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Most Complex Candlestick Chart Patterns Explained

Yayın RAIN EDITORIAL TEAM - Jun 20, 7:00 PM

Crypto candlestick charts’ technical analysis is an immensely popular way of trading among more intermediate and professional users thanks to its relatively reliable prediction capabilities and consistency. Many patterns in technical analysis are somewhat easy to spot and apply, but others are hard to locate and apply correctly. Today, we’ll focus on the latter group of complex candlestick chart patterns, and try to explain the toughest ones of them all, be it bearish, or bullish formations.

About Crypto Candlestick Chart Analysis 

Technical chart analysis is a popular way of predicting the market’s next moves. However, bear in mind that no pattern, formation, or analysis can be fully accurate and reliable all the time, and that there are still certain risks involved while trading any asset, cryptocurrencies included. 

In this article, we’ll double down on the more complex candlestick chart patterns and try to understand them one by one. Note that just because these patterns are more complex they are not necessarily more efficient or consistent. In fact, most of the time, traders will do just as well with a simple, one-candle formation spotted at the right moment. With that in mind, let’s see the most complex crypto candlestick chart patterns.

Head And Shoulders

As a warm-up, let’s begin by the Head and Shoulders pattern, which is categorized as a reversal pattern. This means that if the trend was bullish before, it is expected to turn bearish after, and vice-versa. It is not the hardest one to spot and remember among the other elements of this list, as its name quite accurately depicts the formation itself. That is, the price action appears to form a peak and a dip right after, followed by a higher high, a similar dip, another high that is around the same as the first, and finally a lower low. Overall, the shape looks like three mountain peaks with the middle one being the tallest, and the side ones being around equal height. Arguably, this could also resemble a head (middle peak) and shoulders (two side peaks), hence the pattern’s name. The hard aspect of Head and Shoulders is that it normally happens on a high time frame, like 1 year, which a lot of traders rarely look at, thus they miss it.

Bullish Engulfing 

A Bullish Engulfing is a two-candle pattern, so how can it be complex? The answer lies in the details. This pattern is extremely easy to read incorrectly, and all elements need to be close to perfectly aligned for it to be actually called a Bullish Engulfing. The bottom line is, a Bullish Engulfing requires a small-body red candle with medium-length, equally long wicks on either end followed by a green candle whose body is covering, or engulfing, the red candle from wick to wick entirely.

This part is crucial, as this indicates that sellers of the red candle actually managed to realize their red candle’s down wick and open the next candle at that level. Despite that, buyers managed to not only claim the high ground, but also closed the price at the level they only managed to reach temporarily before. All the above indicates buyer dominance, which is why this is a bullish pattern.

Bearish Pennant

Just like the Head and Shoulders pattern, the Bearish Pennant is a higher time frame formation that can predict a significant continuation of a bearish trend. Spotting the Bearish Pennant is quite difficult, as one must spot a diagonal bearish trend line which is interrupted by a seeming reverse that features relatively small ups and downs on repeat.

The tough part is noticing that these insignificant ups and downs become ever so smaller, with higher highs, higher lows, and the price increasing at the same, slow pace in the meantime. The trend lines connecting the top and bottom points of this action should form a flag-looking shape, at the tip of which the continued significant drop is expected. 

Ending Remarks

When it comes to candlestick chart patterns, complex does not mean complicated by shape, size, or name. Instead, what it refers to is numerous aspects that have to be observed at the same time to confirm a pattern and enable trading accordingly. All of this article’s three patterns require more elements to be monitored at the same time, be it a macro view, or the very details of a formation, making them a few of the most complex candlestick chart patterns out there.

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