Candlyx5 Candlestick Reversal Patterns Every Crypto Trader Should Know
There are dozens of named candlestick patterns, but a handful do most of the work. This guide covers the five core reversal patterns taught in Level 1 of Candlyx: what they look like, why they form, and how to avoid the false signals that trap beginners.
Every pattern below is a reversal candidate: a warning that the current move may be ending, not a guarantee. A pattern only matters in the right place, after a move, at a meaningful level, and it needs confirmation from the next candle.
1. Hammer (bullish)
| Criteria | Rule of thumb |
|---|---|
| Location | After a decline, ideally at support |
| Lower wick | At least 2× the body |
| Upper wick | Very small or none |
| Body | In the upper third of the range |
Psychology: sellers pushed price sharply lower, but buyers stepped in and drove it back up before the close. Traders who sold near the low are now losing, and buyers have shown they are willing to pay more. The same shape after a rally is a hanging man, a weaker bearish warning.
2. Shooting star (bearish)
The mirror image of the hammer: a small body near the low of the candle and a long upper wick, at least twice the body, appearing after a rally, ideally at resistance. Buyers tried to break higher and sellers slammed price back down. The breakout attempt failed. The same shape after a decline is an inverted hammer, a weaker bullish candidate.
3. Doji (indecision)
A doji has an open and close that are almost equal: neither buyers nor sellers won. A doji on its own is not a buy or sell signal. It becomes interesting after a strong move (momentum stalling) or at a key level.
- Dragonfly doji (long lower wick): buyers rejected the lows, similar to a hammer.
- Gravestone doji (long upper wick): sellers rejected the highs, similar to a shooting star.
- Long-legged doji: a big fight in both directions, often before a large move.
4. Bullish engulfing
Two candles: a small red candle in the direction of the decline, followed by a larger green candle whose body completely covers the body of the first. It shows buyers taking control decisively. It is strongest after a clear decline and at support, and when the engulfing candle closes near its high.
5. Bearish engulfing
The opposite: a small green candle after a rally, followed by a larger red candle whose body completely covers it. Sellers overwhelmed the buyers in a single period. Look for it at resistance, after an extended move up.
How to confirm a pattern
The most common beginner mistake is acting the moment a pattern appears. A simple confirmation rule filters out many false signals:
- Bullish pattern: wait for the next candle to close above the high of the pattern.
- Bearish pattern: wait for the next candle to close below the low of the pattern.
You give up a little of the move, but you avoid many traps. Confirmation is also where your stop-loss belongs: below the low of a bullish pattern, above the high of a bearish one.
Where patterns fail
- In the middle of a sideways range, far from any level.
- Against a strong trend on a higher timeframe.
- On very low timeframes, where noise creates patterns constantly.
- Around major news, when wicks become random.
Level 2 of the course goes further with market structure, support and resistance zones, breakouts and traps, and a 7-point scorecard to grade any setup before you take it.
Educational content only. Not financial advice. Trading crypto-assets carries a high risk of loss.