In our previous blogs, we have tried to understand the basics of trading cryptocurrency, How to analyze cryptocurrency technically (technical analysis). Today we are going to look at something new and very important if you want to be successful at trading crypto or trading in stocks, which is to understand the candlestick chart and its patterns.
As I already said if you invest in some crypto or in stock by following news or something ‘you are already late’, The answer to the question, “How to understand this is the perfect time to invest or to take back your money?”, Is just by looking at the candlestick pattern of your cryptocurrency or your stock.
HOW TO READ A CANDLESTICK CHART…
Candlestick charts originated in Japan over 100 years before the west had developed the bar charts. In the 1700s, A Japanese man known as Homma discovered that as there was a link between price and the supply and demand of rice, the market also was strongly influenced by the emotions of traders.
A daily candlestick chart of your cryptocurrency shows the security’s open, high, low and close price for the day.
When the real body is filled, black or red then it means that the close is lower than the open and is known as the BEARISH CANDLE. It shows that the opening price was higher than the closed price for the day.
When the real body is filled, White or green then it means the close is higher than the open and is known as the BULLISH CANDLE.
The thin vertical line above and below the real body is known as the shadows which represent the highest and lowest price of the trading session.
The upper shadow shows the highest price and the bottom shadow shows the lowest price of the trading session.
Before jumping into learning about the different candlestick charts of your cryptocurrency there are a few assumptions that we have to keep in mind that are specific to the candlestick charts.
1. Strength is represented by a bullish or green candle and weakness by a bearing or a red candle. One should ensure that whenever they buy it is a green candle day and whenever they are selling, ensure that it’s a red candle day.
2. One should look for a prior trend. If you are looking at a bullish reversal pattern, then the prior trend should be bearish and vice versa.
TYPES OF CANDLESTICK PATTERNS
The candlestick patterns can be divided into:
⦁ Continuation pattern
⦁ Bullish reversal pattern
⦁ Bearish reversal pattern
We will be discussing 30 different patterns, Categories in the above categories.
BULLISH REVERSAL PATTERN
Bullish Reversal candlestick patterns indicate that the ongoing downtrend is going to reverse to an uptrend.
Thus, the traders should be cautious about their short positions when the bullish reversal candlestick chart patterns are formed.
Hammer is a single candlestick pattern that is formed at the end of a downtrend and signals a bullish reversal.
The real body of this candle is small and is located at the top with a lower shadow which should be more than the real body. This candlestick chart pattern has no or little upper shadow.
The psychology behind this candle formation is that the price opened at a certain point and the SELLER PUSHED down the price. Suddenly the BUYERS came into the market and pushed the price up to and closed the trading session more than the opening price.
This resulted in the formation of a bullish pattern and signifies that buyers are back in the market and the downtrend may end.
This is an example of the Hammer candlestick pattern of a cryptocurrency or a stock.
2. PIERCING PATTERN
A piercing pattern is multiple candlestick patterns formed after a downtrend indicating a bullish reversal.
It is formed by two candles, The first candle is a bearish candle which indicates the continuation of the downtrend.
The second candle is a bullish candle that opens the gap down but closes more than 50% of the real body of the previous candle which shows that the bulls are back in the market and a bullish reversal is going to take place.
Traders can enter a long position if the next day a bullish candle is formed and can place a stop-loss at the low of the second candle.
3. BULLISH ENGULFING
Bullish engulfing is multiple candlestick patterns after a downtrend indicating a bullish reversal.
It is formed by 2 candles.
The first candle is a bearish candle that indicates the continuation of the downtrend of your cryptocurrency.
The second candle is a bullish candle that completely over-shines the first candle, Indicating BUYERS are back in the market.
Traders can enter a long position if the next day a bullish candle is formed the downtres/loss can be stopped at the low of the second candle.
4. THE MIRROR STAR:
The morning star is a multiple candlestick chart pattern that is formed after a downtrend indicating a bullish reversal.
It is made of 3 candlesticks, the First being a bearish candle, the second a DOJI, and the third being a bullish candle.
The first candle shows the continuation of the downtrend, The second candle being a doji indicates indecision in the market, And the third bullish candle shows that the BUYER BULL is back in the market.
THE SECOND CANDLE SHOULD BE COMPLETELY OUT OF THE REAL BODIES OF THE FIRST AND THIRD CANDLES.
5. THREE WHITE SOLDIERS:
The Three White Soldiers is multiple candlestick patterns that is formed after a downtrend indicating a bullish reversal.
These candlestick charts are made of three long bullish bodies which don’t have long shadows and are open within the real body of the previous candle in the pattern.
6. White Marubozu:
The White Marubozu is a single candlestick pattern that is formed after a downtrend indicating a bullish reversal.
This candlestick has a long bullish body with no upper or lower shadows which shows that BUYERS are coming to escalate the market.
At the formation of this candle, The sellers should be cautious and close their shorting position.
7. Three Inside Up:
The Three Inside Up is a multiple candlestick patterns that is formed after a downtrend indicating a bullish reversal.
It consists of three candlesticks, The first being a ling bearish candle, The second candlestick being a small bullish candle which should be in the range of the first candlestick. The third candlestick should be a long bullish candlestick confirming the bullish reversal.
The relationship between the first and second candles should be of the bullish harami candlestick pattern.
Traders can take a long position after the completion of this candlestick pattern.
8. THREE OUTSIDE UP:
The three outside up is multiple candlestick patterns that are formed after a downtrend indicating a bullish reversal.
It consists of three candlesticks, the first being a short bearish candle, the second being a large bullish candle that should cover the first candlestick.
The third candlestick should be a long bullish candlestick confirming the bullish reversal
The relationship between the first and second candlestick chart should be of the bullish engulfing candlestick pattern. Traders can take a long position after the completion of this candlestick pattern.
So we saw some candlestick chart patterns which may be useful for you to identify when to invest in cryptocurrency. But knowing things is as important as knowing what to do. So in our next blog, we will be looking at the candlestick pattern of your cryptocurrency which can cost you money when you invest. For more info visit firststands.com that we can help you to understand these things more deeply and also you can get some amazing business ideas that will help you to become financially free.