Japanese Candles: The Guide Every Crypto Trader Needs (But Nobody Explains It Well)

Japanese candlesticks have been in use for 300 years, and in crypto, they remain the universal language of the market. But here’s the uncomfortable truth: most traders who lose money understand the patterns… they just read them backwards.

The Basic Structure You Can't Ignore

Each candle tells you a battle between buyers and sellers in 4 numbers:

• Open and close price: The body of the candle (green = close up, red = close down)
• Maximum and minimum: The wicks/shadows ( where the price was rejected)

That's all. The rest is noise.

Patterns that Work (If You Combine Them Well)

Bullish signals:

• Hammer: A candle with a small body and a long lower shadow after a drop. It means that there was a strong rebound from below.
• Three White Soldiers: Three consecutive green candles with ascending lows. Buyer control confirmed.
• Bullish Harami: Large red candle followed by small green one inside. The selling pressure has broken.

Bearish signals:

• Hanged Man: Small body + long lower shadow (inverted hammer). Appears in tops, it is dangerous.
• Shooting Star: Small body + long upper shadow at highs. Sellers counterattacked.
• Three Black Crows: Three consecutive red candles. Dominance of sellers.

The Doji - Indecision: Opening = closing. It means: neither buyers nor sellers won. Pure uncertainty. It is only relevant in context (up = trend change; down = possible rebound).

The Part Everyone Forgets: The Context

Here comes the important part: a single pattern does not make you rich. You need:

1. Volume: How many people are backing this movement? If you see a hammer with low volume, it's fake.
2. Key levels: Nearby supports/resistances. A pattern above resistance is different from one in an empty zone.
3. Secondary indicators: RSI (overbought/oversold), MACD, moving averages. Multiple confirmations.
4. Time frame: Analyze in 1h, 4h, and 1d. If the daily trend is bearish, a hammer in 1h is not relevant.

The Differences in Crypto vs Stock Market

Gaps (price gaps) hardly exist in crypto because the market operates 24/7. Traditional markets close, crypto does not. So forget about looking for gaps - they won't appear like they do in stocks.

Real Strategy to Avoid Losing Money

Step 1: Truly understand each pattern. Don't memorize shapes - understand what each shadow means.

Step 2: Practice on historical charts. How many times did that pattern lead to profits? How many times did it fail? Make your own statistics.

Step 3: Combine with Elliot, Wyckoff, or Dow Theory. The candles are nice but incomplete on their own.

Step 4: Always use a stop-loss. If the pattern fails 2% below where you entered, get out. Period.

Step 5: Minimum risk/reward 1:2. Don't bet $100 to win $50.

The Plot Twist

Candlestick patterns have ~60-70% accuracy at best. That means that 3 out of 10 times you will be wrong. The difference between winning and losing traders is not the pattern - it's risk management and the discipline to stick to the plan when FOMO is screaming at you to enter.

Use the candles as a compass, not as a treasure map.