Trading success often dependson whether or not one can pinpointpotentially profitable assets before sharp price movement. This is particularly evident incrypto, where high volatility is the norm. Technical analysis—analysis is of historical price action and chart patterns—is one of the main methods to predictprice direction. Candlestick analysis, a part of technicalanalysis, allows traders to visualise potentialprice movements. Octa, a broker withglobally recognised licences, shares how candlestick analysis can be used toidentify specific patterns that might suggest future price changes.

Understandingсandlestick сharts

Candlestickcharts help traders respond quickly to market shifts by providing clear visualsignals. Unlike line charts, candlesticks offer more details within a specifictime frame, which is essential in the fast-paced crypto market. Common bullishpatterns include:

● Hammer. Acandle with a small body and long lower wick. It may signal a reversal to theupside when it appears after a downtrend.

● BullishEngulfing.A two-candle pattern where the second bullish (green) candle fully engulfs thefirst bearish (red) candle. It often indicates potential upward movement whenfound at the bottom of a bearish trend.

● DoubleBottom.A formation with two similar lows, suggests a reversal and possible priceincrease.

Bearishpatterns include:

● HangingMan.A small-bodied candle with a long lower wick, appearing at the top of anuptrend, often suggests a downturn.

● BearishEngulfing.A two-candle pattern where the second bearish (red) candle completely engulfsthe first bullish (green) candle.

● DoubleTop.A structure with two similar highs often warns of a reversal to the downside.

Thesecandlestick patterns allow traders to anticipate potential price reversalpoints on time, develop a proactive strategy, and confirm their tradingdecisions in a volatile crypto market.

Besidesbullish and bearish patterns, there are so-called neutral candlestick chartpatterns like doji. They often signify indecision in the market when therelative strength of buyers and sellers is roughly balanced. Here are sometypical doji candlesticks:

● ClassicDoji.The opening and closing prices of the candle almost coincide. The candleresembles a thin horizontal line with short shadows at the top and bottom. Ifthe closing price is higher than the opening one, a bullish doji may appear,indicating a potential asset price increase.

● Long-leggedDoji.A pattern with long shadows up and (or) down. It signals major indecision, withmore potential for a bearish market.

● RikshaDoji. Thispattern has a similar shadow length, and the price is in the middle of thetrading range.

Keyelements of graphical analysis

Toforecast price direction and spot valuable trades, traders should also useother tools of graphical analysis. Here are the main ones to consider whenanalysing candlestick patterns.

Support and resistancelevels

● Support: a levelwhere prices tend to stop falling and start rising due to increased buyinginterest.

● Resistance: a levelwhere prices often stall or reverse due to selling pressure.

Theselevels are identified from historical highs and lows. The more times the pricereacts to a level, the stronger it becomes. Notably, a support level can becomeresistance if the price drops below it, and vice versa.

Tradersoften look to trade on bounces from these levels or breakouts beyond them. Forexample, on a historical 4H BTC/USD chart, the price approached the $99,320resistance level, formed a bullish doji mentioned above, and then decisivelybroke upward.

Trend

● Uptrend: drawnthrough higher lows, indicating support in a rising market.

● Downtrend: drawnthrough lower highs, indicating resistance in a falling market.

Avoidtrading against the trend to reduce risk. A trend reversal can be a powerfulsignal for identifying market turning points.

Aguide to reading candlestick chart patterns

Candlestickcharts offer valuable insight into market sentiment but correctly interpretingthem is essential. Here are several practical tips for traders:

Readpatterns in context. In uptrends, look for bearish reversal signals (e.g.bearish engulfing). In downtrends, seek bullish signals (e.g. hammer, bullishengulfing). In sideways markets, dojis and long-wick candles suggestuncertainty—it's often best to wait for a clear signal.

Focuson key levels. Patterns forming near major support or resistancelevels (local highs/lows or historical pivots) are more likely to play outsuccessfully.

Analysecandle size and shape. Large candles with solid bodies suggest strongmomentum. Small-bodied candles with long wicks (doji) indicate indecision anduncertainty. Weakening impulse and smaller candles often precede reversalpatterns like hammers or engulfing formations.

Backtest with historical data.Studyinghistorical price action helps reinforce your understanding of patterns. Forinstance, the 1D BTC/USD chart shows that the trend turned upward after theBullish Engulfing pattern was formed at the support of $40,779. Then, the priceapproached the resistance at $64,933 and after forming a Bearish Engulfingcandle stick pattern, the asset failed to continue the uptrend, and its pricesharply declined towards the $40,779 support and then down to $35,387.

‘Relying on single candlestick patternsis risky, as they fail to showcase the full picture—yet when analysed incontext, they can pinpoint early signals of potentially promising assets.'Trading decisions should always be confirmed with additional technicalindicators. Combining candlestick analysis with technical tools can increasethe accuracy of your forecasts' — says Kar Yong Ang, financial marketanalyst at Octa broker

Conclusion

Graphicalanalysis helps traders identify promising assets by interpreting visual pricepatterns. However, no approach guarantees accuracy. To minimise risk, use aholistic strategy: study candlestick formations alongside key levels andtrends, combine them with indicators and volume data and always consider thefundamental context. Macro events, trading volume, liquidity, marketsentiment—all of these factors shape the price trajectory of a cryptocurrency.The more data you evaluate, the higher the chances of making a well-informeddecision and avoiding costly mistakes.

Disclaimer:CFD trading involves risk. This content is for educational purposes only andnot investment advice. Past performance does not guarantee future results.Trade responsibly.

Octais an international broker that has been providing online trading servicesworldwide since 2011. It offers commission-free access to financial markets andvarious services used by clients from 180 countries who have opened more than52 million trading accounts. To help its clients reach their investment goals,Octa offers free educational webinars, articles, and analytical tools.

The company is involved in acomprehensive network of charitable and humanitarian initiatives, including theimprovement of educational infrastructure and short-notice relief projectssupporting local communities.

Since its foundation, Octa has wonmore than 100 awards, including the 'Most Reliable Broker Global 2024' awardfrom Global Forex Awards and the 'Best Mobile Trading Platform 2024' award fromGlobal Brand Magazine.