Module 4: Technical Analysis for Crypto
Multi-Candle Patterns
Chapter 4 of 16 · about 6 minutes
4.1 Candles in conversation
"One candle tells a short story," Hash said. "Two or three candles together tell a conversation. You can see one side attacking, the other side responding, and who wins."
Mint had been watching Ethereum fall for a week. Then a small red candle was followed by a large green candle whose body completely covered the red one.
"That green candle swallowed the red one," Mint said.
"That's literally what it's called," said Hash. "An engulfing pattern."
4.2 Bullish and bearish engulfing
A bullish engulfing pattern has two candles: a red candle, followed by a green candle whose body completely covers the red candle's body. It suggests that buyers overwhelmed sellers.
| Candle 1 (red) | Candle 2 (green) | |
|---|---|---|
| Open | $3,200 | $3,100 |
| Close | $3,100 | $3,280 |
The second candle opened right where the first closed, at $3,100, and closed above the first candle's open, so its body covers the first body's range. The strict textbook version requires the second candle to open below the first candle's close, but in crypto the market doesn't close, so the second candle usually opens right where the first closed. That's why many crypto traders apply this looser definition: the second body simply needs to cover the first body's range.
A bearish engulfing pattern is the opposite: a green candle followed by a larger red candle that covers it. After a rally, it suggests sellers have taken control.
Chapter 4 · Bullish and bearish engulfing
Left panel, after a falling price path: a small red candle opens at $3,200 and closes at $3,100, then a larger green candle opens at $3,100 and closes at $3,280, its body covering the whole red body; labelled bullish engulfing, buyers overwhelm sellers. Right panel, the mirror image after a rising price path: a small green candle followed by a larger red candle whose body covers it; labelled bearish engulfing, sellers overwhelm buyers. Dotted guide lines mark the first candle's open and close to show the second body extends past both.
4.3 Harami
A harami (from a Japanese word for pregnant) is the reverse of engulfing: a large candle followed by a small candle whose body sits entirely inside the first body.
After a strong move, it shows that momentum has suddenly slowed. A large red candle followed by a small candle inside it, a bullish harami, suggests selling pressure is fading. A large green candle followed by a small one, a bearish harami, suggests buying pressure is fading. Harami patterns are generally weaker signals than engulfing patterns and benefit more from confirmation.
4.4 Morning star and evening star
These are three-candle reversal patterns.
A morning star appears after a decline:
- A large red candle, sellers in control.
- A small candle or doji, indecision.
- A large green candle closing well into the body of the first candle, buyers taking over.
| Candle 1 | Candle 2 | Candle 3 | |
|---|---|---|---|
| Open | $96,000 | $91,800 | $92,000 |
| Close | $92,000 | $92,100 | $95,500 |
| Story | Strong selling | Selling stalls | Buyers recover most of the first candle's losses |
An evening star is the mirror image after a rally: a large green candle, a small indecisive candle, then a large red candle closing well into the first candle's body.
"It's like watching a ball thrown up, stopping at the top, and coming down," said Mint.
"Exactly the shape of the story," said Hash.
4.5 Three white soldiers and three black crows
Three white soldiers are three consecutive large green candles, each opening within or near the previous body and closing near its high. After a decline or a period of consolidation, they show strong, sustained buying.
Three black crows are three consecutive large red candles, each closing near its low. After a rally, they show sustained selling.
These patterns show momentum, but in crypto, three large candles in a row can also mean the market is stretched and due for a pause. Context matters.
4.6 Tweezer tops and bottoms
Tweezer bottoms are two or more candles with matching lows, usually after a decline. They show that the market tested the same level twice and buyers defended it both times.
Tweezer tops are candles with matching highs after a rally, showing sellers defended the same level twice.
These are simple patterns that often coincide with support and resistance levels, covered in Chapter 5.
4.7 Summary
| Pattern | Candles | Appears after | Suggests |
|---|---|---|---|
| Bullish engulfing | 2 | Decline | Buyers overwhelm sellers |
| Bearish engulfing | 2 | Rally | Sellers overwhelm buyers |
| Bullish harami | 2 | Decline | Selling momentum fading |
| Bearish harami | 2 | Rally | Buying momentum fading |
| Morning star | 3 | Decline | Possible bullish reversal |
| Evening star | 3 | Rally | Possible bearish reversal |
| Three white soldiers | 3 | Decline or range | Strong buying momentum |
| Three black crows | 3 | Rally or range | Strong selling momentum |
| Tweezer bottom | 2 or more | Decline | Level defended by buyers |
| Tweezer top | 2 or more | Rally | Level defended by sellers |
4.8 What makes a pattern stronger
Not all patterns are equal. These factors increase their significance:
| Factor | Why it helps |
|---|---|
| Appears at a key support or resistance level | The pattern confirms a reaction at a level many traders watch |
| Higher timeframe | Reflects more trading activity and more participants |
| High volume on the decisive candle | Shows genuine participation, not a thin-market move |
| Follows an extended trend | Reversal patterns need something to reverse |
| Confirmed by the following candle | Reduces false signals |
| Agrees with other tools | Confluence (Chapter 1) |
And these factors weaken them: appearing in the middle of a choppy range, on very short timeframes, on low volume, or on thinly traded tokens.
4.9 Node's test
Node decided to test engulfing patterns. Over a few hours of scrolling through Ethereum's daily chart, Node found 20 bullish engulfing patterns after declines. In 11 cases, the price was higher five days later. In 9, it was lower.
"Barely better than a coin flip," Node said.
"Now filter them," said Hash. "Only count the ones at a clear support level, with above-average volume."
Node found 7 that met those conditions. Five led to higher prices.
"Still not proof," said Hash. "Seven examples is too small a sample. But you've just learned the most important habit in technical analysis: testing ideas instead of trusting them, and noticing that context changes results."
4.10 Try it yourself
Repeat Node's experiment on a chart of your choice. Find at least 20 examples of one pattern from this chapter. Record what happened five candles later. Then filter for patterns that appeared at clear support or resistance with above-average volume, and compare the results. Keep your notes. You'll use this habit again in Chapter 16.
Key takeaways from this chapter
- Multi-candle patterns show how buyers and sellers respond to each other over several periods.
- Engulfing patterns suggest one side overwhelmed the other; harami patterns suggest momentum is fading.
- Morning and evening stars are three-candle reversal patterns after declines and rallies.
- Three white soldiers and three black crows show strong momentum, but can also signal stretched markets.
- Tweezer tops and bottoms show a level defended twice.
- Patterns are stronger at key levels, on higher timeframes, with volume, after trends, and with confirmation.
- Test patterns on real charts instead of trusting them blindly.