The descending triangle pattern is a bearish chart formation used in technical analysis to identify potential downward price movements.

 chart formations that provide valuable insights into future price movements. There are three basic triangle consolidation patterns: the 

 and descending triangle. Traders pay close attention to descending triangles, as they often precede significant price breakdowns, presenting opportunities for profitable short trades.

A descending triangle is a bearish trend continuation pattern primarily sought in downtrends. This pattern is formed during consolidation, when the price of a cryptocurrency creates a series of lower highs in an upper descending trend line, while a horizontal support level acts as a floor, creating a triangular shape. 

Lower highs represent sellers becoming more aggressive over time, as price is being met with more aggressive selling each time it rises, while support remains relatively constant during the pattern’s formation. At least four points are needed to draw a descending triangle: two for the top trend line and two for the bottom sideways trend line.

Traders look for a break below the support level as a signal to enter a short position, since this indicates that bears have taken control of the market and are likely to push prices lower.

Is a Descending Triangle Pattern Bullish or Bearish?

A descending triangle pattern is inherently bearish, as it signifies sellers becoming more aggressive than buyers during its formation, evidenced by the descending trend line. The lower boundary line of the triangle acts as a crucial support level, and a breakdown occurs when the price drops below this level. When the price eventually breaks out of the pattern, it’s propelled further downward. A decisive close below the lower boundary is necessary in order to validate the breakdown.

It’s worth noting that while the descending triangle pattern predominantly signifies a continuation of a bearish trend, there are instances when it indicates a bearish reversal within an uptrend, albeit less commonly observed. Nonetheless, this pattern's primary purpose remains identifying potential continuation patterns.

How to Spot a Descending Triangle Chart Pattern

First, spot a downtrend. Then, look at the consolidation pattern within the trend to see if it matches the shape of the descending triangle chart pattern. Drawing trend lines can help in confirming the pattern's shape and structure. Make sure to establish a horizontal support level that accurately represents the lower boundary of the triangle.

The BTCUSD chart below illustrates a descending triangle pattern emerging following a drop off the highs. It’s an excellent example of a clear, decisive breakdown. The price has dropped quickly upon breaching the support level. Then, it continues lower before pulling back to test resistance near the lows of the triangle. Traders looking to profit from falling prices often seek out descending triangle patterns, due to their characteristic sharp and distinct downward movement triggered by specific events, accompanied by an increase in downward momentum.

Let’s plan a trade based on a descending triangle chart pattern and break it down by its component parts. A 3-hour chart of 

 is used in this example. Note that while traders often combine multiple tools and strategies when looking for confirmation of a setup, this example only considers the triangle formation.

: Look for continuation of the developing downtrend

: Place above top trend line resistance at $47,300

: Derived by measuring the height of the triangle and projecting that distance down from the breakdown level [$45,650 − $2,798 (height) = $42,852 target]

Note that false breakouts can and do happen. In fact, some of the most rapid price movements come from false breakouts. Therefore, traders should incorporate strategies that account for false breakouts into their trading plans to mitigate risk and capitalize on market opportunities.

Advantages and Limitations of a Descending Triangle

Some advantages and limitations of using the descending triangle pattern are listed in the following table. A few things can be done to mitigate the impact of limitations.

The more technical analysis evidence supporting the descending triangle setup, the better chance it will work out as anticipated. Therefore, one way to lower the impact of limitations is to have additional supporting evidence for a bearish trade following a breakdown from a descending triangle.

Some ways to mitigate limitations include the following.

The characteristics of a developing downtrend that occurs before a descending triangle pattern often provide hints about its strength and speed. We can assess the trend before the consolidation phase's relative strength. The stronger the trend preceding consolidation, the more likely that trend will take off once the price breaks down below the triangle’s support level.

 can be used to help confirm resistance near the top of the descending triangle or support near the low of the pattern.

 level coincides with or is close to the support level of the triangle, it becomes easier to identify support levels because two separate analyses are pointing toward the same price level.

