How to understand Cryptocurrency Candlestick Chart

What is Candlestick Chart

Candlestick, also known as Yin-Yang candle or candlestick chart, is a type of chart that reflects PA. Its feature is to condense and organize the PA of the underlying asset over a period of time, and use different colors and forms to reveal price information and market sentiment, making it easy for investors to analyze. It is quite easy to read, understand, practical, and effective, widely used in the Technical Analysis of stocks, futures, precious metals, Digital Money, and other market movements, known as Candlestick analysis. It is said that K-line was invented by a Japanese rice merchant named Honma Munehisa during the Edo period of Japan. It was used to record daily rice market prices and analyze the futures market. The formation principle of Candlestick The Candlestick Chart mainly consists of three parts: the body, the shadow, and the color. Body: can be solid or hollow, representing the price Fluctuation between the Opening Price and Closing Price. longs Candlestick Chart closes at a higher price, shorts Candlestick Chart closes at a lower price. Shadow: The shadow, also known as the ‘tail’, extends from the Candlestick body and represents the highest and lowest prices during that time period. Color: Represents the price trend in this time period. Generally, green represents a price pump, while red represents a price decline. Candlestick Chart is drawn by recording four price data points in a certain time period in the market. Each Candlestick corresponds to a time period, such as 1 minute, 1 hour, 1 day, etc.

• Opening Price: The first trading price at the beginning of the time period.
• Closing Price: The last trading price at the end of the time period.
• Highest Price: The highest trading price within the time period.
• Lowest price: The lowest trading price during the time period.

Analysis of Classic Candlestick Patterns

longs/shorts engulfing pattern

The engulfing pattern consists of two candles. The engulfing pattern of longs refers to a small short candle being completely covered by a long long candle. The body and shadow of the long candle completely engulf the short candle. The engulfing pattern of longs indicates that there was selling pressure in the market on the previous trading day (as indicated by the short candle), but on the new trading day, the buyers completely took the lead and reversed the previous downtrend. The engulfing pattern of shorts consists of a small long positions candle followed by a large short positions candle, the latter completely engulfing the former. This indicates strong selling pressure in the market.

Hammer Line and Hanging Man Line

The hammer line and the hanging man line are single reversal candlestick patterns, referred to as pin bars in English. A long pin bar, also known as a hammer candlestick pattern, is a long reversal signal characterized by a small body and a long lower wick. This pattern indicates that sellers were dominant and pushed the price down, but as the trading nears its end, buyers’ strength increases and pushes the price above the Opening Price. Shorts pin bar, usually referred to as a hanging man, is a short positions reversal pattern with a small body and a longer Lower Shadow. It indicates that the sellers initially have the upper hand, but the buyers push the price pump in a short period of time. However, the sellers quickly regain control and push the price lower than the Opening Price. When the hanging man appears at the high of the pump trend, traders may look for a suitable selling opportunity.

Morning/Evening Star Pattern

Morning Star and Evening Star are composed of three candles, starting with a large solid, followed by a cross star, and then a large solid of the opposite color. The Morning Star pattern is a bullish reversal pattern, which usually indicates that the price is about to pump: first, there is a long bearish candle, then a small candle, and finally a long bullish candle. The small candle in the middle can be a doji or a hammer shape. The Evening Star is a bearish reversal pattern that typically signals a price decline. This pattern is also composed of three candles: a long bullish candle, a small candle, and a long red candle.

Cross Pregnant Line

The bullish doji cross is defined as a longer bearish candlestick followed by a shorter pump doji candlestick, with the pump candlestick completely within the range of the bearish candlestick’s body. It indicates a slowdown or impending end of a bearish trend. The bearish harami cross refers to a longer pump candlestick followed by a shorter bearish harami candlestick, and the bearish candlestick is completely within the range of the pump candlestick. It usually appears at the end of a pump trend, indicating that buying pressure is weakening.

Summary

Essentially, Candlestick Charts are the visual language of the financial world. They are like brushstrokes on a canvas, each one telling a unique story of market sentiment and price behavior. These formations have stood the test of time, offering a unique perspective on market data, compressing information from multiple timeframes into a single, expressive price bar, making them a reliable tool in the modern trading arena.