How to Trade Cryptocurrency Candlestick Patterns Like a Pro

How to Trade Cryptocurrency Candlestick Patterns Like a Pro

Since the dawn of cryptocurrency, we’ve seen a major increase in its value. It’s value and utility over paper currency is much better suited to our entire way of life within this new digital era. It’s very possible that it takes over the future of currency, but that’s a bit over speculative for now. One things for sure though, with so many benefits to offer, many are tempted to trade these digital nuggets of gold.

Even if the concept of cryptocurrency seems foreign, trading is fairly simple when you get a handle on it. However, in order for it to be useful, you need to understand the ins and outs of the market and the rules that the market follows in order to get a grasp on certain trading fundamentals.

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Much like institutional stock trading, it’s important to understand the fundamental signals to start and what they mean.  Understanding these  signals can be the difference between winning or losing your ass on a trade.  One of the most important “signals” ‘you can begin to study along your cryptocurrency trading career is the candlestick.

What Are Candlestick Patterns?

Candlestick patterns have been in use for decades and have become very popular in terms of plotting the price action of a security or stock. Typically, a candlestick chart has a series of bars, called candles, which have different colors and heights. The colors and sizes depend on the price action of the security being studied at that point in time. It usually contains both opening and closing prices.

The bars of the candle depends on the unit of time, be it a minute, day or even a week, depending on the time frame of the chart you’re looking at. This, however, does not affect the candle’s colors. If a hollow bar is visible, it means that the closing price is higher than the opening price of the currency.

A red candlestick is used when the opening price is higher than the closing price, thus showing a downward pull, whereas a green color is used to show that the price rose from the starting period to the end.

Even though the candlestick chart can let a person determine what the rate of the cryptocurrency is headed towards, technical analysis is also needed so that a better decision on movement can be made.

Popular Candlestick Trading Patterns

Let us look at some patterns that can be often found in a candlestick chart. There are two categories: continuations and reversals. Most candlestick patterns fall into these categories. A continuation pattern can predict the extension of the price action currently prevailing, reversal patterns predict the change in the price direction.

Take a look over the 9 following bullish candlestick patterns which you’ll want to focus on for a strong reversal signal:

Hammer

Being the bullish reversal pattern, the hammer can be seen as a signal that the cryptocurrency has almost reached the bottom in a downtrend. This means that the bears have been exhausted.

hammer trading pattern cryptocurrency

Hanging Man

The hanging man is the exact opposite of the hammer. Here, the signal is that the cryptocurrency is nearing the top in an uptrend. If you see a hanging man when the prices are going up, do not buy since the prices will most likely be going down very soon so it’s best to take your profits now.

hammer-and-hanging-man-candlestick-patterns

Three Soldiers

When you spot a pattern with three soldiers, you can immediately recognize that a period of downtrend has just been active or is in the price consolidation.

3-white-soldiers-candlestick-pattern-cryptocurrency

Bullish Engulfing Pattern

It is a reversal pattern with two candles, and it usually appears in a downtrend.

bullish bearish engulfing pattern candlestick

Morning Star

During a gloomy downtrend, the morning star can be considered as a sign of hope for investors. Obviously, this is a bullish sign.

morning star candlestick pattern cryptocurrency

Piercing Line

The piercing line can be seen in a downtrend.

piercing line candlestick pattern cryptocurrency

Shooting Star

This signal is an excellent indicator of the fact that the prices are about to as the bulls are now exhausted. This is a good reversal pattern candlestick indicator.

shooting star candlestick pattern cryptocurreny

Inverted Hammer

This is one bullish reversal pattern and indicates the support level. The signal shows that bulls are attempting to raise the prices upward, this is also why you will see long shadows (also referred to as wicks). They aren’t strong enough to push the prices up at the moment, however when you see this signal, you need to stop selling your currency because there is a very high chance of an upcoming rally.

invered-hammer-candlestick-pattern-cryptocurreny

Doji

When you see a doji, you need to be cautious since the pattern means that the market is not very sure about future movement and is waiting for an external sign. Usually, this means that it shows reversal signs. The signals are not as strong as can be seen in the signals discussed above, however if you see this signal, you better stop buying and selling since the uneasy market can mean you might end up losing your investment.

doji-candlestick-pattern-cryptocurreny

Recommendations

When you decide to trade cryptocurrencies, it is better to use a variety of technical analysis and candlestick patterns so that you have a clear idea of what plan of attack to take for future movement. Both upward and downward movements are a lot more prominent when evaluating over a long period of time, for example hours or days, however this depends on if your day or swing trading.

When you take candlesticks pattern into consideration, try to wait until the next candlestick forms and then analyze the previous one. Since the candlesticks are patterns based on speculation, any news can turn the whole pattern upside down. This is why you should try to trade on days when there aren’t any huge events so that the candlestick pattern is properly represented within the market and won’t change drastically.

I highly recommend checking out our charts here and practice predicting certain candlestick patterns as they form. While you’re at it, print this candlestick cheat sheet until you get a good grasp on candlestick patterns. Hell, I even use it from time to time myself and I’ve been trading for several years now.

Now get to work and start practicing your trades!!

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