There are significant differences between a descending triangle and a 

. The descending triangle is bearish, and designated as a trend continuation pattern, while the falling wedge is bullish, and can serve as either a continuation or reversal pattern. 

The falling wedge pattern is characterized by two converging trend lines that slope downward. Therefore, it represents a period of consolidation wherein prices generally decline during its formation. An indication of a bullish breakout occurs when the price rises above the upper trend line, with confirmation on a daily close above that line.

The descending triangle and ascending triangle indicate two contrasting outlooks. The ascending triangle is bullish, and searched for in uptrends to catch the continuation of a nascent upward trend. On the other hand, the descending triangle is bearish, and is used to enter developing downtrends. 

An ascending triangle consists of a horizontal resistance level at the top of the pattern with an uptrend line rising on the lower boundary. The descending triangle, however, comprises a horizontal support level across the bottom of the pattern with a downtrend line across the top of the formation.

The descending triangle pattern is a popular technical analysis chart formation that offers valuable insights for cryptocurrency traders. By identifying a consolidation pattern with a consistent support level and a downward-sloping top trend line, traders can anticipate bearish price movements in order to take advantage of declining trends. 

When used together with other technical indicators and analysis, the descending triangle pattern can be a highly effective tool in a trader's toolkit.

Intermediate

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Descending Triangle Pattern: What It Is & How to Use It for Crypto Trading

Candlestick patterns can determine the success or failure in trades in crypto trading. Master these patterns & seize the chance for profits!

 proposes various trading indicators and tools to help determine trends and anticipate reversals. Besides 

, another great approach to analyzing price action is the 

As you may know, there are several ways to display the historical price of an asset, be it a forex pair, company share or 

. The three most popular chart types are the line chart, bar chart and candlestick chart. Most traders prefer using the candlestick chart, since it can provide a number of patterns that anticipate trend reversals or continuations with a certain degree of accuracy.

A candlestick pattern is a movement in an asset’s price shown graphically on a candlestick chart and used to review or anticipate a specific market behavior. Over time, traders observed that price actions had moved in similar ways when specific patterns preceded them on the candlestick chart. So they isolated these patterns, organizing them into different categories to be used as technical analysis tools. But what’s a candlestick all about?

A candlestick chart is a method of displaying the historical price movement of an asset over time. Each candlestick represents a certain period, depending on the time frame selected by the trader. For example, if you set the 1D chart, each candlestick stands for one day. 

Researchers agree that a Japanese rice trader was the first to 

, and the abstraction of candlesticks subsequently reached greater use in the Western world with Steve Nison’s 1991 book entitled 

Here are several vital components that make price analysis intuitive to comprehending the candlestick’s purpose.

The candle body represents the open and close price of an asset. The open or close points’ position depends on whether the candlestick, and hence the price, is bullish or bearish in a given period. In a bullish market, the close will be above the open, and vice versa for a bearish market.

Each candlestick generally has two so-called shadows, or wicks, though this is not generally a rule. The shadows represent the high and low of a price for a given period. Thus, the upper shadow stands for the peak, and the lower shadow shows the lowest point touched by the price. Sometimes only one shadow might be visible, which happens when the other shadow coincides with the open or close and is on the same horizontal line as that of the body.

The color of the body shows the direction of price movement. Usually, a green (or white) body suggests a price increase, while a red (or black) body points to a price decline. You’ll likely see green and red bodies on most platforms. Consequently, if the body is green, its upper limit will indicate the close price.

The candlestick chart is by far the most comprehensive graphic style for displaying the price of an asset. Cryptocurrency traders borrowed this type of chart from stock and forex trading. Unlike the line chart, which shows only the close price, the candlestick chart provides a lot of information about the historical price thanks to its structure (discussed above).

Candlesticks form chronologically one after another, and may help you see the general trend as well as resistance and support lines, even without technical indicators. In addition, they can display certain patterns that act as buy or sell signals. The use of the candlestick chart is especially relevant to cryptocurrencies, which are highly volatile and require detailed technical analysis.

