Can the monthly level Yang-enclosing-Yin combination confirm the bottom pattern?

The Yang-Enclosing-Yin candlestick pattern on monthly crypto charts signals potential bullish reversals after prolonged downtrends, especially when confirmed by volume and technical indicators like RSI or MACD.

Jun 29, 2025 at 05:35 am

Understanding the Yang-Enclosing-Yin Candlestick Pattern

The Yang-enclosing-Yin candlestick pattern is a reversal formation that typically appears at the end of a downtrend. It consists of a large bullish (Yang) candle followed by a smaller bearish (Yin) candle that is completely within the range of the previous candle. This configuration suggests a potential shift in market sentiment from selling pressure to buying momentum.

In the context of cryptocurrency trading, identifying this pattern on monthly charts can be particularly significant due to the long-term nature of such timeframes. Traders often look for confluence with other technical indicators and support levels before confirming a bottom pattern.

Important: The pattern gains more credibility when it forms near key historical support zones or after extended bearish phases.

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Historical Context and Relevance in Crypto Markets

Cryptocurrency markets are known for their volatility and cyclical behavior. Monthly chart patterns like the Yang-enclosing-Yin can offer valuable insights into potential trend reversals. Historically, major bottoms in Bitcoin and Ethereum have been accompanied by strong candlestick formations indicating exhaustion among sellers and the emergence of buyers.

Analyzing past cycles reveals that when the Yang-enclosing-Yin appears on the monthly chart, especially after multi-month declines, it often precedes meaningful rallies. However, confirmation through volume and subsequent price action remains essential.

• Volume Increase: A surge in volume during the bullish candle reinforces the strength of the pattern.
• Price Confirmation: The next candle following the Yin should break above the high of the Yang candle to validate the reversal.
• Timeframe Consideration: Monthly signals take longer to develop but tend to have stronger implications than shorter timeframes.

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Technical Requirements for Confirming the Bottom Pattern

To determine whether the Yang-enclosing-Yin on the monthly chart confirms a bottom, several technical conditions must be met:

• The preceding trend must be clearly bearish with consistent lower lows and lower highs.
• The bullish candle must engulf the entire range of the prior bearish candle.
• The bearish candle must not close below the midpoint of the bullish candle.
• Subsequent candles should show higher highs and higher lows to confirm the reversal.

Failure to meet any of these criteria may invalidate the pattern or reduce its reliability as a bottom signal.

Critical Note: Always wait for the full formation of the next candle after the Yin candle to assess whether the pattern holds.

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Combining Indicators for Enhanced Accuracy

Relying solely on candlestick patterns can lead to false signals, especially in highly volatile crypto markets. To increase the probability of the Yang-enclosing-Yin acting as a valid bottom indicator, traders often combine it with other analytical tools:

• Relative Strength Index (RSI): Look for RSI divergence or movement above 30 to indicate oversold conditions reversing.
• MACD: A bullish MACD crossover following the pattern adds strength to the reversal signal.
• Fibonacci Retracement Levels: If the pattern forms near key Fibonacci support levels (e.g., 61.8% or 78.6%), it enhances the validity of the setup.
• On-Balance Volume (OBV): Rising OBV during and after the pattern suggests accumulation is underway.

These additional filters help traders avoid premature entries based on isolated candlestick signals.

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Practical Steps to Trade the Monthly Yang-Enclosing-Yin Pattern

For traders interested in capitalizing on the Yang-enclosing-Yin pattern on the monthly chart, here's a step-by-step approach:

• Identify the pattern on the monthly timeframe after a prolonged downtrend.
• Verify that the bullish candle fully engulfs the previous bearish candle.
• Observe the next monthly candle — it should close above the high of the bullish candle to confirm the reversal.
• Place a buy order slightly above the high of the bullish candle once confirmation occurs.
• Set a stop-loss just below the low of the bearish (Yin) candle.
• Target profits based on historical retracement levels or risk-reward ratios (e.g., 2:1 or higher).

It’s crucial to maintain discipline and patience, as monthly patterns require time to unfold and confirm.

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Frequently Asked Questions

Q: Is the Yang-Enclosing-Yin pattern reliable on all cryptocurrencies?

A: While the Yang-enclosing-Yin pattern can appear across various assets, its reliability increases on larger-cap cryptocurrencies like Bitcoin and Ethereum due to higher liquidity and clearer price action.

Q: Can I use the Yang-Enclosing-Yin pattern on weekly charts instead of monthly ones?

A: Yes, the pattern works on all timeframes. However, the significance of the signal is generally stronger on higher timeframes like the monthly chart.

Q: What if the Yin candle closes below the midpoint of the Yang candle?

A: If the bearish candle closes below the midpoint of the bullish candle, it weakens the pattern and reduces the likelihood of a successful reversal.

Q: How long should I wait for confirmation after the Yang-Enclosing-Yin appears?

A: On the monthly chart, you should wait for the next full month’s candle to close above the high of the bullish candle before considering the pattern confirmed.