar

An inside bar is a candle that’s “covered” by the prior candle. It indicates that there’s reduced volatility in the markets, and is coiling up for a big move in either direction. It is a breakout pattern, but it can be both a continuation or reversal. It is generally more reliable in trending markets and you should avoid using this signal in choppy sideways markets.

You can also have multiple inside bars, which is more reliable than just 2 candlesticks as it shows a longer period of consolidation. When you see multiple inside bars together, it is a strong sign that the market is about to make a big move soon.

An inside bar with directional bias is called a Harami Pattern. An inside bar pattern followed by a false breakout is called the Hikkake Pattern.

Triple Candlestick Patterns

Morning Star & Evening Star

These are the characteristics of an evening star pattern:

  • The first candlestick is a bullish candle, which is part of a recent uptrend.
  • The second candle, called the star, has a small body, indicating that there could be some indecision in the market. 
  • The third candlestick acts as a confirmation that a reversal is in place, as the candle closes beyond the midpoint of the first candle.

The star is the first indication of weakness as it indicates that the buyers were unable to push the price up to close much higher than the close of the previous period. This weakness is confirmed by the candlestick that follows the star. This candlestick must be a bearish candlestick that closes well into the body of the first candlestick.

The reliability of the evening star is enhanced by the extent to which the body of the third candlestick penetrates the body of the first candlestick, and if the third candlestick has very little or no lower wick. In addition, volume should also be considered as the pattern is more reliable if the volume on the first candlestick is lower and the volume on the third candlestick is higher.

The exact opposite is true for a morning star pattern.

Three White Soldiers & Three Black Crows

The three white soldiers pattern is formed when three long bullish candles follow a downtrend, signaling a reversal has occurred.

For the pattern to be considered valid, the second candlestick should be bigger than the previous candle’s body. Also, the second candlestick should close near its high, leaving a small or non-existent upper wick. To complete the pattern, the last candlestick should be at least the same size as the second candle and have a small or no wick.

The three white soldiers candlestick pattern suggests a strong change in market sentiment. When a candle is closing with small or no wicks, it suggests that the bulls have managed to keep the price at the top of the range for the period. Basically, the bulls take over the rally throughout the period and close near the high of the period for three consecutive periods. In addition, the pattern may be preceded by other candlestick patterns suggestive of a reversal, such as adoji.

The exact opposite is true for a three black crows pattern.

Three Inside Up/Down

This is a confirmed Harami pattern. The first two candlesticks are exactly the same as the Harami, and the third candle is a break and close outside of the inside bar pattern and represents confirmation.

It is a trend-reversal pattern, and the three inside up pattern has a 65% success rate, while the three inside down pattern has a 60% success rate.

Bullish/Bearish Three-Line Strike

A three line strike pattern is similar to an engulfing pattern, except that the last candle engulfs not just 1 but all 3 preceding candles. 

The bearish three-line strike is made up of three strong bearish candles that close progressively lower followed by a final “strike” candle. The strike candle is bullish and opens at or lower than the third candle but closes at least above the open of the first candle.

The bearish three-line strike is commonly said to be a bearish continuation pattern, but testing shows that it acts as a bullish reversal 84% of the time

A bearish three-line strike pattern preceded by a bullish candlestick is called a Rising Three Methods pattern, which is a bullish continuation pattern.

The exact opposite is true for a bullish three-line strike pattern.

Related Crypto Trading Material

For a complete guide to more than just Candlestick Patterns, including other technical analysis tools like chart patterns, trade setups, fundamental analysis and more, visit our in-depth tutorial on how to trade crypto.

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