Candle patterns
Lesson 23 of 39 in the course “Crypto”. Free, with animations and a quiz.
A candle shows price over a period: the body (open to close) and the wicks (the extreme prices). A pin bar has a small body and a long wick. Price went there and got rejected fast. At support it hints at a turn up.
Bullish engulfing: a green candle (closed above its open) fully covers the body of the previous red one with its body. Buyers took over. After a drop, at a level, it means more than in the middle of a move.
Doji: the open and close are at almost the same price, so the body is a thin line. The market is undecided: buyers and sellers tied. After a rally, at a top, it warns the rise may be running out of steam.
Bottom line: a candle pattern alone is a weak signal. It works better at an important level and with confirmation, for example when the next candle closes in the expected direction. Without context it is just a picture.
Check yourself
- A long lower wick at support suggests that...
Correct answer: Buyers rejected the low prices. Price was pushed down, but buyers brought it back up before the candle closed. That candle is a pin bar. - Bullish engulfing is...
Correct answer: A green candle covers the red body. The green body fully covers the previous red one: buyers took over. The opposite version is called bearish engulfing. - When is a candle signal more reliable?
Correct answer: At a key level and with confirmation. Context decides. A pin bar at strong support means more than the same candle in the middle of the chart.