The candlestick chart is one of the most commonly used chart tools in the cryptocurrency world; many people find it looks like a complex book of red and green lines when they first encounter it.
As long as you grasp a few basic concepts, you can use candlesticks to determine basic directions, positions, and entry timing.
Here is a simple and practical set of introductory thoughts on candlesticks I have organized, suitable for friends who are just starting to study the market:
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Step 1: Observe the trend, do not go against it.
With the correct overall direction, subsequent judgments become meaningful.
• Upward trend: If the chart shows continuous green bullish candlesticks, and each closing price is higher than the previous one, it indicates that the market is strong.
• Downward trend: Conversely, continuous red bearish candlesticks with closing prices gradually decreasing indicate that the market is weak.
• After confirming a trend, do not easily make reverse judgments; beginners are easily tempted by rebounds, but going against the trend often leads to greater losses.
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Step 2: Find positions - support and resistance.
On the candlestick chart, prices often fluctuate back and forth in certain areas, which are like 'invisible walls.'
• Support level: When the price falls to a certain point and often rebounds, it indicates that there are funds buying at that level.
• Resistance level: When the price rises to a certain point and then falls back, it indicates that there is significant selling pressure at that level.
When approaching support, if a signal of stopping the decline appears (such as a long lower shadow), it is a good time to observe long opportunities; approaching resistance, however, requires caution for potential pullback risks.
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Step 3: Combine volume and price to observe signals.
The volume bars below the candlestick chart reflect 'market participation.'
• Upward increase in volume: Indicates that more buyers are entering the market, and prices may continue to rise;
• Downward increase in volume: Strong selling pressure may further weaken the market;
• Volume contraction and consolidation: Price oscillates but trading volume decreases, often a signal before a trend change.
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Step 4: Common candlestick patterns assist in judgment.
There is no need to remember many complex patterns; beginners only need to master a few common ones:
• Hammer candlestick: Appears at the end of a downtrend, with a long shadow and a small body, indicating that funds are picking up at lower levels, potentially halting the decline.
• Inverted hammer candlestick: The shadow is above, and although the strength is slightly weaker, it is also a reversal signal.
• Three consecutive bullish candlesticks: Three consecutive bullish candlesticks rising indicate strong buying power and the possibility of continuation.
• Engulfing pattern: A large bearish candlestick followed by a small bullish candlestick is 'wrapped' around, indicating that the decline may weaken.
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Step 5: Simple technical indicators for assistance.
• Moving average crossover: For example, if the 5-day moving average crosses above the 10-day moving average, it is called a 'golden cross,' indicating short-term upward expectations;
• MACD golden cross: A short-term trend indicator also shows a crossing signal, which can be used as a reference.
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Step 6: Set stop-loss, prioritize risk.
Each time you enter the market, consider first, 'What if I'm wrong?'
It is recommended to set an exit point when entering the market, such as automatically exiting if the support level is breached; do not stubbornly hold on.
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To summarize:
Reading candlestick charts is not difficult; the core consists of three things: observe trends, find positions, and set risks.
Based on this, combined with trading volume and fundamental indicators, beginners can gradually establish their own rhythm.
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