While there are plenty of candlestick patterns, we’ll list the most popular and reliable ones, starting with bullish patterns, which show up after a downtrend and anticipate an upward reversal. Cryptocurrency traders usually open long positions when these patterns appear.

The hammer candlestick consists of a short body with a much longer lower shadow. It’s called a hammer pattern because the candlestick resembles the shape of an upright hammer. As a rule, you’ll find the hammer at the bottom of a downtrend. This pattern indicates that bulls have resisted the selling pressure during a given period, and have pushed the price back up. While there may be hammer patterns with either green or red candles, the former points to a stronger uptrend than red hammers.

 is similar to the standard hammer pattern, but it has a much longer upper shadow, while the lower wick is very short. This pattern suggests buying pressure, followed by bears’ failed attempts to drag the price down. As a result, buyers come back with even stronger pression, pushing prices higher.

 is made up of two candlesticks. The first candle should be a short red body, engulfed by a green candle, which has a larger body. While the second candle opens lower than the previous red one, the buying pressure increases, leading to a reversal of the downtrend.

Another two-candlestick pattern is the piercing line, which may show up at the bottom of a downtrend at the support level, or during a pullback with the anticipation of a bullish movement. The pattern consists of a long red candle that’s followed by a long green candle. The critical aspect of this pattern is that there’s a significant gap between the red candle’s closing price and the green candle’s open price. The close should also cover at least half of the length of the previous day's red candlestick body. The fact that the green candle closes much higher than the open points to buying pressure.

is more complex because it comprises three candlesticks: a long red candle, followed by a short-bodied candle and a long green one. The morning star pattern suggests that the first period’s selling pressure is fading, and a 

Another three-stick candle is the three white soldiers. It’s made up of three long green candles in a row, generally with very short shadows. The primary condition is that the three consecutive greens have to open and close higher than the previous period. This pattern is regarded as a strong bullish signal that shows up after a downtrend.

Next, we’ll discuss a batch of bearish patterns that anticipate an uptrend reversal and usually come at resistance zones. These patterns generally prompt traders to either close their longs or open short positions.

 is formed by a green or red candlestick with a short body and a long lower shadow. It typically appears at the end of an uptrend and suggests a considerable sell-off is coming, but bulls could temporarily push prices higher, after which they’ll lose control.

The shooting star is the opposite of an inverted hammer. It consists of a red candle with a short body and a long upper shadow. Generally, the market will gap a bit higher on the candlestick opening and will surge to a local peak before closing just below the open. The body can sometimes be almost nonexistent.

The bearish engulfing pattern is the inverted version of a bullish engulfing, so the first candle has a small green body and is completely covered by the next long red candle. This pattern comes at the peak of an uptrend and suggests a reversal. The lower the second candle continues, the more momentum the bearish move will have.

The evening star represents a specific three-stick pattern. It consists of a short-bodied candle that comes between a long green candle and a large red candle that closes below the midpoint of the first green candle. This pattern usually appears at the top of an uptrend and signals a potential reversal.

The three black crows pattern comprises three long straight reds with short or almost nonexistent shadows. Every new candle opens at relatively the same price as the previous one, but goes much lower with every close. It’s regarded as a strong bearish signal.

 pattern is like the piercing line, but is its inverse. It anticipates a bearish reversal, and comprises two candlesticks — a red candle that opens above the previous green body and closes below its midpoint. This pattern suggests that bears have taken control of the market, pushing prices lower. If the shadows of the candles are short, then traders can expect a strong downtrend.

Besides the bullish and bearish patterns that anticipate trend reversals, there are also candlestick patterns that are either neutral or point to the continuation of a trend, be it bullish or bearish. 

The doji candlestick has an exceptionally small body and a long shadow. While it’s generally perceived as a trend continuation pattern, traders should be careful because it might also signal a reversal. To avoid confusion, open a position a few candles after a doji when the situation becomes clear.

