In the realm of cryptocurrency trading, candlestick patterns are like puzzles that reveal the ongoing battle between bullish buyers and bearish sellers. We have two main characters in this saga: the Red Candlestick and the Green Candlestick.
Let’s start with the Red Candlestick. When the closing price is lower than the opening price, it paints a red body, signifying the bears’ triumph during that timeframe.
On the flip side, we have the Green Candlestick. When the closing price exceeds the opening price, it creates a green body, symbolizing the victory of the bulls during that specific period.
Candlestick patterns are formed when multiple candlesticks come together, and they offer valuable hints about potential price movements.
1. Candlestick Patterns: A Short Intro
Picture each candlestick as a mini chart, which shows the price movements of a cryptocurrency in a certain time period. The wide part of the candlestick is called the ‘body,’ and it tells us the price range between the opening and closing prices. The thin lines above and below the body are called ‘wicks,’ and they show us the highest and lowest prices during that time.
A candlestick, growing taller, indicates the price might go up soon. On the flipside, when a candlestick looks shorter, it implies the possibility for the fall of the price.
2. Decoding the Red Candlestick: What Does It Mean
These red candlesticks are like warning signs. What it actually does is it tells us the price of a cryptocurrency is going down.
When you look at a red candlestick, it’s like a small rectangle. The top of the rectangle shows the starting price, and the bottom displays the ending price during a specific time period.
So, when you see a red candlestick, it can be assumed that the price went down from the start to the end of that time.
3. Seeing Green: How to Interpret The Green Candlestick Patterns
It’s the exact opposite of a Red Candlestick pattern. Unlike Red, what Green conveys is happiness. It indicates the price of a cryptocurrency is going up.
The bottom of the green candlestick displays the starting price, and the top represents the ending price during a specific time.
Therefore, when you spot a green candlestick, you can arrive at the conclusion that the price went up from the start to the end of that time period.
4. Reading the Signals: What Candlesticks Convey
Though generally a Candlestick pattern is used to analyze price movements, it can even be employed to gauge market sentiment and to make predictions about the market’s future movements.
When you see a long wick at the bottom of a candle, it’s fine to come to an assumption that traders are buying the cryptocurrency as prices fall.
On the flipside, you can come to the conclusion that traders want to take profits when you see a long wick at the top of a candle.
Meanwhile, if it fills almost the whole candle with very short or no wicks on either side, it conveys an entirely unique message. For a green candle, it suggests a strong belief that the price will keep going up. At the same time, for a red candle, it means a strong belief that the price will keep going down.
5. Tricks to Spot Trends with Just One Candlestick
The concept is very interesting, simply because it attempts to collect important clues about the market using just one candlestick.
Primarily, you can look for four important signals.
First, a long upper shadow on the candlestick might signal a bearish trend. What it indicates is that investors are preparing to sell in order to acquire profits.
Conversely, a long lower shadow could be a bullish signal. This gives an assumption that investors want to buy.
Next, look for the ‘Doji’ candlestick, which has no body. When the open and close prices are the same, it shows indecision in the market. Maybe, it’s an indication of a price reversal.
Finally, let’s talk about ‘Umbrella’ candlesticks. A red umbrella, popularly known as a ‘hammer’, suggests the asset is getting many buyers, and green umbrellas, known as ‘hanging men’, signal that sellers are ready to cash out.
6. Learn to Spot Bullish and Bearish Reversals
The Bullish and Bearish reversal patterns give us insights into potential changes in price direction.
6.1. Bullish Reversal Patterns
These patterns appear when the price has been going down, and they tell us that a positive change might be coming. It’s like a U-turn from going down to going up!
Picture this, we are observing the price of a crypto that has been going down for a while. The candlesticks have been showing red patterns. All of a sudden, we sport a special candlestick pattern. The candlestick looks different in this pattern from the previous red ones. It could be a green candlestick with a long bottom wick. This hammer-like candlestick implies that even though the price went down during the time, there were many buyers ready to bring it back up.
6.2. Bearish Reversal Patterns
On the other hand, these patterns show up after the price has been going up. They warn us that the price might soon go down. It’s like a U-turn from going up to going down.
