Crypto Candlestick Charts And Their Key Patterns
In the dynamic world of cryptocurrencies, it is crucial to keep an eye on market trends. Such tools as charts can help you in this! One of the most convenient and frequent of them is the candlestick chart, and in this article, we will explain how to read it and share the best approaches for maximizing profits.
What Is A Candlestick Chart?
A cryptocurrency candlestick chart is a method that traders use to track changes of a coin for a certain time period. They get information about the opening and closing and figure out the highest and lowest points. Additionally, it is possible to find data about the price movements over short- and long-term; it is especially relevant for crypto with extremely high volatility.
The candlestick chart allows you to identify a number of patterns that predict the reversal or continuation of a crypto’s movement, which is why most crypto traders choose it. Let's now take a closer look at the scheme’s different components and learn how to interpret them effectively.
How To Read A Candle Chart?
To properly read candlestick chart information, you need to know diagrams, where the vertical axis shows the price and the horizontal represents the time period. Thus, if you set a daily schedule, each candlestick reflects data for one day.
The chart consists of green and red bars, known as candles, each color of which points to the price’s position. So, if the price increases, the candlestick will be green (meaning bullish trend). In this case, the bottom of the body shows the opening, and the top indicates the closing price. On the other hand, if the price decreases, the candle will be red (meaning bearish trend). Here, the top marks the opening, while the bottom shows the closing position.
It is also essential to understand the candle’s shadow. It represents thin lines above and below the body, often called "tails", which indicate the highest and lowest prices reached. In this way, a candlestick provides a more complete picture of the trading activity.
Now that you are familiar with the structure of the scheme and know how to read it, let's turn our attention to the best strategies. Below we will look at the best patterns such as Doji, Bullish Engulfing, Bearish Evening and Bullish Morning Star, and Bearish/ and Bullish Harami.
Doji Pattern
Doji demonstrates uncertainty in the market. It forms when the opening and closing prices are almost equal, and the shadows (upper and lower) can vary in length. Essentially, the Doji means that whatever other activity was going on during the candle, neither the bulls nor the bears were able to take control of the situation; so they ended up neutralizing each other.
Visually, Doji looks like a cross or a plus sign. To avoid confusion, open a position a few candles after the Doji when the situation becomes clearer.
Bullish Engulfing Pattern
The Bullish Engulfing signals a possible price increase. The first candle has a short red body, fully engulfed by a larger green candle. The bullish one completely overlaps the first candle that demonstrates the growth of buyers' activity.
The appearance of this strategy after a downtrend indicates the loss of strength of customers and a possible upward movement of the asset. Traders often use the Bullish Engulfing to open long positions. An increase in trading volume during the bullish candle formation confirms that buyers are taking control of the situation. To minimize risk, try to place a stop-loss below the pattern's low.
The opposite is the Bearish Engulfing. As you can imagine, this signals a possible reversal of the tendency. The first candle is bearish, followed by a larger bullish candle that “engulfs” the previous one’s body. This situation indicates a change in market direction and may predict further growth.
Bearish Evening Star And Bullish Morning Star Patterns
The Bullish Morning Star is a complex strategy as it consists of three candles. The first is a long bearish candle that indicates the strength of the sellers. The second one has a small body and reflects the indecision of the market. The third is a long bullish candle that opens with an upward gap and closes above the midpoint of the first one.
Bearish Evening Star is a mirror version of the Morning type; it reflects the possible start of the downtrend beginning. This pattern appears at the peak of the uptrend and indicates a reversal. Speaking about the diagram, the first candle has a small green body and is completely overlapped by the next long red candlestick. The lower the red candle falls, the stronger the bearish momentum will be. The third is a long bearish candle that opens with a gap down and closes below the middle of the first candle.
Despite the more complex pattern design, both strategies are excellent at helping traders identify the key moments to enter or exit the market.
Bearish And Bullish Harami Patterns
Bearish Harami and Bullish Harami are reversal patterns that signal a possible trend change. They consist of two candlesticks, where the first has a large body and the second is smaller and completely enclosed within the previous. This visually resembles a “pregnancy”, which is where the name of the pattern comes from (harami means “pregnant” in Japanese).
The Bearish Harami forms at the top of an uptrend and suggests a possible downward reversal. The first candle has a long body and reflects strong growth. It is followed by a small candle positioned entirely within the range of the first. Such a pattern indicates waning buyer activity and the potential beginning of a downtrend; due to it, traders often use it as a signal to exit long positions or open short ones.
Bullish Harami, on the other hand, appears at the bottom of a downtrend and indicates a possible upward movement. The first candle is bearish and shows an active decline. The next is bullish, with a small body completely inside the range of the bearish. This indicates that the sellers are weakening and the upward trend is likely to start.
These types of patterns are the most fundamental and popular among candlestick strategies. With these tools, you will open and close positions at the right time and maximize your profits. Stay with the Cryptomus blog to become even more informed about the world of cryptocurrencies!
Have you ever used candlestick patterns? Write it in the comments!
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