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How to read candlestick charts

guide to candlestick technical analysis

When it comes to interpreting the crypto market using candlestick chart, there is one thing that I have to warn you about. The crypto market tends to move fast and it is very unpredictable. Reading candlestick charts alone might not be enough to predict price action.

The number 1 advice I can give you is to understad the market you are buying into. For example, is the market in a bull or bear mode.

The 2nd advice I can give you is to understand the crypto coin you are investing into. Is there hype around your coin? Is the coin even decentralized, because if not, you might have to deal with scandals and regulators.

The 3rd advice I can give you is to learn about the use cases of the coin you want to invest in.

On-chain analysis.

When it comes to bitcoin, you can also take advantage of On-Chain Analysis to see what people are doing with their bitcoin. One tool I take advantage of is NUPL. This tool is priceless in predicting when a bull run ends. Once it hits Euphoria, the bull run is on borrowed time and you might want to take some profit.

Bullish Candlesticks.

Now that I have given you some practical advice, let us have a look at some classic candlestick indicators.

bullish candlestick
Bullish candlestick

A bullish candlestick is displayed in green, and it denotes the close price being higher than the open price. The wick either end of the candlestick also tells you what the highest and lowest price was during the time period you enquire about.

Hammer candlestick ~ a bullish sign

the hammer candlestick

The hammer candlestick pattern has a short body with a long wick at the bottom. This indicates price rejection at the lower end of the price and prices are pushed upwards. Buying pressure outperformed selling pressure. This pattern is often found at the bottom of a bearish trend and can indicate a reversal of the trend towards a bull market.

Inverse hammer ~ A bullish trend.

Inverse hammer candlestick

Another bullish pattern is the inverted hammer. Now the upper wick is long while the lower wick is short or non-existent. This indicates selling pressure that was not strong enough to drive the price down and it can be a sign of a bullish market price action.

Bullish engulfing ~ A bullish trend

Bullish engulfing candlestick chart

A bullish engulfing candlestick pattern is formed when a short red body is engulfed by a larger green candle. This pattern indicates prices are on the rise.

Morning star ~ A bullish trend

morning star candlestick pattern

The morning star candlestick pattern is can mean a reversal of a downward trend in the market. The morning star consists of three candlesticks, A large red candle, a short candlestick, and a large green candle. This pattern can indicate that selling pressure is easing and that the bull trend has arrived.

Piercing line ~ A bullish trend

piercing line candlestick chart

The piercing line candlestick as a two stick pattern. It is made of a long red candle followed by a long green candle that opens below the red candles closing price. The green candlestick shows a strong buying pressure where the price is pushed to or above the middle of the red candlestick.

Three white soldiers ~ A bullish trend

three white soldiers candlestick pattern

The three white soldiers candlestick pattern occurs over 3 days and it consists of consecutive large green candles which open and close higher than the day before. The three white soldiers pattern occurs over three days. This pattern is a bullish signal in a downtrend and shows a reversal of price action towards a bull market.

Bearish Candlesticks

bearish candlestick pattern
A bearish candlestick

A bearish candlestick closes lower than the opening price.

Hanging man ~ A bearish trend

hanging man candlestick pattern

The hanging man candlestick pattern has the same shape as the hammer, however, it is a bearish trend and can signal the end of an uptrend. The prices were pushed up again, however, the red candlestick indicates that the sellers are in control.

Shooting star ~ a bearish trend

shooting star candlestick pattern

Shooting star candlestick pattern has the same shape as the inverted hammer. It signals the end of an uptrend and it shows a price rejection that pushes the prices down.

Bearish engulfing ~ A bearish trend

bearish engulfing candlestick pattern

A bearish engulfing candlestick pattern 2 candle pattern showing the first green candle being engulfed by a second red candle that is bigger in size. The higher above the 2nd candle opens in relation to the close of the 1st candle, the stronger the bearish trend is inclined.

Evening star ~ A bearish trend.

evening star candlestick pattern

Evening star candlestick pattern shows 3 candlesticks, a large green candle, a small candle (can be both red or green), and a large red candle. This candlestick pattern often shows the end of an uptrend and a bearish price action. The opposite of the Evening star is called the Morning star.

Three black crows ~ A bearish trend

three black crows candlestick pattern

Three black crows candlestick pattern is a 3 large red candles where the prices open within the body of the previous candlestick and close below the previous candle.

Dark cover ~ A bearish trend

Dark cover candlestick pattern

Dark cover candlestick pattern is a signal of a bearish trend. This is a weaker bear signal to the stronger engulfing pattern.

Candlestick Technical analysis summary

Understanding candlestick technical analysis will help you buy the dips and sell at the peaks, or at least with more accuracy. Refining your technical analysis skills will also help you make non-emotional decisions. Most traders know first-hand how emotions rule their logic, and sometimes it is restraints and not risk-taking that bring the most reward.

My advice is: Always do your own research and only invest what you can afford to lose.

Chart Patterns 101

Check out my Chart Pattern blog where I go over double bottom, double top, head and shoulders, and reversed head and shoulders.

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