Have you ever wondered how to predict the movement of cryptocurrencies? Most professional traders use charts and analysis. The good news is, the process is not as difficult as you might think!
According to an article published by Consumer News and Business Channel (CNBC), 88% of the predictions based on the quantitative analysis turned out accurate. Funny enough, the selected methods weren’t that advanced - just so any average or even a beginner trader could master them.
The fact is, in the world of cryptocurrency trading, it is important to read charts and analyze price patterns. This is one of the most used processes used by traders to analyze the market and make more accurate predictions on the value of a digital asset.
With the right analysis of past trends and a few confirmations from indicators such as MACD (Moving Average Convergence Divergence) or RSI (Relative Strength Index), an investor can make entry decisions with above 65% level-of-accuracy.
The best part? You don't need to know it all; you can make the most of your investment by leveraging your knowledge on the most powerful candlestick pattern in this post to understand market dynamics better.
The ABCs of Candlestick
Candlestick charts can be useful for beginners who have trouble reading regular bars. In addition, candles provide an easy way to identify trends in the market.
So far, they are one of the most common technical tools used for price analysis. This has been used since traders and investors started looking for patterns that may predict where a currency or commodity will go next centuries ago!
This charting technique is used for technical analysis of the financial markets and the crypto space. They convey and visualize the buying and selling pressure that ultimately drives the markets in trend.
How to Master Japanese Candlesticks
Candlestick charts can be a useful way to look at the market structure and potential opportunities. However, they instead offer insight into price actions and directions of the market trend based on patterns!
There are many types of candlesticks; some signify a potential reversal or a trend continuity. All there is to trading is, identifying areas on charts that might signal what direction prices may take and when a trading opportunity presents itself!
While there are many candlestick patterns, traders can identify areas of interest on a chart; Some day-trading strategies rely heavily upon this practice, while others depend more on other factors such as price movements, indicators, and volume levels.
When candlestick patterns are combined with other techniques, such as technical analysis (TA), indicators like trend lines, or moving averages to create confluence on a particular trade decision, it becomes icing on the cake. Below are major candlestick patterns we recommend.
Bullish Reversal Patterns
The Hammer pattern is a bullish reversal pattern where buyers push prices back up after a prolonged downtrend. It's formed when the market goes down sharply before going back up again with an opening at or near its previous lows.
A long lower wick at the bottom of a downtrend indicates that, despite high selling pressure from previous days, bulls managed to push up against sellers.
Green hammers indicate stronger reactions from bull camp, which could mean more potential gains are coming your way if you hold to an uptrend.
The name says it all: this candlestick has similarities to a hammer but with an extra wick above the body.
An inverted hammer occurs when prices stop falling or reversing after being pushed lower than their opening level by buyers who eventually control market action. However, this lucky turn may come with a sharp reversal of upward momentum before long.
This time, the upper tip of the candle should be at least twice as long and wide compared to its lower body, signifying that prices have reached their lowest point - which often suggests a reversal.
Three White Soldiers
The three white soldiers' pattern is an old and reliable indicator of a market trending up or down. The candle closed at or above the previous session high, with long wicks indicating continuous buying pressure from sellers trying to lower prices.
It should be noted; however, if there are short lower candles on either side, it could mean selling pressure will eventually win out over this trend as well (or vice versa).
This bullish continuation signal consists of three consecutive three green candles that open within the previous candle's body and close at or above its high price level, with long lower wicks indicating buying pressure strong enough to push up prices further into their next cycle.
The size/lengths of these candlesticks can be used as indicators for how likely they are to continue in this direction - short-wicked implies there may not be continuous demand pushing the market higher.
A bullish harami is a long red candle followed by smaller green candles that are entirely contained within the body of the previous ones. The pattern can unfold over two or more days, and it suggests there might be selling momentum slowing down but not stopping altogether since sellers are still in control - meaning they could make an appearance again soon!
A bullish harami can be seen as an indicator that selling momentum may slow down and come to an end in the markets!
