Crypto Trading Candlesticks: The 6 most Valuable Patterns YOU Need to Know!
What could be more critical in the world of a technical cryptocurrency trader than price charts? The crypto market price charts default to candlesticks, which come in handy in analysing traders perception in price movements. As such, they shape the opinion of trends, determine trade entry points, and much more.
In this article, we explore what you should know about crypto trading candlesticks and how you can take advantage of them to gain more opportunities for profits.
First, what are Crypto Trading Candlesticks?
Candlesticks are tools used to show the lowest and highest price and the opening and closing price of a cryptocurrency within a specific amount of time such as an hour, a day a week etc.
How do you Read Candlesticks?
A candlestick is made up of three parts: the body, the upper shadow, and the lower shadow. The body is either coloured red or green.
Every candlestick represents a segmented period. For example, a 10 minutes candle represents 10 minutes of trade data. Every candlestick has four data points: the high, low, open, and close.
The open data point is the first trade for the specific period, and the close is the very last trade for the period. These two points make up the body of the candle.
The high and the low show the highest and lowest priced trade respectively for that period. The high is represented by a vertical line that extends from the top of the body. This line is known as a wick, tail, or shadow. The low of the candlestick is the vertical line extending down from the body.
When the open is lower than the close, the body is coloured green. The colour green represents a net price gain. If, on the other hand, the open is higher than the close, there is a net decline in price and the candlestick is coloured red.
How do you use Candlesticks Correctly?
To use candlesticks correctly, you need to know their different types and patterns.
Although an untrained eye might judge all candlesticks equally, they are actually very different. Each candle displays a ton of valuable information that a trader can take advantage of.
Let us examine six different cryptocurrency candlestick patterns and how you can use them.
· Marubozu Candlestick
The Marubozu candlestick is very easy to spot. It is usually longer than the previous candlestick in length, and it has no shadows.
A Marubozu candlestick indicates that the market has been either strongly bullish or strongly bearish depending on whether the candle is red or green.
· Standard Candlestick
The standard candlestick is one of the most common candlesticks. Is has shadows on both ends of the candle. The shadows and the body are medium in size.
There is not much to be read from a single standard candlestick; but when a number of these candlesticks form in succession, they can give you a good idea of where the market is headed.
· The Hammer Candlestick
A hammer candlestick forms when the price of a crypto coin falls way below the price at which it opened, but it later shoots up to close near or above the opening price.
A hammer candlestick shows that a trend is reversing and that the price has found its bottom or top.
For a candlestick to be defined as a hammer, the lower shadow must be at least twice as long as the body.
· Spinning top
The spinning top candlestick is formed when there is a wide range of prices throughout a period, but the open and close prices remain close together.
This candlestick shows that the buyers and sellers are undecided, and there is likely to be a reversal.
· Shooting Star/Inverted Hammer Candlestick
This is basically an upside-down hammer candlestick. It signals a trend reversal.
· Doji Star Candlestick
A Doji Star is a candlestick that forms when a cryptocurrency opens and closes at the same price. It indicates that the buying and selling sides are undecided. It also shows that there is an equal amount of buying and selling, so the price does not change much.
Although this candlestick can indicate a reversal, it can also be a sign of consolidation or stability of prices before a trend continues.
When using an hour chart, a Doji candlestick is more likely to be an indication of a reversal. On the other hand, it is expected to signal consolidation on a chart representing a more extended period, such as a week.
How do you Read Candlestick Chart Patterns?
Each candlestick tells a story of the showdown between the buyers and sellers, bears and bulls, fear and greed and supply and demand. When reading candlestick patterns, it is vital to note that most require a confirmation based on the context of the preceding and proceeding candles.
It is not uncommon for inexperienced traders to trade on a single candle formation without considering the context. For instance, when a hammer candle falls on flat sideways candles, it not worth much, but if a hammer candle forms after three or more bearish candles, it is an indication of a near-term capitulation.
As such, it is essential to pay attention to the candle's story to fully understand the mechanics of candlesticks chart patterns. These patterns happen repetitively, but when the context is overlooked, the market will try to fake out traders just as often.
Candlesticks tend to represent mere emotion. It is, therefore, wise to use them together with other indicators to achieve the most favourable results.
Since the crypto markets chart candlesticks can be chained together to reveal an underlying pattern, they have become a powerful tool when interpreting price action history and forecasts. We hope this post helped you understand how to read and interpret various types of crypto trading candlesticks.
In the next article, we will delve deeper into some of the highly rewarding candlestick patterns every cryptocurrency trader should know. In the meantime, drop your questions and comments below.
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: 05/08/2019