Just entered the cryptocurrency world and confused by candlestick charts? Don’t worry! Today, I’ll guide you to understand this 'treasure map of the crypto world' in just a few simple steps to read market sentiment!
What is a candlestick?
Imagine little candles (hence the name candlestick chart), which record the opening price, closing price, highest price, and lowest price of a cryptocurrency over a certain period (like 1 minute, 1 hour, 1 day).
Body (fat part):
Green (or white): Closing price > Opening price = Rise! The bigger the body, the stronger the rise.
Red (or black): Closing price < Opening price = Decline! The bigger the body, the harder it falls.
Shadow (thin lines up and down):
Upper shadow: The line from the highest price to the body. The longer it is, the more it indicates that it rose up but was pushed down again, showing strong resistance above!
Lower shadow: The line from the lowest price to the body. The longer it is, the more it indicates that it fell down but was bought back up, showing strong support below!
Look at two classic candlestick combinations:
🔨 Hammer line (bottom signal):
Long lower shadow (more than twice the body) + small body (both red and green are acceptable, but green is better) + short upper shadow or none.
Meaning: After a price crash, it is supported by strong buying! Bears are exhausted, and a rebound may be coming! (Often appears at the end of a downward trend).
☁️ Dark cloud cover (top signal):
First candlestick: A strong bullish candlestick (green).
Second candlestick: A large bearish candlestick (red) where the opening price > highest price of the first candlestick, and the closing price deeply penetrates the body of the first bullish candlestick (over half is best).
Meaning: It seems poised to break out and soar, but ends up being pushed back down hard! Bulls collapse, and it may fall! (Often appears at the end of an upward trend).
How should beginners use it?
First look at the trend: Is it overall upward (higher highs) or downward (lower lows)? Going with the trend is safer!
Find key positions: Pay attention to support levels that have been tested repeatedly without breaking down and resistance levels that have not been breached. Prices tend to change direction at these points.
Combine candlestick signals: Seeing a 'hammer line' at a support level may indicate a buying opportunity; seeing 'dark cloud cover' at a resistance level signals potential risks!
Don’t rely on a single candlestick! Combine several to analyze (patterns) and consider trading volume (how many buyers there are) for more reliability.
Remember: Candlesticks are a 'snapshot' of market sentiment that can help improve your win rate, but they are not a 100% prediction tool! The cryptocurrency market is volatile, so manage your risks well and don’t go All In!
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