Bearish Reversal Patterns
Hanging Man is the bearish counterpart to a hammer. It typically forms at the end of an uptrend with a small body and long lower wick, indicating that there was once a large sell-off, but bulls managed to take back control, pushing prices higher into capitulation territory where it can act as a warning for potential buyers before bears gain momentum again. This can be interpreted as both warning signs for upcoming market movements, or serves as confirmation that bulls are still in control.
The Shooting Star pattern is another common bullish reversal signal that sellers could push prices down but not. The shooting star is a candlestick pattern that indicates when traders expect the price of an asset to go up and then fall back down again.
The name comes from how they look like shooting stars as seen in their upward trajectory during an uptrend—only make one higher before a reversal direction with little or no warning sign beforehand. Therefore, it's best to wait for a few more candles to clarify the market trend rather than decide based on this pattern.
Three Black Crows
The bearish equivalent of three white soldiers is a triple black crow. These candlesticks should have long higher wicks, indicating continuous selling pressure driving the price down and not an indication that buyers are coming in at any point soon!
The size and length of these candles can also give you clues about continuation chances: if they're small (less than eight inches), then there's less chance we'll see prices continue their climb back up again soon.
A bearish harami is a long green candle followed by a small red one. These appear at the end of an uptrend and may indicate that buying pressure has decreased, which can sometimes lead to further downside movement in the price of cryptocurrency assets or other instruments.
Dark Cloud Cover
The dark cloud cover pattern is an interesting way to show what might be happening with buying momentum. It consists of a red candle that opens above the close of the previous green candle but then closes below the midpoint, which indicates buyers closing up their positions.
This is a reversal candle that has two red candles. The first closes above the open of its previous green sibling but then closes below it by at least 50 points and often much more than this amount as well, indicating the degree of momentum in the opposite direction.
Rising Three Methods
The continuation of a downtrend is typically seen in an uptrend. Three consecutive red candles with small bodies, often followed by the green candle, signify bulls have taken control!
Falling Three Method
The pattern starts with a strong down day. This is followed by three small real bodies that make upward progress but stay within the range of one big, scary-looking downward move. It shows how sellers are back in control and that prices could go even lower!
A Doji is a Japanese candlestick pattern that forms when open and close values are similar. For example, it forms when the price closes either at or near its opening.
The price can move above or below this line, but will eventually close at or near its value in either direction.
These scenarios may be seen as indecision points where buyers and sellers have equal prices. Although Interpretation of Dojis varies depending on context; however, it's important not just to look at them literally.
But since cryptocurrency prices can be volatile, you don't see many exact Dojis anymore - so most cryptocurrency traders refer to this as “spin-top”.
Gravestone Doji is a bearish reversal Japanese candlestick with a long upper wick and a close/ open to it low.
Long-legged Doji - this shows indecisiveness. It is a candle with lower and upper wick, with it close/open at the midpoint.
Dragonfly Doji - this candlestick can either take the form of a bearish or bullish pattern (depending on context). It has a long lower wick with it close /open near the high.
Trade Like a Pro with Candlestick Patterns
The cryptocurrency market is a complex and volatile beast and trading is an exciting way to make money.
However, one of the most important things for traders to understand is how price action develops; what drives prices up or down? Who's buying and who's selling?
Candlestick patterns help us visualize these forces at work. While they don't necessarily predict where prices will go next, they provide valuable insights into why certain trends develop — which may allow you to anticipate future market movements better when deciding when best to buy or sell.
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*This communication is intended as strictly informational, and nothing herein constitutes an offer or a recommendation to buy, sell, or retain any specific product, security or investment, or to utilise or refrain from utilising any particular service. The use of the products and services referred to herein may be subject to certain limitations in specific jurisdictions. This communication does not constitute and shall under no circumstances be deemed to constitute investment advice. This communication is not intended to constitute a public offering of securities within the meaning of any applicable legislation.