Module 4: Technical Analysis for Crypto
Single Candlestick Patterns
Chapter 3 of 16 · about 6 minutes
3.1 Reading one candle
Mint was looking at the daily Bitcoin chart after a long fall. One candle stood out: a tiny body near the top, with a long wick stretching far below it.
"That looks different from the others," said Mint. "Does it mean something?"
"It might," said Hash. "That shape is called a hammer. It tells a short story about the day: sellers pushed the price down hard, but buyers pushed it all the way back up. Whether that story matters depends on where it happened."
3.2 The anatomy, quickly
From Module 1, Chapter 11, each candle shows four prices: open, high, low, and close. The body spans the open and close. The wicks show the high and low.
Three features carry most of the meaning:
Body size shows conviction. A large body means price moved decisively from open to close. A small body means buyers and sellers ended roughly balanced.
Wick length shows rejection. A long upper wick means price went up but was pushed back down. A long lower wick means price went down but was pushed back up.
Position matters more than shape. The same candle means different things at the top of a rally, the bottom of a fall, or in the middle of a range.
Chapter 3 · Anatomy of a candle
Two candles side by side. On the left, a green up candle where the close is above the open: the open sits at the bottom of the body, the close at the top, a thin upper wick rises to the high and a lower wick falls to the low. On the right, a red down candle with a dashed body outline where the close is below the open: the open sits at the top of the body and the close at the bottom, with the same upper and lower wicks reaching the high and low. Labels name the body, the upper wick, and the lower wick on each.
3.3 Marubozu: full conviction
A marubozu has a large body and little or no wick. A green marubozu means buyers controlled the entire period. A red marubozu means sellers did.
| Example (bullish marubozu) | Price |
|---|---|
| Open | $95,000 |
| High | $99,900 |
| Low | $94,950 |
| Close | $99,800 |
The price opened near the low and closed near the high. Buyers were in control from start to finish. This often signals strength, especially when it breaks above a key level with high volume.
3.4 Doji: indecision
A doji has an open and close that are almost equal, so the body is extremely thin, with wicks on one or both sides. It shows that buyers and sellers fought to a draw.
On its own, a doji means little. After a strong trend, it can be an early sign that the trend is losing momentum. Variations include the dragonfly doji, with a long lower wick, and the gravestone doji, with a long upper wick.
| Example (doji) | Price |
|---|---|
| Open | $100,000 |
| High | $101,500 |
| Low | $98,600 |
| Close | $100,050 |
3.5 Spinning top: hesitation
A spinning top has a small body with wicks of similar length above and below. Like a doji, it signals indecision, but with slightly more movement between open and close. In a strong trend, a cluster of spinning tops suggests the trend is pausing.
3.6 Hammer and hanging man
A hammer has a small body near the top of the candle and a long lower wick, typically at least twice the body's length, with little or no upper wick.
| Example (hammer) | Price |
|---|---|
| Open | $90,500 |
| High | $91,200 |
| Low | $86,000 |
| Close | $91,000 |
Chapter 3 · Same shape, different context
Two panels show the same candle, a small body near the top with a long lower wick at least twice the body's length and little or no upper wick. In the left panel, a falling price path leads into the candle at the bottom of a downtrend; it is labelled hammer, with an upward arrow for a possible bullish reversal. In the right panel, a rising price path leads into the candle at the top of an uptrend; it is labelled hanging man, with a dashed downward arrow for a warning of possible weakness, not a reversal signal on its own.
The price fell as low as $86,000 before buyers pushed it back to $91,000. When this appears after a decline, especially near support, it's called a hammer and suggests sellers may be exhausted.
The same shape appearing after a rally is called a hanging man, and suggests that selling pressure appeared during the period, even though buyers recovered. It's a warning, not a reversal signal on its own.
"Same shape, different name?" asked Mint.
"Same shape, different context," said Hash. "That's the whole lesson of candlesticks."
3.7 Shooting star and inverted hammer
A shooting star is the opposite of a hammer: a small body near the bottom with a long upper wick. After a rally, it shows that buyers pushed higher but sellers rejected the move. It's a potential bearish signal, especially near resistance.
The same shape after a decline is called an inverted hammer, and can hint at buyers starting to test higher prices.
3.8 Summary of single candles
| Pattern | Shape | Most meaningful when | Possible signal |
|---|---|---|---|
| Marubozu | Large body, no wicks | Breaking a key level with volume | Strong conviction in that direction |
| Doji | Almost no body | After a strong trend | Indecision; trend may be weakening |
| Spinning top | Small body, similar wicks | Within a strong trend | Hesitation, pause |
| Hammer | Small body on top, long lower wick | After a decline, near support | Possible bullish reversal |
| Hanging man | Same as hammer | After a rally | Warning of possible weakness |
| Shooting star | Small body at bottom, long upper wick | After a rally, near resistance | Possible bearish reversal |
| Inverted hammer | Same as shooting star | After a decline | Possible early bullish sign |
3.9 Wicks in crypto
Crypto charts are full of long wicks, and not all of them carry meaning. Because crypto trades with heavy leverage, sudden price moves can trigger cascades of liquidations, creating sharp wicks in seconds that reverse just as quickly (Module 1, Chapter 13). These can look like hammers or shooting stars, but they sometimes reflect forced selling or buying rather than a genuine shift in sentiment.
Also, as Chapter 2 noted, wicks can differ between exchanges. A dramatic wick on one venue might be much smaller elsewhere.
Practical habits:
Wait for the candle to close. A candle's shape can change completely before the period ends. A "hammer" halfway through the day might close as a large red candle.
Prefer higher timeframes. Single-candle patterns on the daily or weekly chart carry more weight than on the five-minute chart.
Check volume. A reversal candle with strong volume is more meaningful than one with low volume (Chapter 7).
Look for confirmation. Many traders wait for the next candle to confirm the signal, for example, a green candle closing above the hammer's high.
3.10 Node's challenge
Node was skeptical as ever. "How often do these patterns actually work?"
"On their own, not reliably enough to trade blindly," said Hash. "Studies of candlestick patterns produce mixed results, and they vary across markets and timeframes. Their real value is as one piece of evidence. A hammer at a strong support level, with high volume, on the daily chart, after a long decline, means far more than a hammer in the middle of nowhere."
3.11 Try it yourself
On a daily Bitcoin or Ethereum chart, find three examples each of hammers, shooting stars, and dojis. For each, note what happened over the following five candles. Then repeat on a 15-minute chart. Compare how often the patterns were followed by the expected move on each timeframe.
Key takeaways from this chapter
- Body size shows conviction, wick length shows rejection, and position gives meaning.
- Marubozu candles show strong control by buyers or sellers.
- Dojis and spinning tops show indecision, often meaningful after strong trends.
- Hammers after declines and shooting stars after rallies suggest possible reversals.
- The same shape can have different meanings depending on where it appears.
- Crypto wicks are often caused by liquidations and can differ across exchanges.
- Wait for candles to close, prefer higher timeframes, check volume, and look for confirmation.