Like doji, the spinning top is a candlestick with a short body. However, the two shadows are of equivalent length with the body in the middle. This pattern also indicates indecision, and may suggest a period of rest or consolidation after a significant rally or price decline.

Falling three methods is a pattern consisting of five candles in a specific arrangement, indicating the continuation of a downtrend. It comprises a long red body, followed by three small consecutive green bodies and another long red body. The green candles’ bodies are all covered by the bearish reds, demonstrating that bulls don’t have enough power to reverse the downtrend.

The rising three methods pattern is the opposite of the previous one, and can be observed during uptrends. The pattern comprises a long green candle, followed by three small red candles and then another long green.

Candlestick charts are easy to read with some practice, as they contain plenty of information related to historical price data. Besides the candlestick patterns that we’ve discussed above, there are chart patterns formed by multiple candlesticks organized in a certain way. Some examples are 

 by visually examining the general trend. These visuals usually provide sufficient insight to help traders identify specific patterns in the candlesticks and their formations, especially at resistance and support levels.

Here are a few terms based on candlestick charts to revisit whenever you trade:

Candlestick patterns give cryptocurrency traders more clarity about potential moves expected to come. In other words, they act as signals, helping traders decide when to open long or short positions and when to enter or exit the market. For example, 

Candlestick charts and their patterns help traders determine trends, understand 

 and realize the current market sentiment in real time.

How to Quickly Memorize Candlestick Patterns

To quickly spot candlestick patterns, a trader needs to become familiar with them by watching charts and trading with small amounts of funds. A great way to start is by highlighting an individual candle formation and dissecting the candle for two-stick patterns.

It’s best to start with a pattern and learn it until you feel confident that you can easily spot it while the price is fluctuating.

Candlestick patterns should be in the arsenal of every cryptocurrency trader, including crypto day traders, because they demonstrate the same efficiency as in the forex or stock markets.

16 Must-Know Candlestick Patterns Featured Image

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16 Must-Know Candlestick Patterns for a Successful Trade

A symmetrical triangle is a neutral pattern with two converging trend lines on the border of the pattern. Traders use it to identify entry and exit points.  

Triangles are one of the most popular chart patterns because they're easy to spot, have a high success rate and can be traded in different ways. 

 are formed by two converging trend lines that create three sides of a triangle. 

Three basic triangle patterns occur on a price chart: 

 (bullish), descending triangle (bearish) and symmetrical triangle (continuation or reversal). These represent a period of indecision by traders, and are used to identify a breakout that may lead to a pickup in momentum and a continuation of the preceding direction. 

The different types of triangles can be distinguished by their slope or angle (the upward or downward direction in which they move). Furthermore, a symmetrical triangle typically forms over a longer period (greater than three weeks) than the other triangles (up to three weeks).

In this article, we’ll discuss the symmetrical triangle pattern and compare it with the ascending and descending triangle patterns. Additionally, we’ll provide insights for successfully trading the symmetrical triangle pattern.

What Is a Symmetrical Triangle Chart Pattern?

A symmetrical triangle has two converging trend lines on the border of the pattern. The triangle is formed when a declining line across the top meets a rising line along the bottom. A minimum of four points are required to form a symmetrical triangle — two on the top line and two on the bottom line.

Often referred to as a coiled spring, the symmetrical triangle experiences a narrowing price range as it approaches the apex, causing traders to lose interest. This price compression can then lead to explosive moves as traders' interest returns.

Although the symmetrical triangle is classified as a neutral pattern, it’s bullish in an uptrend and bearish in a downtrend, as it’s expected that the original trend will continue. The pattern is confirmed once there’s a breakout. Until then, the pattern is only considered a potential symmetrical triangle.

How to Spot the Symmetrical Triangle Chart Pattern

Bearish and Bullish Symmetrical Triangle Continuation Patterns

The following 4-hour chart of ADA/USD shows a bearish symmetrical triangle. It occurs within a downtrend, and triggers a continuation as it breaks down out of the pattern.

