How to read crypto candlesticks? (Technical analysis)

Understanding Candlestick Anatomy

1. Each candlestick represents price action over a specific time interval—minutes, hours, days, or weeks—depending on the chart’s timeframe.

2. The rectangular body shows the range between the opening and closing prices: a filled (black or red) body means the close was lower than the open; an empty (green or white) body indicates the close was higher than the open.

3. Thin vertical lines extending above and below the body are called wicks or shadows: the upper wick marks the highest price reached during that period; the lower wick marks the lowest.

4. A long upper wick with a small body suggests strong selling pressure after an initial rally, often signaling rejection of higher prices.

5. A long lower wick with a small body reflects aggressive buying near the low, indicating potential support and bullish conviction.

Common Single-Candle Patterns

1. The Doji forms when the open and close are nearly identical, resulting in a tiny body and visible wicks—signifying market indecision and possible reversal.

2. The Hammer appears at the bottom of a downtrend: it has a small body near the top of the candle and a long lower wick, at least twice the length of the body.

3. The Shooting Star resembles an inverted hammer but occurs after an uptrend, featuring a small body near the low and a long upper wick—hinting at exhaustion.

4. The Marubozu lacks wicks entirely: a green Marubozu signals strong buying dominance; a red one reveals unrelenting selling pressure.

5. The Spinning Top displays a small body with similarly sized upper and lower wicks, reflecting tight trading range and uncertainty before a breakout.

Interpreting Multi-Candle Formations

1. The Bullish Engulfing pattern consists of a small red candle followed by a larger green candle whose body completely covers the prior red body—suggesting momentum shift toward buyers.

2. The Bearish Engulfing is its inverse: a small green candle followed by a large red candle engulfing the prior body—often marking trend exhaustion.

3. The Morning Star emerges after a downtrend: a long red candle, then a small-bodied candle (often a Doji) gapping down, followed by a long green candle confirming reversal.

4. The Evening Star mirrors the Morning Star in reverse order—appearing after an uptrend and signaling bearish transition.

5. The Three White Soldiers shows three consecutive long green candles with small or no wicks, each opening within the prior body and closing near its high—indicating sustained bullish control.

Volume and Context Integration

1. A bullish candlestick pattern gains credibility when accompanied by above-average trading volume, especially during breakouts from consolidation zones.

2. Candlestick signals near key support or resistance levels—such as previous swing lows, Fibonacci retracement zones, or moving averages—carry greater weight.

3. Patterns forming within broader market structure matter: a Hammer at the 0.618 Fibonacci level of a prior drop holds more relevance than one in open space.

4. Divergence between price action and on-chain metrics—like exchange outflows or active addresses—can validate or undermine candlestick-based assumptions.

5. Overlapping candlestick patterns with RSI or MACD crossovers adds confluence, reducing reliance on isolated visual cues.

Frequently Asked Questions

Q: Can candlestick patterns work reliably on low-liquidity altcoin charts?A: They often produce false signals due to erratic order flow and thin book depth—traders should avoid relying solely on candlesticks for micro-cap tokens without volume confirmation.

Q: Does candlestick color depend on exchange or platform settings?A: Yes—some platforms default to green/red, others use blue/orange or white/black; always verify the color scheme before interpreting directionality.

Q: How do timeframes affect candlestick interpretation?A: A Doji on a 1-minute chart may reflect noise, while the same formation on a weekly chart could indicate major institutional indecision—contextual scaling is essential.

Q: Are candlestick patterns invalidated by flash crashes or liquidation cascades?A: Yes—sudden, non-fundamental volatility can generate misleading wicks and bodies; filtering such anomalies using order book depth or funding rate data improves accuracy.