Although crypto assets are a new addition to the financial world, expert crypto traders rely on many candlestick formations while making trade decisions. Over centuries, financial investors and traders have been using these candlestick formations to anticipate future price movements and determine trading positions. It is a typical practice among financial investors to analyze the market context through candlestick charts.
However, it is mandatory to understand the formations and learn professionals’ use when seeking to use any candlestick pattern to execute successful trades. This article will introduce you to the best ten crypto candlestick patterns.
What is a candlestick?
A candle illustrates participants’ or traders’ activities during any specific period. Each candle represents a particular period from a single minute to an entire month. It shows the historical price movements, and the most common three chart types are the bar chart, line chart, and candlestick chart. Candles can be either bullish or bearish. Whereas a bullish candle represents an increasing buy pressure, bearish candles declare an increasing declining pressure on the asset price.
The essential features of any candle are open, high, low, and the body. Meanwhile, you can group candlestick patterns into three basic categories:
- Continuation pattern
- Bilateral pattern
- Reversal pattern
How to use candlestick patterns?
You can use candlestick patterns to anticipate the market context and generate long-term, short-term, swing trade, day trading, or scalping trading ideas. These candle formations don’t usually create trade ideas by themselves; traders generally determine the area of interest of other participants through candle formations alongside obtaining market context and anticipating future directions.
In short, candlestick patterns are the most valuable components when anyone combines them with other technical tools, indicators, and market contexts. There are single candle patterns and multi-candle patterns.
The best ten crypto candlesticks
Many candlestick charts are available and generate the same trading ideas by taking place at specific phases of price movements.
The best ten among them for crypto trading are:
Hammer
It is a single candle pattern that usually takes place on any financial instrument chart. When it comes to appearance, these patterns have long wicks on the lower side of the candle body, and a tiny small upper wick is allowable.
When the body is green, it is a bullish hammer, and if the body is red, it is a bearish hammer. Lower wicks will be at least twice the candle body in both cases. When a bullish hammer candle occurs near any support level, and after a downtrend, it usually signals a possible upcoming buy pressure or reversal on the asset price. In an uptrend market, it usually indicates a continuation.
Inverse hammer
The functionalities of this pattern are pretty similar to the previous pattern, while the primary difference is in appearance.
The inverse hammer has long wicks on the upside of the candle body. This pattern usually declares the same potential as a “hammer” candle by appearing at the finish line of a downtrend or starting an uptrend, that buyers may take control of the asset price.
Morning Star
It is a multi-candle formation containing three candles. The first candle of this pattern will be bearish. The following candle or “the star” will have a tiny body and maybe wicks on both sides of the candle body.
The last or third candle will be a buy candle and close above the previous candle’s range. This candle formation usually generates a buy signal by taking place near a support level.
Engulfing (bullish)
It is a multi-candle formation containing two candles. The first candle will be a sell candle; the following buy candle will cover the whole range of the previous candle and close above it.
This pattern declares a significant bullish pressure on the asset price and a very effective reversal pattern when it appears near any support level.
Engulfing (bearish)
It is the exact opposite formation of the previous pattern containing two candles. In this case, the first candle will be a buy candle, and the next candle will be a sell candle with a large body that will cover the entire range of the previous candle.
This pattern declares significant bearish pressure on the asset price and possible upcoming downtrend by appearing at the finish line of an uptrend.
Three white soldiers
It is another popular multi candle pattern containing three buy candles. Three buy candles in a row declare significant buy pressure on the asset price and anticipate that the buyers may be going to take control of the asset price.
The closing price of each candle will be above the range of the previous candle.
Three black crows
This is the exact opposite of the previous candlestick pattern containing three sell candles. This pattern occurs near any resistance level and declares declining pressure on the asset price.
You can easily identify these candle formation as it contains three sell candles in a row.
Doji
Doji candles are trendy among financial traders, a single candle formation. An ideal Doji contains a small body, either red or green, has wicks on both sides of the candle body.
Generates reversal signals by appearing on support resistance levels.
Evening star
It is a multi candle formation containing three candles. It has the exact opposite functionalities to the Morning star pattern. It usually takes place at the finish line of any uptrend or near any resistance level.
The first candle is a buy candle, the next candle will be a candle with a small body, and the next candle will be a sell candle that will close below the previous candle’s range. This pattern declares declining pressure on the asset price.
Spinning top
Spinning top candle formations share similarities with the Doji candle formations. The primary fact is this pattern usually have wicks of the same length on both sides of a small candle body.
It declares reversal pressure by appearing near any support resistance level, and you can consider it a continuous pattern when trendy price movements appear. It represents buyers’ and sellers’ confusion or indecision phase on a specific period.
Final thought
Crypto traders frequently use candlestick patterns to have clarity about potential future movements. Mastering these patterns and generating constant profitable trade ideas requires some practice indeed. The best outcome comes from these patterns when combining these formations with other market contexts or technical indicators/tools.
