Expert
Lesson 22
9 min

Bullish candlestick patterns in crypto trading you should know

Candlesticks can be used for predicting future price movement and possible future market developments. A bullish candlestick pattern is one that signals a coming uptrend in an asset’s price or a continuation of said uptrend. 

  • Each candlestick visually represents the open, close, low and high price during a certain time frame. 

  • Candlestick patterns are used by traders to attempt to predict whether the market will trend “bullish” or “bearish.”

  • Certain patterns are interpreted as “bullish”, meaning that they indicate positive upcoming price action for assets

In this lesson you will learn about different bullish candlestick patterns in crypto trading.

What do “bullish” and “bearish” mean?

Like you learned in lesson 4 of the Bitpanda Academy’s intermediate section, candlestick patterns are used by crypto traders to attempt to predict whether the market will trend “bullishly” or “bearishly.” “Bullish” and “bearish” are terms that traders use to describe positive or negative price movements in asset markets. 

A bull market means that prices are on the upswing, the term originates from the assumption that stock prices would rise and there is a price recovery of about 20% from a market bottom  - a bull throws the prices up into the air with his horns. A bear market, on the other hand, indicates a price decline of about 20% from a market top and the name originates from the analogy of a bear beating the prices down with its paws. 

During bullish market sentiment, traders anticipate further price increases. Here in this lesson, we will show you a few examples of bullish candlestick patterns to help you understand how to predict possible upcoming positive price action for assets.

Besides monitoring and analysing candlestick patterns, it is just as important for traders to utilise other other trading indicators, to research an asset’s historical price movements and further candlestick patterns in a chart.

A brief summary of candlesticks

Let’s quickly review the basics behind candlestick patterns. Candles in a trading chart have different shapes and colours. In most cases, red and green candles are used (like on Bitpanda Pro), others use red and blue and some use bright and dark candles to illustrate development. 

“Bright'' or in our case, a blue candle, represents a higher closing price relative to the opening price, while “dark”, or in our case red, candles represent a lower closing price than opening price. 

Each candle has four price points. The “body” of the candle is the shape between the open and close price of a candle and highs and lows during that period are indicated by the wicks or shadows of a candle.

By simply looking at the shape of the candle, traders can anticipate the next move or come up with the perfect trade setup. Here the closing price is the most important information as it is the price that indicates the direction of the next session’s opening. Most traders will use the closing price as a bias ( which they base their idea of what is going to work on) and as trade setups.

What does the size of a candle indicate?

The size of the body can give us information about corrective or reversal points. The size of the wick (also called “the shadow of the candle”) is also important as a wick shows support and resistance levels. Support and resistance levels are price levels which sufficient numbers of traders willing to buy (“bulls”) or traders willing to sell (“bears”) had previously entered the market at, in order to stop or to reverse a price movement.

The longer a wick, the more important the level. Candle wicks can indicate support and resistance zones multiple times before they are broken and the longer they are, the stronger resistance and support levels they form.

What types of candlesticks are there?

In general, there are many types and interpretations of candlesticks, with some subgroup variations, that drive the price. Interpretations can vary in different markets, but the basics remain the same.

  • The Standard” candle is generally considered to indicate the continuation of a trend. It is distinguished by the strong real body and small lower and upper wick.

 
  • The Spinning Top is a neutral candle type. It is distinguishable by its small real body and long wick on either end of the body.

 
  • TheDoji” represents the area where the bulls and the bears meet. It has no recognizable candlestick body, because the opening price and the closing price are the same, hence there is no body showing a difference between the two prices. 

  • The Long Legged Doji” also shows a potential turning point - upper and lower wicks are long and close to equal length.

  • The“Gravestone Doji” gets its name from its shape: long upper wick and small body. This type of the candle signals a reversal from bullish to bearish.

  • The “Dragonfly Doji” is the exact opposite of the “Gravestone” and is found exclusively at market bottoms, indicating reversal from bearish to bullish. It is easy to recognise as it has no real body, but a long lower wick.

 
  • The “Hanging Man” candle appears at the top of a market and indicates a reversal to a bearish market.

 

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  • The “Hammer” is the same shape but indicates the opposite of “Hanging man” and usually forms on the market bottom, signalling a reversal point to bullish.

 
  • The “Shooting Star” or also known as “Inverted Hammer” is the opposite of “Hammer” and indicates a strong reversal signal in the uptrend. It has a greater wick on one end of a smaller body.

