Candlestick Basics
Each candlestick shows four prices for one time period:
Bullish (green): Bearish (red):
─── High ─── High
│ ┌──┐
┌──┐ ← Close │ │ ← Open
│ │ │ │
│ │ ← Open └──┘ ← Close
└──┘ │
│ ─── Low
─── LowThe body shows open-to-close range. Wicks (shadows) show the high and low extremes.
Single Candle Patterns
Doji (Indecision)
─── High
│
─ ← Open = Close (tiny body)
│
─── LowOpen and close are nearly equal. Neither bulls nor bears won. Often signals a potential reversal — but only with context.
In crypto reality: Doji appears constantly on shorter timeframes. Standalone doji has near-zero predictive value. Only meaningful at extremes (after strong trends, at key levels).
Hammer / Hanging Man
Hammer (bullish): Hanging Man (bearish):
┌─┐ ┌─┐
└─┘ └─┘
│ │
│ (long lower wick) │ (long lower wick)
─ ─Long lower wick, small body at the top. Hammer appears after a downtrend (bullish). Hanging man appears after an uptrend (bearish).
In crypto reality: Somewhat useful on daily timeframes. The long wick shows rejection of lower prices. Better when combined with volume and support levels.
Shooting Star / Inverted Hammer
─
│ (long upper wick)
┌─┐
└─┘Opposite of hammer. Long upper wick shows rejection of higher prices.
Multi-Candle Patterns
Engulfing
Bullish Engulfing: Bearish Engulfing:
┌─┐ ┌───┐
│R│ ┌───┐ │ G │ ┌───┐
└─┘ │ G │ └───┘ │ R │
│ │ │ │
└───┘ └───┘Second candle completely “engulfs” the first. Bullish engulfing = green candle engulfs previous red. Signals reversal.
In crypto reality: One of the more reliable patterns when it occurs at key support/resistance on higher timeframes. Still requires confirmation.
Morning Star / Evening Star
Three-candle reversal pattern:
Morning Star (bullish): Evening Star (bearish):
┌───┐ ┌───┐
│ R │ │ G │
│ │ ┌─┐ │ │ ┌─┐
└───┘ └─┘ ┌───┐ ┌───┐ └───┘ └─┘
│ G │ │ R │
└───┘ └───┘- Large candle in trend direction
- Small-bodied candle (indecision)
- Large candle in opposite direction
What Backtesting Shows
Honesty first: we have NOT run a per-pattern candlestick sweep yet, so we won’t print a table of pattern win rates we never measured. What we HAVE measured is the closest cousin — a full candle-driven strategy: Heikin-Ashi trend following scored ~50% win rate and failed our validation (it ships as a published failure on the simulator).
The uncomfortable truth: nothing in our measured results suggests any single candle pattern is a standalone edge in crypto — and until we run the per-pattern sweep, treat every “pattern X wins Y%” table you see anywhere (including ours, historically) as unverified. Want to test one yourself? The builder has bullish / bearish / doji candle fields — run it and see.
When Patterns Add Value
Candlestick patterns work as confirmation, not signals:
- At key levels: Hammer at support = meaningful. Hammer in the middle of nowhere = noise
- With volume: Engulfing with 3x average volume = strong. Engulfing with low volume = weak
- On higher timeframes: Daily doji at all-time high = noteworthy. 5-minute doji = meaningless
- After strong moves: Reversal patterns need something to reverse
How PRUVIQ Uses Candlestick Data
An honest correction to a myth we once repeated ourselves: the BB Squeeze strategy does not use candle color. The engine’s short-side check is close < bb_mid (price on the lower half of the bands) plus the EMA trend — the code’s docstring explicitly says “not candle direction”. If you want a candle-color filter, the builder exposes bullish / bearish booleans so you can test whether it helps (our filter sweep suggests: usually it doesn’t, after costs).
Key Takeaway
Candlestick patterns are a visual language for understanding buyer/seller dynamics, not prediction tools. They add value as confirmation at key levels with volume, but alone they’re barely better than random. In crypto, simpler is usually better.
Test candlestick-based strategies in PRUVIQ’s Strategy Builder.
This is educational content. Not financial advice. Always backtest before trading.