Candlestick Formations & Price Reversals in Crypto Trading

Candlestick formations are a series of candles (typically 3) that illustrate a particular pattern. There are a number of different patterns and formations that have been identified over time so we will only go over some common ones. These patterns help to determine future price action and potential bullish and bearish reversal signals.

Morning Star — The middle candle, a doji, of the morning star signifies a moment of indecision where the sellers begin to give way to buyers. The third candle confirms the reversal and can mark a new uptrend.

Evening Star — The opposite pattern to a morning star is the evening star, which signals a reversal of an uptrend into a downtrend.

Bullish/Bearish Reversal

Three Inside Up — This is a trend-reversal pattern that is found at the bottom of a downtrend. This triple candlestick pattern indicates that the downtrend could be ending and that a new uptrend could begin.

Formation Checklist

• The first candle should be found at the bottom of a downtrend and is illustrated by a long bearish candlestick.

• The second candle should at least make it up all the way up to the midpoint of the first candle.

• The third candlestick needs to close above the first candle’s high to confirm that buyers have overpowered the strength of the sellers/downtrend.

Three Inside Down — This is a trend-reversal pattern that is found at the top of an uptrend. It means that the uptrend is potentially ending and that a new downtrend has begun.

Formation Checklist

• The first candle should be found at the top of an uptrend and is characterized by a long bullish candlestick.

• The second candle should make it up all the way down the midpoint of the first candle.

• The third candlestick needs to close below the first candle’s low to confirm that sellers have overpowered the strength of the uptrend.

Bullish/Bearish Reversal

* This content does not represent the views of Bybit. As such, it should be not be seen as trading and financial advice, it is merely an opinion. Trading is done at your own risk.