Next is an example of a bullish symmetrical triangle in a 2-hour chart of XRP/USD. The consolidation pattern occurs following a clear uptrend, and triggers an outside breakout on a move above the top line.

Primarily, symmetrical triangles are a continuation pattern, but they can also signal reversals. 

Below, BTC/USD is in a clear downtrend before consolidating into a symmetrical triangle. Rather than triggering a breakdown and continuing the downtrend, the pair breaks up instead, signaling a bullish reversal.

The following 4-hour chart depicts a bearish symmetrical triangle strategy for ADA/USD. The initial direction is downward, indicating an expected continuing downtrend. Enter at $0.3672, slightly below the lower trend line at $0.3682 where the price has broken down. An initial protective stop is placed above the top trend line at $0.3745, as a rally above that line means the outlook is no longer bearish. The measuring objective is around $0.0359 ($0.3888 – $0.3529). That value is then subtracted from the breakdown price of 0.$3682 to arrive at an initial minimum target of $0.3323.

Advantages and Limitations of the Symmetrical Triangle Pattern

The symmetrical triangle pattern can be useful, but it has some limitations for traders to be aware of. Using the pattern in the proper context — and combining it with other 

 tools — is essential in order to make more informed trading decisions.

 What happens following a breakout can have a lot to do with the quality of the trend prior to the triangle’s formation. A clear, strong trend with improving volume and sustained momentum, either upward or downward, enhances the likelihood that the trend will continue following a breakout. 

 can assist in determining the trend's quality and in drawing accurate 

 Using multiple time frame analysis will help. If the monthly, weekly and daily charts are all heading in the same direction, and the daily is your primary time frame, the chance of the price continuing as anticipated is greater. Higher time-frame charts inform lower time frames.

 Improve your ability to identify symmetrical triangle patterns and discern variations with constant practice. Study price history on charts. Draw the pattern wherever it’s found, and study what happened both before and after.

 Only use symmetrical triangle patterns in clearly trending markets. No matter how expert a trader is, choppy markets are challenging. Avoid them in order to thwart heavy losses.

In conclusion, the symmetrical triangle pattern is a popular technical analysis tool that crypto traders can use to estimate future price movements. The pattern provides clear entry and exit points, and can help traders establish a favorable position. However, the pattern also has limitations, including false breakouts and subjectivity, and it may not work well in all market conditions. 

As with any technical analysis tool, using the symmetrical triangle pattern in conjunction with other indicators is vital. By appropriately using the symmetrical triangle pattern, you can make informed trading decisions — and profit in volatile crypto markets.

Candlestick Patterns Professional Traders Use

 A curated list of candlestick patterns most frequently used by traders

 Learn the basics of candlestick patterns

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Symmetrical Triangle Pattern: What It Is & How to Use It for Crypto Trading

The pennant chart pattern is a trend continuation pattern that forms in the middle of a price move following a sharp advance of trend. It can occur in both bullish and bearish markets. 

The pennant chart pattern is a consolidation pattern that falls under the trend continuation category. It is formed over a shorter duration than some chart formations and is typically seen in more aggressive trading environments. Typically, the pennant forms around the halfway point of a developing trend. A breakout of the pennant provides an entry signal in the direction of the trend.

In this article, we will review the identification and use of the pennant, how to trade the price formation and discuss the pennant relative to other common 

The pennant chart pattern is a trend continuation pattern that occurs in both bullish and bearish markets. 

It is formed following a sharp advance of trend, either up or down, as the price starts to trade in a tightening range that takes the form of a small symmetrical triangle. Frequently, it occurs in the middle of a price move which identifies the beginning of the second half of a trend. 

It is a fairly common pattern and can occur relatively frequently in all time frames, but is seen more often in short-term timeframes. Pennants are similar to flag patterns as far as they each have a sharp rally creating a flagpole before the consolidation phase. Two trend lines identify the boundary of the pennant, with an upper trend line across the top angled downward and a lower trend line across the bottom angled upward so that they will cross at the apex of the triangle and point horizontally.

