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Do you know cryptocurrency candlestick patterns provide the latest innovations for reading crypto charts? Well, it is a happy moment for all the traders because the information with which these are loaded extinguishes them from the crypto bar and line chart. Imagine a scenario where you analyze various crypto charts easily but prove a layman when reading candlestick charts and patterns. Not anymore. Leave your worry aside as this guide helps you become a pro in mastering the skill of identifying cryptocurrency candlestick patterns.
In a cryptocurrency chart, the individual candles make candlestick patterns. The aim is to explain whether the prices stay the same, expected to grow, or decline. Overall, many candlestick patterns offer the perception of the market mood and trading chances. Among them, the common ones that traders inspect and analyze are bullish, bearish, wedges, morning star, hammer, and
In this article, you will uncover the basic types of candlestick patterns. Furthermore, you will also get to know about the cryptocurrency candlestick charts live, helping you determine potential reversal and market sentiment. So, hook on to this guide and make an informed choice for crypto trading.
What is Candlestick in Crypto Trading? Explain its Types
Candlestick is a popular type of chart in crypto trading. Although there are other chart versions, such as bar and line, candlesticks are the ones that prove the building blocks. The under-observation chart is valuable because it provides complete information on the asset price movements over the specified time.
When studying the candlestick chart, you should not miss its further components, namely the candle body and wick. Additionally, each candlestick represents a specific period, depending on what timeframe traders want to choose. Normally, it ranges from 1 hour to even 1 day.
Candle Body
The first component of a candlestick is its body. It is a thick part that plays a crucial role when reading and predicting the charts. The candle body represents the cryptocurrency opening and closing prices within the set timeframe. Additionally, how much length the candle body attains in response to price fluctuations makes certain patterns which you will know next in the guide.
Candle Wicks
Another component of the candlestick is known as wicks or shadows. You can assume them as the lines that protrudes from the body. These shadows marks their importance in explaining the concept of the high and low prices of the crypto assets for the period. The asset’s price is at highest when the candle-wick extends from the upper side of the body. However, the asset’s price is low when the wick elongates from the body’s lower side.
In other words, an upper longer wick explains that traders are gaining profits and selling crypto assets is imminent. Whereas, a downward lengthy wick explains that traders prefer purchasing the crypto asset owing to the price declines shortly.
Types of Candlesticks
Since you know the fundamentals of the candlestick, it is time to dive into its types. You can interpret these types based on the length of the candle body and colors.
Green Candles: It is already mentioned that the body indicates the opening and closing price of the crypto. However, if the closing price becomes higher compared to the opening price, the candlestick appears green and it indicates bullish behavior. You must know that this is an indication of buying pressure among traders.
Red Candles: At the same time, if the opening price becomes higher compared to its closing price over the period, the candlestick changes its color to red. This behavior indicates a bearish pattern.
Short Candles: How far the length of the candle's body goes is important to know the price change in a specific time. If the body remains short, there is a minor price movement. Short candles often explain that the market is going to break out irrespective of what the direction is.
Long Candles: On the other hand, if the candle’s body is long, you will notice the remarkable price movement over the period. Long candles describe that the crypto price is probably rising or falling, making a bullish or bearish pattern.
Upper Wick: Analyzing the direction from where the line protrudes reveals the price changes. When you notice the wick extends from the upper side of the body, it represents the high price. Note that it is the highest and lowest price before reversing the path and closing lower.
Lower Wick: if the wick extends from the bottom of the body, it represents a low price over time. Remember, it is the lowest price reached before flipping around and closing higher.
Crypto Candlestick Patterns
Initially, the candlestick comes from 18th-century Japanese origin, where each candle reveals the hidden market language. Candlestick designs establish when lining up several candles in a particular order. If you look from a broader lens, all candlestick patterns appear different. Each pattern comes with its unique meaning, perception, and interpretation.
