8 High-Profit Candlestick Patterns Every Trader Should Know
Candlesticks are among the most commonly used technical analysis indicators in crypto trading. Candlesticks are a crucial tool because they form patterns that represent investor sentiment surrounding the price action of a specific crypto asset being traded as well as how this is to likely to affect the final pricing.
As such, they provide crypto traders with exciting insights into the changes in the market and help them to gauge the most likely direction and strength of the coming trend.
There are many candlestick patterns you will come across in your crypto trading career. Today, we will explore eight key bearish and bullish high-profit candlestick patterns that once you understand, can be your sure bet to having a profitable trading experience.
Let’s delve in.
Bearish Candlestick Chart Patterns
1. Bearish Engulfing Pattern
The bearish engulfing pattern predicts the lowering of prices. It is comprised of a green candle (up) followed by a red (down) one that engulfs the smaller green candle.
This candlestick pattern is important because it shows that the buyers have overtaken the sellers and that they have managed to keep the price down. The bearish engulfing pattern mostly forms at the end of an upward price move.
2. Evening Star Pattern
The evening star pattern is a bearish reversal candlestick that forms at the top of an uptrend. The evening star candlestick pattern is made up of three candles. Here, a short candlestick is sandwiched between a large bullish candle and a long bearish candle.
The star is considered as the first sign of weakness. It shows that the buyers were not successful in pushing the price up to close higher than the close of the previous period.
The evening star candlestick is more reliable when the open of the third candlestick is below the real body of the star, and there is a gap between the star and the third (red) candlestick. This is quite a rare occurrence. The pattern is also considered more reliable when the middle candlestick has a practically non-existent lower shadow.
3. Shooting Star Pattern
The shooting star candlestick is made of a long upper shadow, a small real body, and a short or no lower shadow. This pattern typically appears after an uptrend.
The formation of a shooting star candlestick is an indication of a potential price top and reversal. This candlestick pattern is more reliable when it forms after three or more consecutive rising candles with higher highs.
4. Dark Cloud Cover Pattern
This pattern forms when a bearish candlestick opens above the close of the previous bullish candlestick, and then closes below the midpoint of the bullish candlestick. You will also notice that the dark cloud cover (green and red) candlesticks that have a long body and very short shadows that are practically non-existent.
The dark cloud cover pattern is only useful when it forms after an uptrend. This pattern is important because it shows a shift of the momentum from the upside to the downside. Traders use the close of the bearish candle to exit long positions. They will also look for a ‘confirmation’ to sell by waiting for the price to continue lower on the third candle.
Bullish Candlestick Chart Patterns
5. Bullish Engulfing Pattern
The bullish engulfing pattern is a reversal pattern made up of two candlesticks: a short bearish candle and a larger bullish candle. The bullish candlestick completely engulfs the body of the short bearish candlestick.
Prices open low on the second day, but they rally up during the period going way above the previous day’s high, resulting in a win for the buyers.
This bullish pattern is confirmed when the price rises above the high of the second engulfing candle. You should wait for this confirmation before entering a long position.
6. Morning Star Pattern
The morning star is the opposite of an evening star candlestick. It forms after a downward trend, and it signifies the beginning of an upward climb. Traders rely on other analytical tools to confirm that the morning star is indeed an indication of a reversal.
For instance, you can check whether the relative strength indicator (RSI) is showing that the cryptocurrency is oversold or whether the price action is headed towards a support zone.
7. Hammer Candlestick Pattern
A hammer occurs when a crypto asset trades lower than its opening then rallies within the period to close near the opening price.
The result of this pattern is a hammer-shaped candlestick whose lower shadow is at least twice as long as the body. The candlestick's body shows the difference between the open and the closing prices. The shadow represents the high and low prices for the period.
A hammer indicates that the cryptocurrency trading market is trying to develop a bottom. This pattern is more effective when it forms after three or more declining candles. However, it is not advisable to use a hammer in isolation. They are best combined with technical indicators and price and trend analysis to confirm candlestick patterns further.
8. Piercing Line Pattern
A piercing line candlestick pattern signals the end of a small or moderate downward trend. This pattern is formed when a bullish candle on the second day closes above the middle of the first candle in day one.
For a piercing line pattern to be valuable, the second candlestick must open lower than the close of the first candlestick. The candlestick must then close above the midpoint of the first candlestick.
The more the second candle covers the first candle, the more reliable the pattern is. Also, always wait for the pattern to be confirmed on the third day before making a decision.
These are some of the most valuable high-profit candlestick patterns you should look out for as a crypto trader. When combined with other technical indicators, e.g. Volume, Stochastic, RSI, and MACD, these patterns can turn out to be extremely useful.
As long as you can read and understand these patterns correctly, they will give you an excellent gauge of the sentiment in the market. They can also give you an edge in your trading by giving you a heads up on the likely direction of change when they appear at support or resistance levels.
About the author:
Jay Jackson is a blockchain enthusiast and a freelance writer at topcryptowriter.com. He works closely with brands (people, businesses and startups) in the crypto sphere. He currently writes Blog posts, Guides, Press releases, ICO reviews, eBooks & Whitepapers. You can find him on LinkedIn.
Disclaimer: The above references an opinion and is for informational purposes only. Do not take this as personalised financial or investment advice. The views expressed by the author do not necessarily represent the opinion of BitPrime.
Last updated: 08/08/2019