For a proper pennant to occur, it needs to be preceded by a sharp and steep rally (

) or a steep and sharp decline in price (

).You should see signs of aggressive buying (bullish pennant) or selling (bearish pennant) with strong relative volume prior to the pennant being formed.

A breakout will typically occur in the direction of the trend before the pennant formation. The aggressiveness of the prior trend is an important clue as to what to expect once the price moves out of the formation. More aggressive trends that occur before the pennant forms tend to have more powerful subsequent moves.

A proper pennant usually consolidates for a couple of weeks and up to three weeks maximum. If it goes longer than that it is likely evolving into a larger pattern, such as a symmetrical triangle, or it could lead to a failure. A failure is when the price moves in the opposite direction from what is anticipated. 

During the formation of the pennant, the volume should decline. However, upon a breakout, the volume should spike reflecting enthusiastic buyers or sellers and the chance for a sustained move up or down. The extended breakout period is why traders are so fond of using this pattern.

The pennant pattern is used as a trend continuation pattern whereas the wedge pattern can be both a trend continuation and a reversal pattern. Also, there is no requirement for a flagpole with the wedge. A preceding trend is all that is needed.

Pennant Pattern vs. Symmetrical Triangle Pattern

Both the pennant and symmetrical triangle patterns are trend continuation patterns and are similar in that they each take the shape of a symmetrical triangle. The primary difference is that the size of the pennant triangle is smaller than the symmetrical triangle. Also, the pennant requires a sharp steep trend preceding the consolidation whereas the symmetrical triangle just needs to be in a trend of some sort.

Pennants and flags are each considered to be trend continuation patterns and they include a consolidation phase. The primary difference is the shape of the consolidation following a flagpole as noted below.

The pennant is traded on a breakout in the direction of the trend. However, there are several entry strategies you can take to ride the trend. 

The following example looks at a classic entry on breakout for a bearish pennant. The flagpole is measured from where it broke down at $6.48 (1) to the bottom of the pennant at $5.68, for a drop of $0.80. We then subtract $0.80 from the breakdown trigger of $5.98 (2) to arrive at a measuring objective of $5.18 (3). You then place your initial stop just above the resistance trendline to cut losses. For bullish pennants, you should place your stop beneath the support trendline.

John Murphy, author of the classic technical analysis book 

Technical Analysis of the Financial Markets

 writes that the pennant pattern is one of the more reliable trend continuation patterns in 

. Yet, a study by Thomas N. Bulkowski in his book 

found it less reliable than some other patterns.

Bulkowski tested the performance of over 1,600 pennant patterns identified with particular parameters for consistency. He found that the breakout failure rate for both up and down moves was 54% for each direction with the average move following a trigger around 6.5% (initial move). Meanwhile, the success rate was 35% for upside moves and 32% for downside moves. Of course, the above analysis reiterates the reason why active 

 is critical for trading success as patterns often fail.

Keep in mind the pennant results may be a little low as Bulkowski notes that tests for the pennant only looked at short-term price swings, not the change from the breakout to the eventual high or low, as he did for other pattern tests. With this, it is assumed that the results could improve if larger moves were taken into account. 

Frequently, traders will use pennants along with other forms of 

 to assist their decision-making process and improve their chances of success. 

A bullish pennant occurs within an uptrend and starts with a sharp, steep rally called the flagpole. It is followed by a short period of consolidation that takes the form of a pennant or small symmetrical triangle. The bullish pennant is formed as price rests before it continues its rally to higher prices.

 is found in a downtrend and begins with a sharp, steep decline that forms the flagpole. It is followed by a short period of consolidation to form a pennant. The bearish pennant forms as price rests before it returns to its decline to lower prices. Once the price breaks below the lower boundary line, a bearish short-sell signal is triggered.

Despite their differences, the same approach can be applied to both bullish and bearish pennant patterns when trading. The only difference is that you trade with a 

 for the bullish pennant and enter with a short trade for the bearish pennant.

