If you are an investor, especially interested in investing in cryptocurrencies (trade coins), then you definitely cannot ignore types of candlesticks trading. For new investors, you should not ignore this article. Crypto Trading will mention the typical types of candles that you need to know, and how to use each type of candle, follow along now!
What are Candles in Crypto Trading?
Let’s start by understanding what types of candlesticks trading is and how it works.
Definition types of candlesticks trading
Candlestick charts show the price fluctuations of an asset over time. Each candle in Crypto Trading represents a certain period. The idea was initiated by a Japanese rice trader and popularized by Steve Nison in his book “Japanese Candlestick Charting Techniques”.
Here are the important components of a candle:
Candle Body: Shows the opening and closing prices. In a bullish market, the closing price will be higher than the opening price and vice versa.
Candle Wick/Shadow: Represents the high and low price during a given period. The upper shadow represents the top, the lower shadow shows the bottom of the price.
Candle Color: Green (or white) body indicates rising price, and red (or black) indicates falling price. The green body shows the closing price at the upper limit.
See also: Reversal candlestick pattern: everything should know
How do candlesticks work in Crypto Trading?
Candlestick charts are the most comprehensive way to display asset prices. Cryptocurrency traders have borrowed these charts from stock and forex trading. Unlike linear charts that only show closing prices, candlestick charts provide a wealth of information about price history.
Candlesticks form in chronological order, helping to identify trends, resistance, and support without the need for technical indicators. They also create buy or sell signal patterns. Using candlestick charts is very useful in the cryptocurrency market, where volatility is high and detailed technical analysis is needed.
Classification types of candlesticks trading
Although there are many candlestick patterns, we will list the most popular and reliable ones. We will analyze candlestick trade patterns, including:
Candlestick patterns in coin trading bullish reversal
There are 3 types of negative candles of bullish reversal candlestick patterns:
Hammer Reversal Candlestick Pattern
The Hammer candlestick pattern has a long lower shadow, and appears at the end of a downtrend, with the lower shadow being at least twice as long as the body. The hammer-like shape explains the name Hammer.
The Hammer candlestick reflects market sentiment. When it appears at the end of a downtrend, it shows that sellers controlled the opening, trying to push prices down. However, buyers pushed prices up, causing the opening and closing prices to be nearly equal. This creates a small body and long shadow, similar to a hammer.
Inverted hammer
The Inverted Hammer candlestick pattern, or inverted hammer, resembles a hammer but has a long upper shadow. The upper shadow must be at least twice as long as the body, unlike the Hammer which has a long lower shadow.
When buyers tried to push the price higher, it created a long upper shadow. This increase did not last long and the price returned to near the opening level. The short lower shadow shows that the price did not fall sharply. The Inverted Hammer pattern shows that the market is starting to probe higher and has the potential to increase soon.
Bullish engulfing candle
The bullish engulfing pattern is a two-candle pattern. It consists of a green candle completely engulfing a red candle. It’s a sign of a possible reversal in investor sentiment. It shows that an asset’s price increase may occur after reaching a bottom in a certain period.
The red candle shows weaker selling pressure, while the green candle shows stronger buying pressure. The second candle shows a day with strong selling pressure at the beginning of the session. However, strong buying pressure then pushes the price above the opening price of the day before the market closes.
This pattern usually appears at the bottom of a downtrend and indicates a surge in buying pressure. It can cause a trend reversal as more buyers enter the market to push prices higher.
Bearish reversal candlestick patterns for coin trading
Bearish reversal candlestick patterns include the following types:
Hanging man
The Hanging Man pattern is similar to the Hammer but appears in an uptrend. It usually appears at the end of an uptrend with a short body and a long lower shadow. This signals the end of an uptrend and the transition to a downtrend.
The long lower shadow represents a wave of selling, but not a strong one, and the buyers are trying to regain control, pushing prices back up to near the opening price. However, the market is trending down after the uptrend. To confirm a reversal from up to down, we need to wait for a confirmation signal such as the next candle closing lower than the previous Hanging Man candle.
Shooting star reversal candlestick pattern for coin trading
The Shooting Star pattern resembles a shooting star, with a long upper shadow, little or no lower shadow, and a small body, usually near the bottom. It is similar to the Inverted Hammer pattern, appearing at the end of an uptrend.
