Complete guide to candlestick patterns: Identification and application in cryptocurrency trading

Bullish candlestick patterns

Drilling Line

Formation of two candles that presents an extensive red candle followed by a considerable green candle. The market opens with a significant bearish gap between the previous close and the new open, but buying pressure drives the price to reach or exceed the midpoint of the previous candle.

Identification Criteria:

• The first candle should be red and of considerable size.
• The second candle must open below the previous low
• The close of the second candle must be above the midpoint of the first.
• Volume tends to increase in the second candle

Operational strategy:

• Entry point: Confirmation with a third bullish candle
• Stop loss: Below the minimum of the second candle
• Profit target: Projection of 1:2 regarding the assumed risk

Morning Star

Bullish reversal pattern composed of three candles that indicates a possible change from a bearish trend. The first is a large red candle, followed by a small candle ( whose body can be red or green) that creates a gap down, and concludes with a large green candle that closes above the midpoint of the first candle.

Identification Criteria:

• It must form after a defined bearish trend
• The central candle must have a reduced body similar to a doji or spinning top
• The third candle must close deeply in the body of the first one.
• Volume typically increases progressively in the three candles.

Operational strategy:

• Entry point: After the complete confirmation of the pattern
• Stop loss: Below the low of the central candle
• Objective: Full height of the pattern projected from the breakout point

( Three white soldiers

Powerful formation showing three consecutive green candles with wide bodies and reduced shadows. Each candle opens within the body of the previous one and closes above the previous close, indicating increasing control by buyers in the market.

Identification Criteria:

• The three candles must be green with predominant bodies.
• Each candle should close near its highs
• The upper shadows should be minimal.
• Progressive expansion of volume during formation

Operational strategy:

• Entry point: After the confirmation of the third candle
• Stop loss: Below the minimum of the third candle
• Objective: Projection equivalent to the total height of the three candles

Bearish candle patterns

) The Hanged Man

Bearish reversal pattern that appears in bullish trends. It is characterized by a small body candle ###green or red### located at the top, with a very long lower shadow, at least two or three times the length of the body.

Identification Criteria:

• It should form after a sustained bullish trend
• Extensive lower shadow (minimum 2x the size of the body)
• Small body located at the top
• Minimal or nonexistent upper shadow

Operational strategy:

• Entry point: After the confirmation with a subsequent bearish candle
• Stop loss: Above the pattern's maximum
• Objective: Minimum projection equivalent to the height of the pattern

( Shooting star

Formation similar to the inverted hammer that appears in bullish trends. It has a small body at the bottom and a very long upper shadow, indicating a significant rejection of higher price levels.

Identification Criteria:

• It must appear in bullish trends
• Upper shadow at least 2-3 times greater than the body
• Small body located at the bottom
• Minimal or nonexistent lower shadow

Operational strategy:

• Entry point: After confirmation with a bearish candle
• Stop loss: Above the maximum of the shooting star
• Objective: First projection to the nearest previous support

) Bearish Engulfing

A two-candle pattern where a green candle is completely engulfed by a subsequent red candle. The pattern shows how sellers decisively overpower buyers, absorbing all previous bullish strength.

Identification Criteria:

• The first candle must be green
• The second candle must be red and completely engulf the previous body.
• Greater reliability when the second candle opens with a bullish gap
• Volume tends to increase significantly in the second candle

Operational strategy:

• Entry point: At the close of the engulfing candle
• Stop loss: Above the maximum of the second candle
• Objective: Projection equivalent to the size of the pattern

Evening Star

Three-candle bearish reversal pattern that appears in bullish trends. It consists of a wide green candle, followed by a small candle that forms a bullish gap, and ends with a large red candle that penetrates deeply into the body of the first candle.

Identification Criteria:

• It must form after a clear bullish trend
• The central candle must have a reduced body.
• The third candle must close significantly within the body of the first.
• Greater reliability with progressive increase in volume

Operational strategy:

• Entry point: After the complete confirmation of the pattern
• Stop loss: Above the maximum of the second candle
• Objective: At least the full height of the pattern projected downwards

Three black crows

Strong bearish formation showing three consecutive red candles with wide bodies. Each candle opens within the body of the previous one and closes progressively lower, indicating a growing dominance of sellers.

Identification criteria:

• The three candles must be red with predominant bodies
• Each candle must close near its lows
• The lower shadows should be minimal
• Increased volume during formation

Operational strategy:

• Entry point: After the confirmation of the third candle
• Stop loss: Above the maximum of the third candle
• Objective: Projection equivalent to the total height of the three candles

Dark cloud

Bearish reversal pattern composed of two candles. The first is green with a considerable body, and the second is red, opening with a bullish gap but closing deeply within the body of the previous candle, usually below its midpoint.

Identification Criteria:

• It must appear in a bullish trend
• The second candle must open above the previous close
• The closing of the second candle must significantly penetrate the body of the first.
• Short shadows on both candles indicate greater conviction

Operational strategy:

• Entry point: After confirmation with a third bearish candle
• Stop loss: Above the pattern's high
• Objective: Projection equivalent to 1.5x the height of the pattern

Continuation candlestick patterns

Doji

Neutral candle where the opening and closing price are practically identical, forming a cross or positive sign. It represents a balance between buyers and sellers, and its interpretation depends on the market context.

Identification Criteria:

• Opening and closing at the same level or very close
• Shadows can vary in length depending on the type of doji
• Its relevance increases in overbought or oversold areas
• Greater importance when it appears with volume above average

Operational strategy:

• By itself, it does not generate an operational signal.
• Requires subsequent confirmation according to the trend
• In combinations like morning or evening star, follow the rules of the complete pattern.

Spinning Top

Candle with a small body centered between upper and lower shadows of similar length. It reflects indecision in the market and usually represents consolidation after strong directional movements.

Identification Criteria:

• Small body ###green or red(
• Approximately symmetrical upper and lower shadows
• Frequent appearance in sideways ranges or prior to trend changes
• Its importance increases at significant technical levels

Operational strategy:

• Does not generate an independent trading signal
• Observe the subsequent breakout of any of its shadows
• Combine with momentum indicators to confirm signals

) Falling three methods

Bearish continuation pattern that combines an initial large red candle, followed by three small bullish candles contained within the range of the first, and ends with another large red candle that confirms the bearish continuation.

Identification Criteria:

• First red candle with considerable body
• Three small candles ( generally green ) contained within the range of the first
• Last red candle that closes below the minimum of the first
• Volume tends to decrease in the middle candles and increase in the last one.

Operational strategy:

• Entry point: After the confirmation of the last red candle
• Stop loss: Above the maximum of the entire pattern
• Objective: Projection equivalent to the height of the complete pattern

Three methods of increase

Bullish continuation pattern that presents an initial structure of a wide green candle, followed by three small bearish candles contained within its range, and ends with another extensive green candle that confirms the bullish continuation.

Identification Criteria:

• First green candle with considerable body
• Three small candles ( generally red ) contained within the range of the first
• Last green candle that closes above the maximum of the first
• The volume decreases in the central candles and increases in the last one.

Operational strategy:

• Entry point: After the confirmation of the last green candle
• Stop loss: Below the minimum of the entire pattern
• Objective: Projection equivalent to the height of the complete pattern