While some patterns indicate know-how about the buyers' and sellers' balance, other patterns describe a reversal, continuance, or uncertainty. Overall, there are three common types of patterns that other designs (patterns) generate. These are:
- Bullish Patterns
- Bearish Patterns
- Neutral Patterns
So, let's get started with understanding how beneficial candlestick patterns are for predicting market trends, buying or selling strategies, and future opportunities. Study three candlestick patterns in detail in the next section.
Bullish Candlestick Patterns
When there is a potential rise in the price of digital money, a bullish candlestick pattern forms. In these patterns, candles appear green, indicating the higher chances of rising reversal after a decline. During bullish patterns, traders anticipate opening long positions. There are many types of bullish patterns on candlestick charts, you must have a know-how of them.
1. Hammer Pattern
A hammer pattern takes place after a price decline. It constitutes a small real body and a longer lower wick where its length is almost twice the body. It is named a hammer pattern because the candlestick forms the shape of an upright hammer.
What happens is that the bears are dominant and the bulls get ready to take over, that is resist selling pressure. A bullish hammer pattern is a sign that the prices are about to bounce back, indicating a potential reversal. You must remember that the hammer pattern can be red or green. However, a green hammer explains a stronger bullish pattern.
2. Inverted Hammer Pattern
An inverted hammer pattern involves forming a small body and a longer upper wick. The length of the wick is almost twice the candle body. In an inverted hammer pattern, bears are in control and try their hard to keep the price down. But, buyers gain strength and eventually prices bounce up. This pattern describes that the downtrend is going to end and the price will rise shortly.
3. Three White Soldiers
Three white soldiers is a multiple candlestick pattern. It forms when three green candlesticks line up in a row and each candle opens inside the preceding candle’s body and closes over its height. The lack of a lower wick indicates no selling pressure, and the buying momentum is ongoing. The literal meaning of why this pattern form is that the buyers become the controllers and push prices in an upward direction.
The three white soldiers pattern is the perfect example of bullish behavior in which there is a probability of the prices going higher.
4. Bullish Harami
A bullish harami is a reversal two-candlestick pattern. In it, a long red candlestick forms on day one. Whereas, a small green candlestick forms that is contained within the body of the previous candlestick on the next day. While a bearish candlestick indicates strong selling pressure, a small bullish candlestick describes buying pressure.
The insights into the bullish harami pattern explain that the bearish trend of the cryptocurrency asset reverses into the bullish pattern. It further suggests that the buyers gain control of the market and do every possible thing to make the price rise high. This pattern takes more than two days to establish in response to a decrease in the selling momentum.
5. Morning Star
A morning start is a three-candlestick bullish pattern. This pattern forms when the long bearish candlestick opens the sequence, a small candle, namely a star follows it opens below the previous low, and concludes with a bullish candle.
It is a sign of a potential reversal from a slow to an active market and prominent at the end of the decline. You can grab the understanding that this pattern is actively involved in making the buyers gain control.
Bearish Candlestick Patterns
When there is a potential decline in the price of a cryptocurrency, a bearish candlestick pattern forms. In these patterns, the candle body appears red, indicating the higher chances of price decrease in response to an uptrend reversal. During bearish patterns, traders anticipate opening short positions and terminating long ones. Of course, bearish patterns form different types of candlestick charts, which you must study.
1. Hanging Man
The hanging man pattern is valued as equal to a bullish hammer. This pattern typically forms with the combination of a small candle body and a longer lower wick. Since it occurs at an uptrend end, you can assume that the sellers start gaining control and the market is going downward.
2. Shooting Star
It forms when the long upper wick protrudes from the small body. The chances are that there is no lower wick. A bearish shooting star resembles a bullish inverted hammer. However, when doing the comparative analysis, both patterns mark differences, such as the former occurs at the end of the uptrend and the latter occurs at the end of the downtrend.
Sellers continue to push back the prices in a downward direction, indicating market suffers a reversal from the highest point to the lowest point.
3. Three Black Crows
Three black covers candlestick pattern is the same as three white soldiers but in an opposite trend. What happens in this bearish pattern is the formation of three red candlesticks. These bearish candlesticks then open inside the preceding candle’s body and close below the candle’s low point.
