Candle patterns for cryptocurrency trading: see trends before they happen
If you are involved in short-term cryptocurrency trading, you should be familiar with candle graphs that display the price change of this or that digital currency throughout the day. There are a few rules for these candles’ patterns that may help you gain more money.
These rules are completely subjective. Even if you see a candle pattern on the graph, another person can completely disagree with you.
The rules that will be discussed in this article are not a sure indicator that this or that trend is going to happen in the nearest future. But they can help you a lot if you’re involved in cryptocurrency trading. They are called Engulfing candles and Hammer reversals.
But first, let’s give a definition for a candle.
What is a candle
First, let’s define what a candle is.
A candle is simply a chart that shows the high, low, opening and closing prices of a certain digital currency in a specific period. It consists of several parts: open, close and wicks (or shadows). You can see them displayed on the picture below.
There are 4 types of candles that we’re going to discuss in this article:
- Bullish engulfing candles
- Bearish engulfing candles
- Bullish hammer reversals
- Bearish hammer reversals
All these types of candles can become great indicators for you once you learn to spot them on a graph.
Bullish engulfing candle
It is accustomed to color such type of candles on a graph in green.
There are 2 basic rules in cryptocurrency trading that are applied for bullish engulfing candles.
- The candle meets all of the previous price range of the previous candle, no matter how big is the previous day price.
- It closes well above any of the price range of the previous candle. The more it closes above this, the more bullish is the indicator.
This kind of candle can be a good indicator, that the price will be rising very soon and that it’s a good time for cryptocurrency exchange. They are commonly spotted, especially before uptrends, so keep your eyes open for them.
Bearish engulfing candle
This kind of candle is the opposite of the bullish one and so are the rules.
It is also a good indicator that the price is about to go down quite soon and a warning for investors who are focused on a short-term gains.
In the graph below you can see a big downturn that follows after a bearish engulfing candle.
As you can see on the graph below, huge uptrends and downturns follow soon after bullish and bearish engulfing candles appear on the graph.
Bullish hammer reversals
Hammer reversals are relatively subjective as well, but there is a general set of rules applied to them.
A candle that is called a hammer should have the following signs:
- very long wicks at the bottom
- short ones at the top
- a short price range
It doesn’t matter, whether a candle is green or red.
When you see a number of such candles on a graph, you can expect that a huge uptrends will follows, so this is a great signal to look for when you’re seeking for potential outbreaks.
Bearish hammer reversal
Just like with engulfing candles, the bearish hammer reversals are the opposite to the bullish ones. Look for the following signals:
- Wicks are larger to the upside
- Short wicks at the bottom
- A thick range of price action
And again, if you see many candles of this type, it means that the price will go down pretty soon.
Conclusion
So these are the signs to look for if you play in the short-term range.
Note that once you start spotting these signs, you can never go back, you will see them everywhere. And the more you spot them, the more experienced in digital currency trading you become and the more money you can make.