The pennant pattern in technical analysis is considered to be a trend continuation pattern as it is expected that the breakout will occur in the direction of the trend. It is one of the shorter time-frame patterns as it completes within three weeks or less. Meaning, a breakout (or pattern failure) should occur before the three weeks are over. The key to success with the pennant is the quality of the trend leading up to it. You should look for a sharp and steep run before the consolidation occurs as the aggressive trading that occurs before the pennant forms is likely to continue after the breakout.

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Pennant Chart Pattern: What Is It & How to Use It For Crypto Trading?

Bullish engulfing candle signal traders an upcoming reversal in price trends. Learn how to trade strategically with these signals today.

The bullish engulfing candle is a Japanese 

 that can help traders analyze the market sentiment and identify a new bull trend when it is kicking off. Meanwhile, a bearish engulfing pattern indicates a confirmation that sellers are shorting, hence signaling a potential trend reversal. Once you are familiar with the bullish and bearish engulfing pattern, it is easy to spot, providing traders with good risk-to-reward ratios.

As you read this article, we will help you understand what a bullish engulfing candle is, when and how this pattern appears, and how to trade with it. We’ll be including some tips and tricks to apply the bullish engulfing pattern to crypto trading. 

The bullish engulfing candlestick pattern refers to a bullish trend reversal when preceded by a cluster of red or black candlesticks showing a bearish trend. It is useful for signaling the start of a new uptrend, as the bullish green or white candle body completely surrounds or engulfs the previous day’s red or black candlestick.

When bullish engulfing occurs, it means more buyers entered the market, pushing the price upward, hence resulting in a trend reversal. This candle usually occurs at the bottom of a downtrend.

Characteristics of the Candlestick Formation

The bullish engulfing candlestick pattern is a two-candle formation (candles A & B below).

 (A) must be a down candle, colored red on most charting packages (or black if using a white/black color scheme). The size of the red candle can be large or small. The key to the pattern is the size of the second candle.

 (B) will need to engulf or overlap the first candle. Technically, this means the opening price for the second candle must be lower than the closing price of the first candle. However, in the crypto markets, there is no opening or closing of a trading period. You can transfer coins 24 hours a day, 7 days a week.

Consequently, the second candle simply needs to overtake and engulf the first candle.

When Does a Bullish Engulfing Pattern Appear?

The bullish engulfing candlestick pattern is a bullish reversal pattern found at the end of a downtrend. When visible, this bullish pattern signals that the previous downtrend has ended and a potential reversal trend (a new uptrend) is beginning.

First, there needs to be a correction of an upward movement. From January 2021 to February 2021, Bitcoin’s uptrend resulted in a 100% price increase. Bitcoin then experienced a partial correction, trending lower to February 28, 2021.

Second, there needs to be a kickoff to the resumption of the old uptrend. On February 28, 2021, Bitcoin rocketed higher after the partial retracement. The bullish candle engulfed the previous candle, signaling a bullish reversal.

After Bitcoin carved the bullish engulfing pattern, the market extended higher by another 48%.

How to Trade Crypto with a Bullish Engulfing Pattern

A bullish engulfing pattern technically requires the second candle to open lower and reverse high enough to fully engulf the first candle. However, since the crypto market is operating 24/7, therefore, it is extremely rare to have a gap lower at the same time a new candle appears. 

The chart above, involving Bitcoin, is a great example of what to look for in a bullish engulfing pattern.

Notice how the wick on the right (green) candle ends below the wick of the left (red) candle. This signals the market briefly traded lower before accelerating higher. This brief penetration lower, though not required, strengthens the signal for the engulfing pattern.

The engulfing pattern is confirmed as being completed when the second candle closes above the opening of the first candle. At that point, the trader can open a bullish position in the cryptocurrency with a 

 just below the swing low of the engulfing pattern.

