Reversal candle patterns are used by many investors in the process of trading Crypto. So what types of reversal candlestick patterns are there? How to use them? The following article by Crypto Trading will provide you with all the necessary information.
Basic knowledge of Reversal candle patterns
First, investors need to understand the concept of what a reversal candlestick pattern is.
What is a reversal candlestick pattern?
Reversal candlestick patterns are also known as Japanese candlestick reversal charts. These are candlestick patterns used to predict market price trends from up to down or vice versa from down to up.
From the concept of reversal candlestick patterns, this pattern is divided into two main types: bullish reversal candlestick patterns and bearish reversal candlestick patterns.
A bullish reversal candlestick pattern usually appears after a downtrend. It signals that the downtrend will soon end. The price starts to reverse upwards.
A bearish reversal candlestick pattern appears after an uptrend. It signals that the uptrend will soon end. Prices will start to fall.
See also: Reversal candlestick pattern: everything should know
How to Read Crypto Candlesticks
Reversal candle patterns are like that, but to recognize and use them, you must first know how to read candles. In Japanese candlestick charts, a candle will represent the price fluctuations of a certain cryptocurrency at a certain time. A candle will consist of a candle body and a candle shadow. In which:
– The candle body represents the price range between the opening price and the closing price of a cryptocurrency in a certain period. This period can be adjusted by investors. It can be 5 minutes, 15 minutes, 1 hour, 1 day or even 1 week, 1 month, 1 year…
– Candle shadows (or candle wicks) represent the highest and lowest prices of the market in a certain period. In which, the upper candle shadow represents the highest price and the lower candle shadow represents the lowest price.
Classification Reversal candle patterns
Reversal candle patterns are divided into 2 types: bullish reversal patterns and bearish reversal patterns.
Bullish reversal candlestick pattern
A bullish reversal candlestick pattern signals that the market is about to change from a downtrend to an uptrend. Some common bullish reversal candlestick patterns include:
The rising three methods model
This pattern consists of at least 5 candles. The first candle of the pattern will be a very strong bullish session. This candle will have almost no wicks. The next three candles will be small bearish sessions. These three sessions must be within the body of the first candle. And the last will be a strong bullish session. This pattern is most reliable when the first candle has no wicks.
Bullish Engulfing Japanese Candlestick Pattern
The bullish engulfing candlestick pattern begins with a short bearish candle. This is followed by a trading session with a long, strong bullish candlestick body. The market closes much higher than the previous trading sessions. The formation of this candlestick analysis pattern in coin trading is due to the decrease in selling pressure, and the rapid increase in buying trend, causing the downtrend to reverse. This is considered a strong reversal signal, investors should take advantage of the opportunity to make a profit.
Morning Star Japanese Candlestick Chart
This pattern consists of 3 candles. The first candle is a strong bearish session after the previous bearish cycle. In the second candle, the opening price is lower than the closing price of the first session. The candle body is low, the candle wick is long. This is a sign of indecision in the market. However, in the third candle, the price increases strongly. The candle body is equal to or longer than the first candle body. This signals that the market is about to enter a new bullish cycle.
Tweezer bottom pattern
This pattern is relatively simple and easy to understand for investors. It consists of only 2 candles with almost equal bottoms. This shows that the buying trend has been exhausted. The market begins to reverse upward.
Doji candlestick pattern
The Doji candlestick pattern signals both bullish and bearish reversal trends. The pattern consists of 2 candles with long shadows. The closing and opening prices of the market do not have much difference. Candlestick analysis in coin trading shows that the signal of this pattern is not too strong but it shows the hesitation of the market. Therefore, it is very likely that the market will reverse in the future.
Piercing Pattern
The piercing candlestick pattern is one of the indicators that shows the potential of a bullish trend reversal. In the case that the pattern is a long-term downtrend and appears at a strong support or resistance level, the pattern will be more reliable.
