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Bitcoin price closed the January monthly candle with the largest climb since the 2021 bull market ended. Considering the macro conditions and risk of recession, the market remains skeptical of further upside.

However, the monthly candle structure also closed with three extremely bullish Japanese candlestick patterns, which could suggest that a bullish stampede is on the way.

Bitcoin might be an asset unlike any other, but it is measured using the same price and time axis on charting software, using candlesticks, bar charts, and other chart styles. The use of Japanese candlesticks provides information on each session’s open, high, low, and close.

Highs and lows are represented by wicks, also called shadows. Open and closes make up the candle’s “real body.” Depending on how these candles form by themselves or within a larger pattern can tell a lot about what might happen next in the market.

The majority of Japanese candlestick patterns come in one, two, or three-candle structures, each with unique names to explain what’s going on during the pattern. Understanding what’s going on within the pattern provides a potential outcome based on probabilities.

The more these signal stack up and cluster together, the more powerful the underlying message the patterns are sending the market. It is for this exact reason why last night’s BTCUSD monthly close is worth paying attention to.

Bitcoin price 1-month charts didn’t just close with one powerful Japanese candlestick-based signal, but three.

The first is a three-candle pattern called a morning star. The morning star pattern is a potential reversal pattern, consisting of a large black candle down, a doji showing a pause and moment of indecision, and a large white candle that engulfs at least 50% of the black down candle. The more the white candle engulfs the black candle, the stronger the signal.  

The morning star in BTCUSD didn’t just engulf the black candle, it complete erased it and then some. Notably, the rally was able to wipe out the downside created by the FTX collapse – a bullish signal in its own right. The morning star tells a story that bears were in control, but selling became exhausted and bulls easily took charge. A confirmed morning star reversal can lead to up to three to five sessions of upside, or roughly three to five months given the timeframe.

The second signal was a bullish engulfing. As the least complex or exciting of the three signals, it still is commonly a reversal signal in the study of Japanese candlesticks.

In this scenario, the second white candle must fully engulf the prior black candle. Since the candle was a black doji, bulls had no trouble bursting out of the tight range.

Bullish engulfing aren’t as powerful as the other signals, either, but when combined with the rest of the patterns only adds momentum at bulls’ backs.

The BTCUSD monthly closed with a rare and powerful bullish signal called a Marubozu open. This type of candle is extremely powerful and shows utter dominance by buyers.

In a downtrend, it can be a reversal signal, or in an uptrend it shows increasing aggression from buyers and a strengthening trend.

Signals from Japanese candlestick patterns require added confirmation from technical indicators or chart patterns and trend lines. Technical indicators such as the Stochastic and MACD, and statistical tools like the Fisher Transform each suggest a potential reversal according to historical performance on the 1M timeframe.

For these signals to be valid, bulls must follow through over the next several months. Failure of several bullish signals would otherwise be devastating for the chances of a new uptrend. Time will tell if these early Japanese candlestick signals fully confirm.

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