The Shooting Star indicates that the market reached a high and then was taken over by sellers, pushing the price down. Some traders wait for the next few candles to confirm this pattern more firmly.
Three black crows coin trade candle
The Three Black Crows pattern is depicted as three black crows, consisting of three consecutive red candlesticks. Each subsequent candle opens within the previous candle’s body and closes lower.
The best thing is that the candles do not have a higher upper shadow, which shows continuous selling pressure and falling prices. The size of the candle and the length of the candle shadow can be used to evaluate the next trading opportunity.
Candlestick Patterns Maintain Trends in Crypto Money-Making
We will approach some candlestick patterns that give signals to maintain the current trend. If the market is rising, there is a high probability that it will continue to rise. Conversely, if the market is falling, there is a high probability that it will continue to fall.
Rising three methods coin trade candlestick pattern
The Rising Three Method pattern consists of five candlesticks and appears in an uptrend. The first candlestick is a strong bullish green candle, followed by three red candles with small bodies. Finally, a long green candle represents the continuation of the uptrend. The fifth candlestick should be strong and exceed the closing price of the first candlestick.
The trend continuation is confirmed by a large green candle. This shows that the bulls are retaking control of the current trend.
Falling three methods candlestick pattern
The Falling Three Method pattern, or Bearish Three Ways, is a signal to continue the current downtrend. It is the opposite pattern to the Rising Three Method, continuing the downtrend with 5 candles. The first candle is bearish, followed by 3 bullish candles with lows, and ends with another bearish candle. The 5th candle needs to be bearish and penetrate the closing price of the first candle.
Doji Trend Indecision Candlestick in Crypto Money-Making
Doji forms when the opening and closing prices are equal or nearly equal. This represents a clear indecision between buying and selling forces. Doji can be divided into three types: Long Legged Doji, Dragonfly Doji, and Gravestone Doji. It is based on the position of the open/closed price lines. The spinning top candlestick pattern is used instead of Doji. Because the cryptocurrency market is often very volatile.
How to use types of candlesticks trading
There are many Japanese candlestick patterns that traders can use to identify important areas on a price chart. They can be used for day trading, swing trading, and even long-term trading. While some Japanese candlestick patterns provide insight into the balance between supply and demand, others can indicate trend reversals, consolidation, or indecision.
The thing to keep in mind How to read crypto candlesticks is that candlestick patterns are not always clear buy or sell signals. Instead, they help observe current market trends to identify potential opportunities. Therefore, it is important to evaluate the pattern in its specific context.
See more: Open an Bybit account – explore the crypto exchange
Notes on use types of candlesticks trading
Overall analysis of the crypto market does not stop at reading candlestick charts. To make accurate trading decisions, you need to combine candlestick analysis with other factors such as trading volume and market news. Trading volume can reveal the strength of a trend. While market news can influence price movements.
Risk management is essential to protecting your investment capital. Using risk management tools such as stop-loss and take-profit orders is an effective way to limit your losses. Stop-loss orders help you determine the price level you are willing to lose before the market moves against you. Meanwhile, take-profit orders help you lock in profits when the market moves in your direction.
Ultimately, to be successful in crypto trading, patience and discipline are key. The crypto market is highly volatile and cannot be relied on emotions. By staying patient and adhering to trading discipline, you can avoid hasty decisions and maximize your chances of making a profit.
Conclude
Understanding types of candlesticks trading is an indispensable part for investors. The purpose is to improve trading skills and increase the possibility of success. Learn the knowledge to make smart decisions and optimize profits in this potential cryptocurrency market. Crypto Trading also shares a lot of knowledge and useful articles for investors. Follow our investment articles now!
FAQs
What are the types of candlesticks trading?
types of candlesticks trading is a popular type of price chart in technical analysis. It shows the price movement of an asset over some time.
Should you use candlestick patterns only for trading?
While candlestick patterns are useful, they are best combined with other indicators and technical analysis tools to make more accurate trading decisions.
How to use Japanese candlesticks in technical analysis?
Japanese candlesticks are used to identify trends, reversal points, and trading signals. Combine with other technical analysis tools for increased accuracy.
