The patterns and interpretation methods of multiple candlesticks, comprehensive combinations ( stocks, forex, virtual currencies, gold universal ) Whether it is a single candlestick or a signal from multiple candlesticks, they can generally be divided into two categories: 1. Reversal signals. 2. Trend continuation patterns.

Reversal Pattern

What does it mean? It means that the market was originally in an uptrend, but at a certain point, a specific candlestick pattern appears, indicating that the trend may shift from upward to downward, or if it was in a downtrend, when a certain pattern appears, the market might turn from down to up.

Trend Continuation Pattern

It means: if the market is already in an uptrend or downtrend, and a certain candlestick pattern appears along the way, it suggests that the trend may continue. In this case, the focus is not on where the candlestick appears, but on understanding what the previous trend was and its direction. To determine whether it is a continuation pattern, you need to know whether the previous trend was up or down and whether it is still continuing.

Sharp Top Pattern

Also called V-shaped top, what does it look like? It usually appears at the final stage of an uptrend, where the price experiences a rapid surge, then a candlestick with a very long upper shadow appears, indicating that the peak has been reached and a decline may begin. This long upper shadow is a potential signal of a trend reversal. There are many types of long upper shadow candlesticks. As we discussed earlier, regardless of the type, if they appear at high levels, they could signal the end of an uptrend and a possible reversal.

V-shaped Bottom Pattern

Also called V-shaped bottom, it is essentially the opposite of the sharp top pattern. What does it mean? It indicates that at the end of a downtrend, if a bullish or bearish candlestick with a long lower shadow appears, it could be a sign that the market is about to reverse upward. Like the sharp top, there are several similar candlestick patterns, but regardless of the type, their appearance generally indicates strong buying pressure below and a potential rebound.

Look at the Actual Chart

First, look at this chart. There is a sharp bottom pattern here. The market was trending downward before, right? Then, a candlestick with a long lower shadow appears at a low point. What does this indicate? It shows that there is very strong buying pressure in this area. Although the bears tried to push the price lower, each attempt was met with buying, preventing the price from falling further. This suggests that the buyers are gaining control. Therefore, from this point, the trend begins to turn upward, entering an uptrend.

Now, look at the next segment. During an uptrend, a sharp top pattern appears in this high-level area, also a candlestick with a long upper shadow. This indicates strong selling pressure at this point, pushing the price down from the high level. As a result, the trend reverses and turns downward. From these two movements, we can see that a long lower shadow at a low point indicates support and a possible rebound, while a long upper shadow at a high point indicates strong resistance and a potential reversal downward.

So, how can we effectively use sharp top and bottom patterns in trading? You can follow these four steps: First, wait for a clear downtrend to appear. We say that the sharp bottom pattern usually appears at the end of a downtrend, so first confirm that the market is in a sustained decline to avoid misjudging entry points during consolidation or an uptrend.

Second, consider entering after the sharp bottom appears

When the market is declining, if a candlestick with a long lower shadow appears, it can be seen as a potential reversal signal, and you can choose to go long or build a position gradually.

Third, consider taking profits during an uptrend. Use previous highs or important moving averages as references to gradually close part or all of your positions, lock in profits, and reduce the risk of drawdown.

Fourth, this is very important. If the price falls below the low of the lower shadow, strict stop-loss measures are needed. The effectiveness of the sharp bottom pattern often relies on its low point not being broken. If the subsequent price drops below the lowest point of the lower shadow, it indicates that the reversal has failed, and immediate stop-loss should be executed to prevent further losses.

Bullish Engulfing Pattern

This pattern looks like this: first, a bearish (downward) candle appears, followed by a bullish (upward) candle that completely engulfs the previous one. This means the high and low of the second bullish candle surpass the range of the previous bearish candle, which is called an engulfing pattern. However, note that the body of the bullish candle must break through the open price of the previous bearish candle. If only the upper shadow is long and covers the previous candle without the body breaking through, it is not a true engulfing pattern. Therefore, if you see only a long upper shadow bullish candle that appears to cover the previous candle but the body does not break through, it is not a genuine engulfing pattern. This pattern usually signals a potential reversal from downtrend to uptrend.

Why is it a reversal? We can understand it this way: the market was originally falling, with a bearish candle first. The second bullish candle initially continued downward or even made a new low, but then strong buying pressure pushed the price back up, closing as a bullish candle. This indicates that the bears have been pushed back, and the bulls are gaining control, suggesting a possible upward reversal.

Bearish Engulfing Pattern

This is exactly the opposite of what was just described: first, a bullish candle appears, followed by a longer bearish candle that completely engulfs the previous bullish candle. Similarly, the body of the bearish candle must cover the open price of the previous bullish candle to qualify as a standard engulfing pattern. This pattern indicates that the market may shift from an uptrend to a downtrend.

Look at the Actual Chart

On this chart, you can see a bearish engulfing pattern where the bearish candle’s high and low completely cover the previous bullish candle. It occurs at a high point in an uptrend, meaning the market was rising, reached a peak, but was pushed down strongly by selling pressure, closing with a large bearish candle. This becomes a reversal signal, and the trend indeed turned downward afterward.