Candlestick Reversal Patterns: How to Use Them in Crypto

On this page

Definition

A candlestick reversal pattern is a shape made by one to three candles that traders read as the other side stepping in at a turn. The shapes are defined by the open, high, low and close. They measure how one period ended against how it began, nothing more.

A pattern is a candidate, not a trigger. It becomes part of a plan only with three things around it: a trend you defined in writing before it, a support or resistance band marked and dated before it, and a close beyond its far end. Use this page to decide whether a candle at a level is a candidate your plan can use, or noise to skip.

How it works

One candle is a compressed period

A candle records four prices. The body runs from the open to the close. The wicks show how far price went beyond the body before the period ended. A long lower wick says price traded well below the close and was pushed back. A long upper wick says the same from above. The belief behind reversal patterns is that such a push-back marks buyers or sellers stepping in. It is a plausible story, and this page cites no test that a pattern reverses price more often than chance.

Two schematic candles, one up and one down, each labelled with its open, high, low and close; the body runs from open to close and the wicks extend to the high and the low. — Illustration, not real price data. Schematic. The body runs from the open to the close and the wicks reach the high and the low. A long lower wick means price went well below the close and was pushed back.

Candles are slices of time cut at an arbitrary boundary. Exchanges and chart settings can cut candles at different hours, daily candles especially, so the same trades can produce a hammer on one feed and an ordinary candle on another. Read patterns on the chart your plan names, and do not compare across feeds.

The patterns

Pattern	Shape (conventions)	Role here
Hammer	Small body in the upper part of the range, lower wick at least 2x the body (some traders use 3x), little or no upper wick. After a decline.	Candidate
Hanging man	The same shape, after an advance.	Candidate
Inverted hammer	Small body near the low, upper wick at least 2x the body, little or no lower wick. After a decline.	Candidate
Shooting star	The same shape, after an advance.	Candidate
Doji	Open and close nearly equal. A common cut is a body under about a tenth of the high-to-low range. Variants: long-legged (long wicks both sides), dragonfly (long lower wick, open and close near the high), gravestone (long upper wick, open and close near the low).	Context only
Bullish engulfing	A down candle, then an up candle whose body covers the first body; one edge may be equal, not both.	Candidate
Bearish engulfing	An up candle, then a down candle whose body covers the first body; one edge may be equal, not both.	Candidate
Harami	A large candle, then a smaller one whose body sits inside the first body. The second is usually the other colour, though broader definitions allow either.	Context only
Tweezer bottom or top	Two adjacent candles (some count candles a few apart) with matching lows (bottom, after a decline) or highs (top, after an advance), within a tolerance you fix, assumed 0.1 x ATR(14).	Candidate
Three inside up or down	A large candle, a harami candle in the other colour, then a third candle that closes beyond the first candle's open (above it for an up pattern, below it for a down one). Some require a close beyond the first candle's far extreme, its high for an up pattern and its low for a down one.	Candidate

Two schematic candle pairs: a tweezer bottom after a decline whose lows match within a shaded tolerance, and a tweezer top after an advance whose highs match within a shaded tolerance. — Illustration, not real price data. Schematic, with the strip not to scale. Two adjacent candles whose lows (bottom) or highs (top) match within a tolerance you fix. The page's assumed example is 0.1 x ATR(14); a looser match calls more pairs tweezers.

The third candle of a three inside pattern completes it. The trigger is still a later close beyond the pattern's far end.

Three schematic candles and a dashed fourth: a large down candle, a smaller up candle inside its body, and a third that closes above the first candle's open; a later close above the pattern's high is the trigger. — Illustration, not real price data. Schematic. Candle 2 alone is a harami, a pause. Candle 3 closing above 1's open completes the pattern; some traders need 1's high instead. The trigger is still a later close above the pattern's high.

A hammer and a hanging man are the same shape. The name comes from where it sits, so a shape with no trend before it has no name worth acting on.

Four schematic candles in two rows and two columns: a hammer after a decline and a hanging man after an advance share one shape; an inverted hammer after a decline and a shooting star after an advance share another. — Illustration, not real price data. Schematic. A long lower wick gives a hammer after a decline and a hanging man after an advance. A long upper wick gives an inverted hammer or a shooting star. The trend before the shape names it.

A doji is indecision, a small body after a period that might still have moved a lot. It says the open and close agreed, not who was stronger. A harami is a pause. Neither is a trigger, because each needs the next candle to show which way the pause resolved.

Four schematic candles whose open and close nearly match: a doji with short wicks, a long-legged doji with long wicks both sides, a dragonfly with a long lower wick and a gravestone with a long upper wick. — Illustration, not real price data. Schematic. A doji has an open and close nearly equal, a body under about a tenth of its range. It says the two agreed, not who was stronger, so it needs the next candle.

On a market that trades around the clock, a candle usually opens near the previous close. So an engulfing pattern mostly reduces to one test: the second candle closes beyond the first candle's open.

Three schematic bullish engulfing pairs against a dashed line at the first candle's open: a body covering both edges counts, a body with one edge equal counts, and a body with both edges equal does not. — Illustration, not real price data. Schematic. The second body must cover the first, with one edge allowed to be equal but not both. On a market that trades around the clock this mostly reduces to a close beyond the first candle's open.

For arithmetic only, assume a 4-hour candle opens at 100, trades up to 101, down to 94 and closes at 100.8. The body is 0.8 and the lower wick is 6, a ratio of 7.5, past both the 2x and the 3x conventions. A candle with a body of 2 and a lower wick of 3.5 has a ratio of 1.75 and fails both. The ratio is a convention and the page cites no test of any value.

