How to Read Reversal Candle Patterns: Reversal Signals at Market Bottom

Candlesticks are not just lines on a chart but a visual story of the battle between buyers and sellers. When you learn to read these patterns, you gain the ability to anticipate market reversals before they happen. The key principle: the more candles in a formed pattern, the higher the probability of a true reversal rather than a false price movement.

The Fundamental of Success: Why Reading Market Structure Is So Important

Each candle reflects the balance of power between bulls and bears. Early single signals require caution—they often produce false signals and need confirmation. As candles accumulate in a pattern, the reliability of the signal increases. Professional traders combine visual patterns with technical indicators (RSI, volume, support/resistance levels) to improve accuracy.

Single Candles: Initial Signals of Change at Bottoms or Tops

Hammer

Formed at the bottom of a downtrend, the hammer serves as an early warning of a reversal. Its structure is simple: a small body at the top, a long lower shadow (at least twice the body length). The pattern indicates sellers pushed the price down, but buyers managed to buy back the decline and push the price higher. A proper entry occurs after the next bullish candle closes, ideally at support level. Stop-loss is placed below the hammer’s low.

Shooting Star

The opposite of the hammer appears at the top of an uptrend. It has a small body at the bottom and a long upper shadow, indicating market rejection of higher prices. Sellers are in control. Entry should be after bearish confirmation, especially when RSI is in overbought territory. Stop-loss is placed above the high.

Hanging Man

Visually similar to the hammer but forms at the top of a trend. The critical difference: on its own, it is NOT a buy signal. You should only buy after a strong bearish confirmation candle, especially near resistance levels.

Double Patterns: When Confirmation Becomes Critical

Engulfing (Bullish / Bearish)

Engulfing is one of the strongest double patterns in technical analysis. The second candle completely covers the body of the first, demonstrating a full control reversal. In bullish engulfing (after a decline), entry occurs at the close of the second candle or on a 30–50% retracement. In bearish engulfing (at a top), the pattern is especially powerful at resistance levels.

Piercing Line

This pattern signals an upward reversal. The first candle is bearish; the second opens below its low but closes above the midpoint of the first candle. It shows buyers have taken control. The best confirmation is when RSI exits the oversold zone. Entry is at the close of the second candle, with a stop below the pattern’s low.

Dark Cloud Cover

A mirror image of the piercing line, signaling a downward reversal. The second red candle closes below the midpoint of the first bullish candle. This pattern works well at local highs. Entry occurs after confirmation with a red candle.

Harami

Harami indicates weakening of the current trend, not an immediate reversal. Characterized by a small candle fully inside the body of a larger candle. Use strategy: wait for a breakout of the harami range, as this pattern is ideal for preparing a major move.

Triple Patterns: Reliable Reversals After a Long Trend

Morning Star

A classic strong bullish reversal pattern of three candles. Structure: a long bearish candle, a small candle (reflecting market hesitation), and a strong bullish candle. This pattern shows a gradual shift in control. Entry after the third candle closes at support levels offers potential for medium-term moves.

Evening Star

The mirror image of the morning star, signaling a reversal downward. It forms best at resistance levels, especially when RSI shows divergence.

Three White Soldiers

Three consecutive large green candles with minimal shadows demonstrate a powerful shift of control to bulls. Strategic entry is on a retracement after the 2nd or 3rd candle, but avoid entering at local highs without prior correction.

Three Black Crows

An aggressive bearish reversal: three strong red candles closing near lows. This pattern is especially effective after a long upward move and at key resistance levels.

Abandoned Baby

A rare but highly reliable pattern. Structure: a doji candle with gaps on both sides. Its uniqueness lies in showing a complete reversal without overlap—the market doesn’t even touch the previous area. Entry after the third candle, ideal for long-term position trading.

The Power of Confirmation: How to Combine Patterns with Technical Indicators

The best results occur when candlestick patterns are combined with additional tools:

• Support and Resistance Levels — patterns are strongest when formed near these key zones
• RSI (divergences, exit from overbought/oversold zones) — confirms potential change
• EMA 21 and EMA 50 — show the direction of medium- and long-term trends
• Volume — increasing volume confirms the sincerity of the reversal

Practical Application: From Theory to Real Trades

A candlestick pattern is not a magic button for profit but a signal of changing market balance. True strength appears when the pattern, support/resistance level, and technical confirmation (RSI, volume) converge in time. These moments significantly increase the likelihood of a successful trade.

Start with simple patterns (hammer, shooting star), learn to read them reliably on historical data, then move on to double and triple patterns. Each reversal pattern is a language through which the market communicates its intentions. Once you learn this language, you will be able to read the market with a new depth of understanding.

Trade examples with these patterns can be tracked on assets like $ENA, $ALT, $ADA, where reversal signals regularly form at significant levels.