Beginner Trading 101: The Most Powerful Candlestick Patterns Used in Crypto (P1)

candlestick patterns they are an excellent tool for discovering trading signals. However, recognizing a candlestick pattern and then interpreting it is essential. That is precisely what this chapter will focus on. So, without further ado, let’s get this party started. What is Chandelier? A Japanese candlestick is a type of price chart used in technical [...]

Beginner Trading 101: The Most Powerful Candlestick Patterns Used in Crypto (P1)

candlestick patterns they are an excellent tool for discovering trading signals. However, recognizing a candlestick pattern and then interpreting it is essential. That is precisely what this chapter will focus on. So, without further ado, let’s get this party started.

What is Chandelier?

A Japanese candlestick is a type of price chart used in technical analysis that shows the high, low, opening, and closing prices of a security during a specified period. It originated from Japanese rice merchants and traders to track market prices and daily momentum hundreds of years before becoming popular in the United States. The wide part of the candlestick is called the Body and it tells investors whether the closing price was higher or lower than the opening price. Trong một số trường hợp đặc biệt closing price = opening price, more on that later.

Before reading candlestick patterns, you need to understand the structure that a candlestick forms. A basic would include:

  • sail body: Distance from the opening price -> closing price
  • Closing price: The final price of the candle, at which point it will change to make another candle.
  • Opening price: The initial price of a candle.
  • The lowest price
  • Highest price
  • Upper Shadow/Lower Shadow: The remaining part of the candlestick is called the shadow. Various lines of candlesticks along with the changing shadow and length of the body form candlestick patterns that traders need to be aware of.

what is chandelier

Explanation to make the shadow and why is it important?

The upper or upper shadowof a candle shows the highest value of a data set for the graphed time period, and the lower/lower shadow, displays the lowest value. The upper and lower shadows are usually uneven. They illustrate the highest and lowest prices at which a security has traded during a specified period of time.

  • When the upper shadow of a candlestick is longer, it signifies strong action by buyers during the trading session. However, the fact that the period’s closing price is substantially lower than the period’s high reveals that the sellers succeeded in driving the price back. A strong and weak close high creates a long upper shadow.
  • When the lower shadow is longer, it reveals the opposite: sellers controlled the trading session at some point, causing the price to drop significantly. Buyers then stepped in before the close to push prices up again. It means that the session closed hard; therefore, the lower shadow is longer.
  • Long candlestick shadows to one side or the other, up or down, often occur at the end of a trend, just before price action reverses, forming a new trend in the opposite direction.

1) Marubozu

the Marubozu candlestick pattern is a candlestick pattern that looks like a block, that is, it has no highlights (Marubozu, in Japanese, means “bald head” or “shaved head”). When this candlestick pattern appears, the next candle will probably still be a bullish or bearish candle like a Marubozu because the momentum is still there.

There are three types of marubozu candles:

  • Marubozu open: As for the opening of Marubozu, the opening price must be flat: that is, the price action must move only in one direction, but unlike the full Marubozu candle, the closing price on the other side may differ. slightly from the maximum/minimum. In other words, the opening should be flat, while there is room for a short wick on the other side.
  • Marubozu close: The closing Marubozu candle is the opposite of the opening Marubozu: the close should be flat, while price action may move slightly in the other direction before it starts to trade aggressively one way.
  • Complete Marubozu: Marubozu’s full example, both open and close are flat, the asset opens the session, starts to recover in a certain direction, and closes exactly at the end. Therefore, the open and close have the same price as the high and low.

Marubozu

How to trade with Bullish Marubozu

How to trade with Bullish Marubozu

In the Bitcoin chart above, a bullish Marubozu occurs right after a sideways zone. Combined with the volume, we will see a very strong buying force here, so the new trend is just beginning. Rarely will you see an isolated Marubozu running against the main trend. So when a bullish Marubozu emerges, the trader can expect more upside potential. Therefore, open a trade on the next candlestick with R:R 1:3

  • long entrance: Opening price of the next candle
  • Stop loss of: nearest support
  • Take profit: nearest resistance

How to trade with Bearish Marubozu

How to trade with Bullish Marubozu

Looking at the 4H BTC/USDT candle, we will see 2 consecutive Marubozu candles with strong selling volume, opening a new trend. On the first Marubozu candle, the real body is quite short after an uptrend, so to be on the safe side we wait to close the second candle on strong volume and then take a short order with R:R 1:3

  • Short entry: Openprice next candle
  • Stop loss of: nearest resistance
  • Take profit: The nearest support, but in this case we cannot see the nearest support zone, so combine the next candlestick watch and set the volume R:R 1:3 Take Profit Buy Market Price

2) Doji

Regarded as one of the most important single candlestick patterns, the doji can give you an insight into market sentiment. Dojis are said to form when the opening price and closing price of a stock are the same. Since the opening price is equal to the closing price, these candlesticks have practically no body. Here is an example of a doji.

As you can see, the upper and lower shadows are quite long here, which means an increase in volatility. But, despite the volatile behavior, the token price opened and closed at the same price. This essentially indicates that there is indecision in the market.

For example, the opening price and the closing price have a small difference. In this scenario, traders consider that a doji has formed even though the candle has a thin body.

doji candlestick

There are some special types of Doji candlesticks:

  • doji dragonfly: The dragonfly doji forms when the opening and closing prices of a stock are at their highest point for the day. The dragonfly doji has no upper shadow and a long lower shadow.
  • tombstone doji: It is the direct opposite of the dragonfly doji. The tombstone doji forms when the opening and closing prices of a token are at the lowest point of the day. The pattern has no lower shadow and a long upper shadow.

How to trade with Doji

On its own, a doji may not mean much. Its importance comes into play only when it occurs during a prevailing trend. When a doji appears during an uptrend or downtrend, it indicates a break in the trend and that market participants (buyers and sellers) are unsure of the price movement. This signal can be interpreted as a possible trend reversal imminent.

3) spinning top

The spinning top is a single candlestick pattern that, like the Doji, signifies uncertainty and indecision in the market. When the closing price is somewhat close to the opening price, a top forms. A spinning top has a body that is small but distinct and has a structure comparable to a doji.

top

How to trade with Spinning Top

Long shadows mean that both buyers and sellers are fighting for control, but neither has been able to gain the upper hand. Therefore, the uncertainty in the price movement. When a spin appears during a trend, it signifies a loss of momentum and can be interpreted as an indicator of a trend reversal.

However, you still need to be careful when dealing with this pattern. This is mainly because there is only a 50% chance that a trend will reverse on a spin. Sometimes the spinning top turned out to be just a pause, and the prevailing trend continued without reversing.

Therefore, when reading Japanese candlestick charts, it is advisable to combine this pattern with the others to confirm the direction of the market. For example, a reversal is said to be confirmed if dojis appear next to the tops.

A pattern generated by a single candlestick is called a single candlestick pattern. Traders typically use the 1-day candlestick chart to identify a single candlestick pattern. In the following sections, I will introduce some more typical single candlesticks and Japanese candlestick patterns that can be used to identify trend reversals.

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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