Sometimes, the market will consolidate because prices have just rocketed higher. Conservative traders may wait for a breakout above the high of the right candle to occur and then enter long into the position. A break above the high would confirm a resumption of the uptrend. The significant risk would be set at the same area, just below the swing low.

Advantages of Trading the Engulfing Pattern

The bullish engulfing pattern is followed by many traders primarily for a couple of reasons. 

First, the pattern is very easy to identify. Engulfing is a two-candlestick pattern in which one of the candles produced is extremely large. As a result of the large candle, the pattern is easy to spot on a chart, once you know what to look for.

Secondly, after the engulfing pattern is confirmed as being completed, you can receive an attractive risk-to-reward ratio into the position. 

The stop loss and risk level for trading can be placed at the swing low of the engulfing pattern. This makes it relatively easy for traders to target at least twice the distance of their stop loss, creating a 1:2 risk-to-reward ratio. 

Th risk-to-reward ratios are important for managing trader profitability. A 1:2 risk-to-reward ratio means that even if you win on only 50% of your trades, you will still be profitable.

Bullish Engulfing Pattern Trading Tips for Crypto

As you can see, there are several advantages to trading the bullish engulfing candle pattern. However, by itself, the pattern is limited to its effectiveness. Just as multiple strands of a cord make the cord stronger, other tools can be used to complement this bullish engulfing pattern — making the engulfing pattern stronger.

Below, we’ll share three tools to help strengthen the signals.

Tip #1: Horizontal Support for the Engulfing Candlestick

If the crypto market is in a strong uptrend, then we will see a series of higher highs and higher lows on the price chart.

Each new higher high is breaking above an old high. After successfully breaking above the old high, prices tend to consolidate and correct. Within the crypto market, it is common for prices to retrace back to the old broken high.

In the example above, Bitcoin had gained 224% and needed to consolidate. It corrected about 20% and landed near $10,120, which was a previous high price back in May and June of 2020. A bullish engulfing pattern emerged, which was the start of a 500% uptrend.

If a bullish engulfing candlestick pattern appears near an old broken high, then we have a strong signal that the bullish trend is ready to resume.

Tip #2: Trend Line Support Near the Engulfing Pattern

It is quite common for the crypto market to scream higher without taking much of a break. Therefore, the old highs and broken resistance may never come into play, yet the market continues its upward trend.

Another tool to help you strengthen your engulfing signals is a bullish support trend line.

The bullish engulfing candlestick pattern provides its best signals after the market has consolidated lower. If this consolidation is terminating and reversing at a bullish trend line with a bullish engulfing candle present, then the market is giving you a strong bullish signal.

In the image above, we see LINK trying to recover from the March 2020 pandemic sell-off. As the uptrend began to take root, LINK carved a pattern of gaining, then consolidating.

An uptrend line could be created with the ending points of the corrections. Sure enough, LINK popped higher at the trend line, with a bullish engulfing pattern sending the altcoin up 25% in a couple of days — and by nearly 8x over the next 4 months.

Tip #3: Moving Average as a Bullish Engulfing Pattern Indicator

Many traders and large institutions keep a close eye on an indicator called the 

, as it provides technical support to the market. 

If the crypto price chart corrects down to the moving average and the engulfing pattern carves, this is a strong signal the trend may reverse higher.

In the image above, we are looking at Bitcoin on a 4-hour price chart. Bitcoin was correcting its previous uptrend and tagged the 200-period simple moving average. At that point, a bullish engulfing pattern appeared to kick off another trend of 250%.

The simplicity of spotting the bullish engulfing candlestick pattern makes it a popular choice among traders. The engulfing pattern does offer traders an attractive risk-to-reward ratio when using it to enter into crypto trades. 

To receive the biggest benefit of trading the pattern, we suggest coupling the pattern with other charting tools for technical analysis support. For example, a market correcting down to horizontal support, trend line support, or a simple moving average followed by a bullish engulfing pattern is a strong signal the trend may continue higher.

 – A curated list of candlestick patterns most frequently used by traders

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