12 Candlestick Patterns For Crypto Traders
The candlestick chart is one of the most used charts in the financial markets by investors and traders. Here is a comprehensive guide to understanding candlestick patterns.
Invented in the 18th century by Japanese rice traders, candlestick charts are one of the most popular charts in the financial markets. The reason why candlesticks are so popular is that a lot of information can be found in just a single candlestick.
How Do You Read A Candlestick?
A candlestick represents the price action of a single time period for any time frame. For example, for an hourly chart, each candlestick shows the price action for one hour while each candlestick on a daily chart indicates the price action for a one-day time period. In this article, an investor or trader can tell the day’s opening, closing, highest and lowest price from a candlestick.
The “body” of the candlestick indicates the range between the opening and closing price of that day’s trading session. The colour of the candlestick will determine the position of the opening and closing prices. If the body of the candlestick is red, it indicates that the opening price is higher than the closing price. This is a bearish candlestick. On the other hand, if the body of the candlestick is green, this is a bullish candlestick and it indicates that the opening price is lower than the closing price.
The vertical lines above and below the body of the candlestick are known as wicks or shadows which represent the highest and lowest price of the trading session.
The information in a candlestick can give investors and traders insights into the emotions of the trading session. A green candlestick tells us that buyers push prices up to close higher than the opening price. A red candlestick shows that when prices opened, sellers managed to push prices down to close lower than the opening price.
Bullish Candlestick Patterns
1. Hammer Candlestick Pattern
The hammer is a single candlestick pattern that is most effective when found at the end of a downtrend and/or at a major support level. The candlestick has a small body along with a long lower wick which should be more than twice the length of the body and little or no upper wick.
The hammer candlestick is a bullish reversal pattern. The psychology behind this candlestick pattern is that prices opened only for sellers to push prices down. However, before the trading session ended, buyers started buying and pushed prices up to close the trading session above the opening price.
The candlestick pattern signals that buyers have wrestled control back from the sellers and the downtrend may end.
2. Inverted Hammer Candlestick Pattern
The inverted hammer is a single candlestick pattern that is most effective when found after a downtrend and/or at a major support level. The candlestick has a small body along with a long upper wick which should be more than twice the length of the body and little or no lower wick.
The hammer candlestick is a bullish reversal pattern. The long upper wick tells us that sellers managed to push prices back to where they were at the open, but the increase in prices indicates that buyers have come back into the market and the downtrend may end.
3. Bullish Engulfing Candlestick Pattern
The bullish engulfing candlestick pattern consists of two candlesticks that are most effective when found after a downtrend and/or at a major support level. The first candlestick is a bearish candlestick followed by a second larger bullish candlestick. The second candlestick must completely engulf the first candlestick.
The bullish engulfing is a bullish reversal pattern. The second long bullish candlestick that engulfs the first bearish candlestick indicates that buyers are back in control and an end to the downtrend can be expected.
4. Morning Star Candlestick Pattern
The morning star is a three candlestick pattern that is most effective when found at the end of a downtrend and/or at a major support level. The pattern consists of a bearish candlestick, followed by a doji candlestick and the third candlestick is a bullish candlestick.
The morning star candlestick pattern is a bullish reversal pattern. The doji candlestick that comes after the first bearish candlestick indicates indecision in the market. The third bullish candlestick confirms that buyers are back in control and that a bullish reversal can be expected.
5. Three White Soldiers Candlestick Pattern
The three white soldiers candlestick pattern consists of three bullish candlesticks. The candlesticks have to open within and close outside the body of the previous candlestick.
The three white soldiers candlestick pattern is a bullish reversal pattern and is most effective when found at the end of a downtrend and/or at a major support level. The three consecutive higher closes indicate that buyers are firmly in control and a bullish reversal can be expected.
6. Bullish Harami Candlestick Pattern
The bullish harami candlestick pattern consists of two candlesticks that is most effective when found at the end of a downtrend. The first candlestick is a bearish candlestick and its body should engulf the second bullish candlestick.
The bullish harami candlestick pattern is a bullish reversal pattern. The first bearish candlestick shows the continuation of the downtrend and the second bullish candlestick indicates that buyers are back in control and that the uptrend may end.
Bearish Candlestick Patterns
7. Hanging Man Candlestick Pattern
The hanging man is a single candlestick pattern that is most effective when found at the end of an uptrend and/or at a major resistance level. The candlestick has a small body along with a long lower wick which should be more than twice the length of the body and little or no upper wick.
The difference between the hanging man and hammer candlestick pattern is where these candlestick patterns are found at. The hanging man candlestick pattern is most effective at the end of an uptrend and/or at a major resistance level while the hammer candlestick pattern works best at the end of a downtrend and/or at a major support level.
The hanging man candlestick is a bearish reversal pattern. The psychology behind this candlestick pattern is that when prices opened, sellers rushed to push prices down. Even though buyers managed to push prices back up, they were unsuccessful in pushing prices back above the opening price. This signals that the uptrend may end.
8. Shooting Star Candlestick Pattern
The shooting star is a single candlestick pattern that is most effective when found after an uptrend and/or at a major resistance level. The candlestick has a small body along with a long upper wick which should be more than twice the length of the body and little or no lower wick.
The hammer candlestick is a bearish reversal pattern. The long upper wick tells us that even though buyers managed to push prices up, sellers came in to push prices to close back below the opening price and the uptrend may end.
9. Bearish Engulfing Candlestick Pattern
The bearish engulfing candlestick pattern consists of two candlesticks that is most effective when found after an uptrend and/or at a major resistance level. The first candlestick is a bullish candlestick followed by a second larger bearish candlestick. The second candlestick must completely engulf the first candlestick.
The bearish engulfing is a bearish reversal pattern. The second long bearish candlestick that engulfs the first bullish candlestick indicates that sellers are back in control and an end to the uptrend can be expected.
10. Evening Star Candlestick Pattern
The evening star is a three candlestick pattern that is most effective when found at the end of an uptrend and/or at a major resistance level. The pattern consists of a bullish candlestick, followed by a doji candlestick and the third candlestick is a bearish candlestick.
The evening star candlestick pattern is a bearish reversal pattern and is the opposite of the morning star candlestick pattern. The doji candlestick that comes after the first bullish candlestick in the evening star candlestick pattern indicates indecision in the market. The third bearish candlestick confirms that sellers are back in control and that a bearish reversal can be expected.
11. Three Black Crows Candlestick Pattern
The three black crows candlestick pattern consists of three bearish candlesticks. The candlesticks have to open within and close outside the body of the previous candlestick.
The three black crows candlestick pattern is a bearish reversal pattern and is most effective when found at the end of an uptrend and/or at a major resistance level. The three consecutive lower closes indicate that sellers are firmly in control and a bearish reversal can be expected.
12. Bearish Harami Candlestick Pattern
The bearish harami candlestick pattern consists of two candlesticks that is most effective when found at the end of a downtrend. The first candlestick is a bullish candlestick and its body should engulf the second bearish candlestick.
The bearish harami candlestick pattern is a bearish reversal pattern. The first bullish candlestick shows the continuation of the uptrend and the second bearish candlestick indicates that sellers are back in control and that the uptrend may end.
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