The candlesticks that form have no long and elongated wicks, suggesting that selling pressure causes the price to remain low.
4. Bearish Harami
A bearish harami is a two-candlestick pattern. In it, a long green candlestick forms on day one. Whereas, a small red candlestick forms that is contained within the body of the previous candlestick on the next day.
The concise meaning of the bearish harami explains that the bullish trend flips into the bearish pattern. It further suggests that the sellers gain control of the market and do every possible thing to make the price decrease. This pattern takes more than two days to develop at the end of the uptrend.
5. Dark Cloud Cover
In this pattern, a bearish candlestick opens above the closing of the preceding bullish candlestick. In the end, it closes below halfway. A dark cloud cover pattern is associated with high volume that indicates the changing of momentum from bullish to negative. However, many crypto traders wait for a third red bar to confirm the pattern.
Neutral Candlestick Patterns
Apart from bullish and bearish candlestick patterns, other neutral candlestick patterns are also studied. These patterns represent the uncertainty period with no control over the market from buyers and sellers. The aim is to let the trend continue irrespective of downtrend or uptrend. Some disadvantages of neutral patterns include:
- Require additional confirmation from candles to predict where the market goes.
- Lack of providing trading signals on their behalf.
Even then, you must glance at some common neutral candlestick patterns. These are mentioned below:
1. Doji
Doji is a neutral candlestick pattern in which there is a small body and long wick. The pattern is interpreted as a continuous trend, mentioning a balance between buyers and sellers. Even then, traders must be aware of this pattern as it may signal a reversal.
2. Spinning Top
It is a candlestick pattern that consists of a small body and a duo of upper and lower wicks. The length of the shadows is equal, indicating indecision.
3. Falling Three Methods
It is another type of neutral candlestick pattern that suggests a continuous downtrend. The specific pattern consists of five candles arranged in a particular order. First comes a long red body, three small green bodies, and again a long red body. The two bearish candles surround the green candles. It indicates the bulls’ lack of strength to oppose the downtrend.
4. Rising Three Methods
The rising three methods constitute the arrangement in a way that two long green candles surround the three tiny red candles from left and right. This pattern is exactly the inverse of the Falling Three Methods and is observed in an uptrend.
5. Cup and Handle
As the name indicates, this candlestick pattern forms the shape of a cup with a handle on its right side. It highlights the optimistic approach that the assets’ price increases after consolidation.
Wedge Candlestick Pattern
Each candlestick pattern is different. From bullish and bearish to neutral patterns, each has its unique characteristics. There comes another candlestick pattern - wedges. These candlestick patterns form when the cryptocurrency price is contained between two convergent trend lines. You have to be aware that these could go up or down depending on the state of the market.
1. Rising Wedge Pattern
It confirms higher highs and lows in response to the crypto price. The two upward-sloping trend lines indicate the rising wedge pattern. In this pattern, the price breaks down via a lower trend line.
2. Falling Wedge Pattern
It confirms the falling pattern when the price makes lower highs and lows. The two downward-sloping trend lines indicate the falling wedge pattern. In this pattern, the price breaks out via the upper trend line.
How to Use Candlestick Patterns?
Trading using candlestick patterns never goes wrong. Additionally, if you follow the below-mentioned tips, results are always in your forever.
- Understand basic crypto candlestick patterns
- Use several indicators to know about market trends.
- You should utilize multiple timeframes
- Practice risk management strategies, stop-loss orders, and portfolio diversification
Summing Up; Cryptocurrency Candlestick Patterns
Crypto candlestick charts make various patterns that are almost identical to each other except for slight differences. It is due to the candle body and wick positions and the appearance of red/green colors. Moreover, the intricate dance of the candles on the graphical representation makes it difficult to grab the concise meaning. If you are into knowing what each pattern means, hook on to this guide. By doing so, you will gain the edge that you need to predict market movements.
