Candlestick Patterns Explained
The trading field is exciting, yet tricky. Prices keep fluctuating, so you should be able to grasp the basics and complexities of trading in order to predict price movements and achieve potential success.
One of the main aspects you need to understand is technical analysis, with candlesticks patterns being a fundamental indicator.
What Are Candlestick Charts?
Let us take a quick look into the past to answer this. It’s believed that a Japanese trader invented the first candlestick chart in the 18th century to exchange rice. The modern use of candlestick charts dates back to 1850. Such charts, nevertheless, were significantly different from the contemporary candlestick patterns used by traders.
Basically, candlestick charts are charts used to describe price movements, often influenced by the emotions of investors. Interestingly, traders use candlesticks in different time frames, including daily, 1-hour, 5-minute, and 1-minute, among others.
To explain the topic better, we should note there is a body (showing the opening and closing trades) and shadows or wicks (showing the highest and lowest prices). Usually, any candlestick chart is green and red. When an asset closes above the opening price, it is typically represented by the green colour; when a coin closes below the opening price, we have a red candle. It is also worth noting that green represents buying pressure, while red selling pressure. Remember that investor behaviour is vital: buyers buy because they believe the price of a coin will rise, sellers can control the game, and there are also undecided traders.
Though these candlesticks may appear random, they actually represent patterns, showing that either prices can rise or fall.
It is up to you to buy or sell. Whatever you decide, make sure you understand the basics of technical analysis. If you need help reading candlestick charts and other indicators, consult a professional or connect with a broker. Choosing the right broker is always difficult but a good starting place is visiting the Bitcoin Profit official page. The trading platform offers guidance and the opportunity to connect with a licensed service provider.
What Are the Different Types of Candlesticks Patterns?
There are different types of candlesticks, so let’s have a look at some of them:
A spinning top is with a short body between long upper and lower shadows. It shows that trends may reverse, and a bullish momentum may occur.
The Doji candlestick is similar to a spinning top as it shows that trends may reverse. Doji candlesticks refer to when an asset’s open and close are almost equal.
Shooting star Doji
A shooting star Doji shows a bearish reversal during an uptrend.
A Hammer Doji indicates that investors buying power is increasing, leading to a bull reversal during a downtrend.
It is crucial to remember that even if you master reading candlestick charts, you shouldn’t get too excited since they are not flawless. Please note that these indicators remain just indicators and can’t guarantee anything. Consult a professional if you are unsure how to interpret technical analysis data or how to invest.
Candlestick charts are valuable tools to help traders find patterns and predict market movements. They are, however, just one of the several technical indicators in the crypto market.
Thus, a trader should not solely base their decisions on candlesticks but on other technical indicators, as well as market data, news, fundamental analysis, and more. And remember: trading remains risky.