 
  • The “Belt Hold candle - Bozu” is a continuation candle with almost equal body and wick, but the wick is placed only on one end of the body. The reason that the belt hold candle, which has to be bullish and preceded by a bearish candle, does not have a lower shadow is that it did not trade at a lower price than its opening price.

 
  • Finally, the “Marubozu” is a candle with no upper and lower wick, meaning the open and close prices are the same as the low and high prices. In Japanese, the term “Marubozu” means "shaved head" or  "bald head" and this is shown in the candlestick missing wicks. This candle basically signifies that a market traded to the close without the temporary reversal of an overarching trend in a stock's price (retracement).

 

What are some examples of bullish candlestick patterns?

There are many strategies in which you can use candles to spot entry or exit points and it comes down to individual preference and trading technique, which works for each crypto trading style. Take a look at the examples below to see different types of “bullish reversal patterns.” 

As you may remember, a bullish reversal pattern is a group of candlesticks that show that a market is moving out of a downturn, into an upturn, or trending “bullish.” Still, this is not the only kind of bullish candlestick pattern that exists. Overall, most bullish candlestick patterns fall into two categories which are: reversals and continuations. For that reason, we have illustrated both in the examples below. 

The Bullish Harami Pattern

The image below is a bullish candlestick pattern called “the Bullish Harami pattern.” To begin to understand it, remember that each candle usually represents a day of trading, depending on the settings in your account. 

 

Identical to our previous example of the bullish engulfing pattern in the Bitpanda Academy’s intermediate section, the two highlighted candles at the Bullish Harami pattern’s trough are the most important. As you can see, the outlined red candle has a much wider range of “price action” than the following green candle, which is called a “shortline candle”. As a matter of fact, the green candle should be no larger than 25 percent of the red candle that precedes it. 

The shortline candle’s price action sits in between the open and close prices of the candle from the day before. Its lowest price, which is shown by the lower wick, is much higher than the previous day’s bearish candle. This constellation historically appears at the end of a downtrend. What does the bullish harami pattern indicate? In connection with other trading indicators, this may project a positive trend for an asset’s price development.

The Three White Soldiers Pattern

Another bullish reversal pattern indicating a reversal from a bearish trend is the Three White Soldiers pattern with three green candles in consecutive order like a staircase, ideally opening above the opening price of the previous day. Candle sizes and the length of the shadows indicate whether a retracement (a short-term price change in relation to the main trend) is likely to occur. 

 

In general, the longer the wicks of the green candles, the stronger the upcoming bullish trend that is anticipated. Here, each of the three candles shows an increasingly higher closing price. Even the small red candle at the top continues this trend, but how do crypto traders use the three white soldiers pattern? They may look for other reversal patterns nearby, such as the bullish harami pattern and others for further confirmation of an upswing. 

The Rising Three Methods Pattern

Besides reversal patterns, there are also continuation patterns indicating a bullish or bearish market will continue. Take the rising three methods pattern, which consists of three bearish candles with small bodies that indicate a consolidation period before the upwards trend continues as selling pressure on the asset is decreasing steadily before reversing again to positive price development. Hence the final green candle is the one that really matters, indicating conviction in the market and to traders to check for resistance levels before possibly entering the market or going long. 

 

The Piercing Lines Pattern

Since high-frequency trading or trading on shorter time frames is common in the crypto space, it is important to also mention a pattern that specifically applies to this type of practice. One that foots the bill is the piercing lines pattern below:

 

The key element in this constellation of a bearish and bullish candle is the position of the green candle’s closing price which is located above the middle (50% level) of the red candle. Although the asset had a much lower opening price on the second day than on the first, there was high buying volume. This pattern typically occurs towards the finish of a downtrend and may be a signal of a reversal.

In general, traders look for bullish candlestick patterns for their trading strategies if they are planning to go long on an asset - meaning that they speculate on the price of an asset going up and plan to sell it at a higher price to make a profit.

Now that you know the most important bullish candlestick patterns to watch out for, we are going to take a look at some bearish candlestick patterns in our next lesson.  

FURTHER READING

BOOKS

  • Hyongdo, Lee - The God of Trading, Honma :The Creator of Japanese Candle Charts

  • Lasinger, JD - Candlestick Patterns for Profit

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