Do you need an instant snapshot of the cryptocurrency market? Try looking at the candlestick.
The candlestick is an integral component of trading, whether crypto or stocks. When you are engaged in technical analysis, the candlestick is a crucial reference point since it will display the high, low, open, and closing price of the security you are trading for a specific period.
Indeed, candlesticks are helpful because they highlight the four critical price points throughout the trading session. In addition, traders typically use candlestick charts to determine a potential price movement based on past patterns.
What makes candlestick charts fascinating is that they were initially developed in the 18th century in Japan when the inventor discovered a connection between the price and supply and demand of rice and learned that traders’ emotions impacted markets.
Why does this matter?
As a result, the candlestick is also helpful in this regard because it will spotlight the emotions investors possess at any given time.
So, how do candlesticks and cryptocurrency go hand in hand? Like they would for equities or forex, crypto candlesticks are crucial for day or swing traders, be it for Bitcoin or Dogecoin.
First, how do crypto candlesticks even work? What are you supposed to look for anyway?
As noted, the candlestick will identify the market’s high, low, open, and close prices for the session.
The real body (the wide part of the candle stick) is the price range between the opening and closing of the session. When the real body is filled in, it signals to the trader that the close was lower than the open. If the real body is empty, the close is higher than the open.
You can change the colours of these candlesticks, too. They can be shaded red and green or filled in black and white.
Candlesticks will also have shadows. Also known as wicks, these candlestick parts reveal the trading session’s high and low prices. So, for example, a short upper wick on a positive session shows that the close was near the high. Likewise, if the upper shadow on a down candle is short, it confirms that the opening on a particular session was close to the day’s high.
There are many ways to identify patterns for crypto trades using candlesticks.
But what are some of the patterns you should be looking for?
Well, there are dozens, but let’s concentrate on the five most popular ones:
The hammer is a bullish reversal pattern that shows a candlestick with a long lower wick at the bottom of a downtrend. This suggests that bulls raised the price close to the opening level, despite intensifying selling pressure.
A bullish harami is a long red candle followed by a smaller green candle. This can transpire over at least two trading sessions, informing investors that the selling momentum is likely fading, and a bullish cycle could be forming.
The bearish equivalent of a hammer is the hanging man. This will come together toward the end of an uptrend with a small body and a long lower wick. This will convey to traders that there was a significant selloff, but bulls took over from the bears and propped up the price. This could also send the signal that the selloff may be a warning to the bulls that they could soon face stiff competition from the bears.
Your dreams may be dashed if you see a shooting star. This is when a candlestick is produced with a long upper wick, a little lower wick, and a small body. Although traders might wait for several candlesticks to form this pattern, it does send the important message that the market has hit its price top, and the sellers will soon take over and drive the asset’s price back down.
The Doji is created when the open and close are the same or close to each other. In other words, the Doji might represent an indecisive market that is still deciding whether to buy or sell the asset. In addition, there are a few types of Doji candlestick patterns that you need to be aware of:
· Dragonfly Doji: A bullish or bearish candle with a long lower wick.
· Gravestone Doji: A bearish reversal candlestick with a long upper wick.
· Long-Legged Doji: A midpoint candlestick suggesting indecision in the marketplace.
In the end, obtaining a signal from a candlestick pattern is crucial, but it is imperative to understand the context and comprehend the broader market. So, while candlesticks should be included in every trader’s arsenal, they should be one of many tools in your toolbox. There are many ways to navigate the crypto market, from the relative strength index (RSI) to moving averages (MAs).