Day trading is a method of investing in cryptocurrencies where a trader buys and sells cryptocurrencies within the same day without having any open positions at the end of the day. Therefore, day traders try to buy a cryptocurrency at a low price and sell it at a higher price or short sell a cryptocurrency at a high price and buy it at a lower price within the same day. This requires a good understanding of the market and relevant information that can help them make the right decisions. In the cryptocurrency market, the price of a cryptocurrency is determined by its supply and demand along with other factors.
Tools like candlestick charts are very helpful for traders. We will talk about these Candlestick Charts and provide steps to help you read them.
What is a candlestick chart?
Candlesticks are visual representations of the size of price movements. Traders use these charts to identify patterns and assess short-term price direction in the cryptocurrency market.
Components of a candlestick chart
The candlestick chart looks like this:
As you can see, there are several horizontal bars or candles that make up this chart. Each candle has three parts:
Body
Ball on
Bottom ball
Additionally, the candle body is either Red or Green. Each candle represents a period of time and the data corresponds to the trades made during that period.
A candle has four data points:
How to Analyze Candlestick Charts for Cryptocurrencies
The candle body in a candlestick chart represents the opening and closing prices of the trades made during the time period for a particular cryptocurrency. Understanding this is important for candlestick trading. Traders can quickly see the price range of a cryptocurrency over the said time period by looking at the chart. Furthermore, the color of the candle body indicates whether the price is increasing or decreasing. For example, if a candlestick chart for a month shows a day with more consecutive red candles each, then traders know that the price of that cryptocurrency is decreasing.
The vertical lines called wicks or shadows above and below the candle body show the high and low of the cryptocurrency's trading price. Traders can use this information to analyze market sentiment towards the cryptocurrency.
Candlestick chart
Candlestick charts are a great way to understand investor psychology and the relationship between supply and demand, bulls and bears, greed and fear, etc., in the cryptocurrency market. Traders must remember that while an individual candlestick provides enough information, patterns can only be identified by comparing a candlestick with the candles before and after it. To benefit from them, it is important for traders to understand the patterns in candlestick charts.
Let's divide the samples into two parts:
Bullish pattern
Bearish Pattern
Analyzing these patterns can help traders make informed decisions about buying or selling cryptocurrencies.
Bullish pattern
Hammer pattern
This is a candle with a short body and a long lower shadow. It is usually found at the bottom of a downtrend. It shows that despite selling pressure, a strong buying wave has pushed prices up. If the candle body is green, it indicates a stronger bull market than if the candle body is red.
Inverted Hammer Pattern
This is a candle with a short body and a long upper wick. It is usually found at the bottom of a downtrend. It indicates buying pressure followed by selling pressure. It also indicates that buyers will soon take control.
Bullish Engulfing Pattern
This is a two candlestick pattern where the first candle is a short red candle engulfed by a large green candle. It indicates a bullish market pushing prices up despite opening lower than the previous day.
See-through pattern
This is a two-candlestick pattern that has a long red candle followed by a long green candle. In addition, the closing price of the second candle must be more than half the body of the first candle. This shows strong buying pressure.
Morning star pattern
This is a three candlestick pattern that has a short body candle between a long red candle and a long green candle. There is usually no overlap between the short and long candles. This is a sign that selling pressure is decreasing and a bull market is starting.
Three White Soldiers Model
This is a three candlestick pattern with three green candles with small wicks. These candles open and close higher than the previous day. After a downtrend, this is a strong indication that an uptrend is coming.
Bearish Pattern
Hanging Man Model
This is a candlestick with a short body and a long lower shadow. It is usually found at the top of an uptrend. It indicates that selling pressure is stronger than buying pressure. It also indicates that sellers are gaining control of the market.
Shooting star pattern
This is a candle with a short body and a long upper shadow. It is usually found at the top of an uptrend. Typically, the market opens higher than the previous day and rallies a bit before crashing like a shooting star. It indicates that selling pressure is taking over the market.
Bearish Engulfing Pattern
In candlestick analysis, this is a two-candlestick pattern in which the first candle is a short green candle engulfed by a large red candle. It usually appears at the top of an uptrend. It indicates a slowdown in the market's upward momentum and an upcoming downtrend. If the red candle is lower, the downtrend is usually more significant.
Evening star pattern
This is a three candlestick pattern that has a short real body candle between a long red candle and a long green candle. There is usually no overlap between the short and long candles. This is a sign of an uptrend reversal. This is more significant if the third candle exceeds the first candle's bullish high.
Three Black Crows Pattern
This is a three candlestick pattern consisting of three consecutive red candles with short wicks. These candles open and close lower than the previous day. After an uptrend, this is a strong indication that a bear market is coming.
Chart patterns can be used to understand the trends and sentiment of the cryptocurrency market. There are several other patterns to explore to gain a deeper understanding of market movements. Use this as a starting point and continue to learn and refine your analytical skills.
Happy trading and successful investing!💪👊
Source: Crypto Insiders
