Candlestick Patterns Crypto: Read Price Action Like a Pro
Japanese candlesticks reveal market psychology in visual form. Learn to read these patterns and understand what buyers and sellers are really doing.
- Candlestick patterns show buyer/seller psychology. Hammers = rejection. Engulfing = power shift. Doji = indecision.
- Context matters: patterns at S/R, in trend, with volume confirmation = high probability. Random patterns = low probability.
- Thrive automatically identifies candlestick patterns and alerts on high-probability setups at key levels.
Explore Candlestick Patterns
Click through key candlestick patterns:
Formation
Small body at top, long lower wick (2x+ body), little/no upper wick
Psychology
Sellers pushed price down hard, but buyers absorbed all selling and pushed back. Rejection of lower prices. At bottom = hammer (bullish). At top = hanging man (bearish warning).
At support after downtrend = strong buy signal. Enter on next candle confirmation. Stop below hammer low. At resistance after uptrend = exit warning.
What Are Candlestick Patterns?
Each candle tells a story. The body shows open-to-close direction. Wicks show rejection of prices. The combination reveals who's winning—buyers or sellers—and whether that's likely to continue or reverse.
Japanese rice traders developed this 300 years ago. The patterns persist because human psychology persists. Fear, greed, indecision—they create the same patterns across all markets.
Key Patterns
Reversal Patterns
Hammer/Hanging Man: Long lower wick, small body at top. At support = hammer (bullish). At resistance = hanging man (bearish warning).
Engulfing: Second candle engulfs first. Complete shift in control. Strong reversal signal especially at S/R.
Doji: Open = close. Indecision. After trend at S/R = reversal warning. Needs confirmation.
Momentum Patterns
Three White Soldiers: Three strong bullish candles. Sustained buying. Bullish reversal at bottom.
Three Black Crows: Three strong bearish candles. Sustained selling. Bearish reversal at top.
| Pattern | Type | Location | Signal |
|---|---|---|---|
| Hammer | Single candle | Support | Bullish reversal |
| Engulfing | Two candle | S/R | Strong reversal |
| Doji | Single candle | S/R after trend | Indecision/warning |
| 3 Soldiers/Crows | Three candle | After trend | Strong reversal |
Context Is Everything
Patterns alone aren't enough. A hammer in the middle of nowhere has low probability. A hammer at major support after extended downtrend = high probability.
What Improves Pattern Reliability
- At significant support/resistance
- In direction of larger trend (or at trend extreme)
- With volume confirmation
- On higher timeframes (4H+)
- With indicator confluence (RSI oversold, etc.)
Trading Patterns
Entry
Two approaches: enter immediately on pattern completion (aggressive) or wait for next candle confirmation (conservative). Confirmation reduces false signals but may miss some moves.
Stops
Place stops beyond the pattern. For hammer: below the lower wick. For engulfing: beyond the engulfing candle's extreme. Pattern invalidation = exit.
Targets
Use previous swing levels, Fibonacci extensions, or risk multiples. Pattern gives entry; other tools give target.
Common Mistakes
- Pattern hunting: Seeing patterns everywhere. Only trade clear, textbook patterns at good levels.
- No context: Random patterns = random results. Location matters.
- Low timeframes: 1-minute patterns are noise. Use 4H+ for reliability.
- Ignoring trend: Reversal pattern in middle of strong trend often fails. Respect trend.
Frequently Asked Questions
What are candlestick patterns?
Visual patterns formed by one or more candles that indicate potential price direction. Originally from Japanese rice trading. Show the battle between buyers and sellers.
What is a hammer candle?
Small body at top, long lower wick (2x+ body), little/no upper wick. At bottom of downtrend = bullish reversal signal. Sellers pushed down, buyers absorbed and pushed back.
What is an engulfing pattern?
Second candle's body completely engulfs first candle's body. Bullish engulfing: red then larger green. Bearish: green then larger red. Strong reversal signal.
What is a doji?
Open and close nearly equal (tiny/no body). Shows indecision—neither side won. After trend at S/R = potential reversal. Needs confirmation.
What are three white soldiers?
Three consecutive strong bullish candles, each closing near high. Strong buying momentum over multiple sessions. Bullish reversal at bottom.
What are three black crows?
Three consecutive strong bearish candles, each closing near low. Strong selling momentum over multiple sessions. Bearish reversal at top.
Do candlestick patterns work for crypto?
Yes. Psychology is same—fear, greed, indecision. Works best on higher timeframes (4H+). Lower TF patterns less reliable. Context (support/resistance) improves accuracy.
Should I trade patterns alone?
No. Patterns at random locations have lower win rate. Patterns at support/resistance, in trend context, with volume confirmation = much higher probability.