Bearish reversal candlestick pattern
List of some bearish reversal patterns include:
Falling Three Methods Model
This pattern is the opposite of the 3-step bullish pattern. The pattern also consists of 5 candles. The first candle is a strong bearish session. This is followed by 3 consecutive bullish candles within the body of the first candle. And finally, there will be a strong bearish session. This shows that the sellers are in control.
Bearish Engulfing Chart
This pattern is the opposite of the bullish engulfing pattern. The pattern consists of two candles. The first candle is bullish but quite weak. The body of the candle and the opening price are contained within the body of the second candle. The second candle is longer than the body of the first candle. The closing price is lower. This shows that the buyers are dominant.
Evening Star Pattern
This pattern consists of a strong bullish first candle. A small bearish second candle closes above the high and then ends with a strong bearish candle. The pattern shows that the buying pressure has ended. The market has started a downtrend. This pattern is similar to the Evening Doji Star pattern. However, the difference is that the Evening Doji Star pattern has a long shadow on the second candle. The opening and closing prices of the candle are almost the same.
Tweezer Top Pattern
This pattern is the opposite of the tweezer bottom pattern. The pattern also consists of 2 candles with the opening price of the 2 candles being almost equal. The pattern is relatively simple, and the way to recognize it is also relatively easy. However, it is also very easy to make mistakes due to false signals from the market.
Dark Cloud Cover Japanese Candlestick Pattern
This pattern usually appears after many sessions of price increases. The pattern consists of 2 candles. Candlestick analysis in coin trading with this pattern shows that the first candle is a bullish candle with a long candle body. The second candle has an opening price higher than the high of the first candle. After that, the price starts to decrease and closes below the midpoint of the first candle.
Hammer candlestick pattern
The pattern consists of a bullish candle at the end of a downtrend. The candle’s shadow is long and resembles a hammer. This is a clear signal of an upcoming downtrend. Investors can also use this pattern to predict an uptrend. However, it is less reliable than a downtrend.
Advanced Reversal Candlestick Patterns
Advanced reversal patterns in Crypto include double top pattern, double bottom pattern, head and shoulders pattern…
Double Top Model
This pattern consists of two nearly equal peaks. They are separated by a few down sessions. The pattern shows that the market is about to signal a bearish reversal after many up-sessions.
Double bottom model
The double bottom pattern consists of two nearly equal bottoms. It has a W-shaped shape. The pattern shows that the market is about to have a strong bullish reversal signal after many previous sessions of decline.
Head and shoulders pattern
This pattern consists of 3 peaks. The 2 small peaks are on the sides and the lower peak is in the middle. The line connecting the bottoms of the 2 peaks is almost equal. This pattern is a typical bearish reversal signal.
See more: Open an Bybit account – explore the crypto exchange
Some experience when trading with (Reversal candlestick patterns in Crypto)
List of reversal candlestick patterns in Crypto you have mastered. However, to trade with these candlestick patterns effectively and safely, you need to remember the following:
– If you have previously placed an order in the right direction, you should take profit immediately because the market will quickly reverse.
– In case you have determined the pattern when analyzing candles in coin trading, you should place an order right at the last candle.
– When the market is going in the right direction, you need to make a profit at the right point, don’t be too greedy. Because the market can reverse at any time.
– You must always set a stop loss and never forget it. This helps you limit the risk of predicting the wrong model.
– Finally, you should not completely trust the model but should regularly monitor the Crypto chart, Crypto chart as well as other indicators to forecast.
Conclude
The basic knowledge about Reversal candle patterns has been fully summarized and provided in the article above. Each model will have its advantages and limitations, you should learn and apply them in each specific case. You can also learn more investment knowledge on the Crypto Trading page.
FAQs
In the same trading session, can multiple patterns appear at the same time?
The answer is yes, it is possible in case the market price of that session is very volatile.
In which cases does applying standard Japanese candlestick reversal still fail?
That is in case you monitor and analyze the model in too short a period, just a few minutes or a few hours, and hastily determine.
Which candlestick pattern can be used to predict both bullish and bearish trend reversals?
The pattern used to predict both bullish and bearish trend reversals is the Doji pattern.