A bar chart of lower wick divided by body with lines at 2x and 3x: body 0.8 and wick 6 reaches 7.5, past both; body 2 and wick 3.5 reaches 1.75, short of both. — Illustration, not real price data. A body of 0.8 with a lower wick of 6 gives 7.5. A body of 2 with a wick of 3.5 gives 1.75. The ratio is a convention, and the page cites no test of any value.

Three context rules

A trend you defined in writing. A reversal needs something to reverse. Write the definition before the pattern prints, for example: the highest high of the 10 candles before the pattern's first candle is at least 3 x ATR(14) above the pattern's lowest low (an assumed filter, not a full definition of a trend). Without a written definition, any pause in a drift looks like the end of a trend.

A band marked and dated before the pattern. The pattern sits inside a support or resistance band you drew before its first candle, from touches that were already on the chart. A band drawn afterward, around the hammer's own wick, always fits. Also note the overlap: a long wick into a band and a touch of the band are largely one observation, so count them as one reason, not two.

A close beyond the far end. For a long, wait for a decision-timeframe close above the highest high of the pattern's candles. For a short, a close below the lowest low. Until that close, the pattern is a candidate. The close is the trigger. The stop goes beyond the pattern's own extreme, and a setup may also weigh the edge of the band, as the reversal candle setup does. So the shape of the pattern also sets the size.

A schematic chart: ten falling candles, a support band drawn before, a hammer with its low in the band, and a later close above the hammer's high; the three context rules are numbered 1 to 3. — Illustration, not real price data. Schematic, with the drop drawn large. The trend and the band are on the chart before the pattern prints. Until a close above the pattern's highest high, the hammer is a candidate, and that close is the trigger.

The shape sets the stop

A good hammer has a long wick, and the stop belongs beyond the wick. In the example above, a close at 102 for the trigger and an assumed buffer of 0.5 x ATR(14) with ATR(14) at 2 put the stop at 94 - 1 = 93. The distance is 9, or 9.3 with an assumed allowance of 0.3 for costs. A planned loss of 100 on a 10,000 account buys 10 whole units (assume), for a planned loss with costs of 93. The longer the wick, the wider the stop and the smaller the position. If the size does not fit the risk budget, the answer is to pass, not to cut the stop to the body. The stop-loss placement page explains why.

A price ladder: a hammer low at 94, a stop 1 below at 93 and entry at 102. The 9.3 distance with costs sizes a planned loss of 100 to 10 units. — Illustration, not real price data. The page's example. The stop sits one buffer below the wick's low, so a long wick means a wide stop. A distance of 9.3 with costs sizes a planned loss of 100 to 10 units.

Default settings

No published default exists for these shapes, so the table lists common conventions. Each is a choice you write into the plan.

Item	Value	Status and limitation
Wick-to-body ratio	Wick at least 2x the body	Common convention. 3x is a stricter variation that passes fewer candles.
Doji body	Under about a tenth of the range	Common convention. A tighter cut finds fewer dojis.
Engulfing	Body covers body; one edge may be equal, not both	Common convention. Variation: range covers range, which is stricter.
Tweezer match	Within 0.1 x ATR(14)	Assumed example. A looser match calls more pairs tweezers.
Third candle of three inside	Closes beyond the first candle's open	Common convention. Variation: beyond the first candle's high for an up pattern, its low for a down one.
Prior trend	Written before the pattern, for example a fall of 3 x ATR(14) over 10 candles	Assumed example. A shorter or smaller definition calls more patterns valid.
Confirmation	A close beyond the pattern's far end	This manual's rule for using a pattern in a plan. It enters later at a worse price.

How it is used in this manual's setups

Reversal candle at support long. A hammer, bullish engulfing or the third candle of a three inside up, inside a band marked before the pattern.
Failed breakout wick short. A relative of the shooting star at resistance, stricter on location and trigger and looser on shape. It asks for a band marked first, a spike of a fixed size beyond it and a close back under the band's lower edge, which can print on the spike candle itself. That trigger is its own, not the later close this page asks for.
Kijun-sen reclaim long. The Kijun hold variation reads a reversal candle at the line.
Breakouts and retests. A rejection candle at a retest is the same wick idea at a broken level.

Common mistakes

Taking a pattern with no trend or level. A hammer in the middle of a range is a small-bodied candle. Check the three context rules.
Entering on the pattern's own close. Wait for the close beyond its far end.
Scanning back for patterns that worked. Hindsight selects the winners. Mark the band and the trend before the candles print.
Shrinking the stop to fit the budget. A long wick means a wide stop. Take the smaller size or pass.
Tuning the ratio after a miss. A setting fitted to the last failure is fitted to it.
Comparing feeds. Candle boundaries differ by exchange and chart. Use one chart.

What this cannot tell you

Whether a pattern reverses price. This page cites no test of any pattern's reversal rate, and popular success tables are unsourced here.
Who was trapped. A long wick shows price went there and left. It does not show which side was caught, and volume on one candle does not split that.
What a doji means. It is a candle whose open and close are close together. The range can be large, and the cause can be anything.
What the next candle does. A confirming close shows where the last candle settled, not where the next one will. A candle after a harami can also stay indecisive.
The path inside a candle. Open, high, low and close do not show whether the high or the low came first.

Questions

What is the difference between a hammer and a hanging man?

Nothing in the shape. A hammer follows a decline, a hanging man follows an advance. The name tells you which trend the trader assumed, and the plan needs that trend written down.

Are candlestick patterns reliable?

This page cites no test of any pattern, so it makes no claim either way. Used as the manual does, with a defined trend, a band marked earlier and a confirming close, a pattern is a condition in a plan that can fail. It is judged by whether the plan's rules were followed.

Does a doji mean the trend is ending?

No. It means the period opened and closed near the same price. A doji can print inside a trend that goes on. Treat one as a reason to wait for the next close.