Consider this situation: We have been observing the price of a crypto that has been steadily going up. The candlesticks have been showing green patterns. Unexpectedly, we notice a unique candlestick pattern. The candlestick looks different in this pattern from the previous green ones. It could be a red candlestick with a long upper wick. This shooting start-like candlestick suggests that even though the price went up during the time, there were many sellers ready to bring it back down.
7. A Closer Look at Prominent Candlestick Patterns
Candlestick patterns in trading are categorised into two main types: bullish and bearish.
7.1. Bullish Candlestick Patterns
What Bullish Candlestick Patterns indicate is potential upward price movements. For that reason, these patterns can be interpreted as signs of buying pressure outweighing selling pressure. The below given are the popular bullish candlestick patterns.
7.1.1. The Hammer
The bottom of a downtrend has a long lower wick, like a regular hammer. The body can be either green or red. And, it will be small. What this pattern indicates is either a potential price increase or a strong trend reversal.
7.1.2. The Inverted Hammer
This pattern has a long upper shadow, a small lower shadow, and a small body near the bottom. It looks like an inverted ‘T’. What this pattern implies is that even though the market faces pressure due to the downtrend, buyers are showing interest. It can be assumed as a strong hint for the possible uptrend.
7.1.3. The Bullish Engulfing
Different from the above ones, this pattern consists of two candlesticks at the end of a downtrend. The first one is red and the second is green. The former indicates ‘bearish’ and the latter represents ‘bullish’. Notably, the second is much larger than the first. What the pattern conveys is a significant increase in buying pressure, overpowering selling pressure.
7.1.4. The Piercing Line
Similar to the previous one, in this pattern also, we can see two candlesticks at the end of a downtrend. The first one is a long red bearish candle, and the second one is a long green candle. The peculiarity of this trend is that The Piercing Line appears at the end of a downtrend. There is a gap between the opening and closing prices of both candles, and the green candle closes about halfway up the body of the red candle. What this pattern signals is a surge in buying pressure during the second candle.
7.1.5. The Morning Star
Unlike the above mentioned ones, in this pattern, we can see three candles at the bottom of a downtrend. The first one is long and bearish in appearance. The second has long wicks and a short body, closing below the first candle. It is known as the star. The third candle is bullish and closes above the midpoint of the first. What this pattern conveys is a shift from a downtrend to an uptrend.
7.2. Bearish Candlestick Patterns
These patterns convey potential downward price movements. It can be interpreted as indications of increased selling pressure overpowering buying pressure. Go through the popular bearish candlestick patterns, given below.
7.2.1. The Hanging Man
This pattern is formed at the end of an uptrend. Its character is a long lower wick and a small body. It can be either red or green. What this pattern indicates is the possible weakening of the uptrend. Traders can consider this as a sell signal.
7.2.2. The Shooting Star
It’s also formed at the end of an uptrend. It’s slightly different from the previous one, in terms of character. It has a very small lower wick and a slim body. The unique feature of this pattern is its upper wick is quite long. What this pattern tells is the possibility for price rejection.
7.2.3. The Bearish Engulfing
Unlike the ones mentioned above, this one is formed by two candlesticks. The first one is green, and the second one is red. The former represents bullish and the latter indicates bearish. Notably, the second one is larger enough to engulf the former. What this pattern conveys is increased selling pressure and the possibility for the beginning of a downtrend.
Mastering candlestick patterns enables one to understand the pulse of the volatile cryptocurrency market better. These patterns serve as tools to understand the market sentiment, identify market trends, and even predict potential price reversals. It’s important to keep one thing in mind that the journey of honing candlestick prowess may be arduous, but the rewards are boundless. One can use this knowledge to take better decisions in their crypto trade journey.
Crypto Candlestick Patterns are visual representations of the price movement of cryptocurrencies over a specific time period. They look like little candlesticks.
Each candlestick has a body and wicks. The body shows the price range between the opening and closing prices, while the wicks show the highest and lowest prices during that time.
Red Candlesticks indicate prices going down, while Green Candlesticks mean prices going up.
Candlestick Patterns provide valuable insights into the market and potential price reversals.
Bullish Reversal Patterns appear after a downtrend and suggest a potential price increase. Bearish Reversal Patterns show up after an uptrend and signal a possible price decrease.
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