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Common Candlestick Patterns Used in Trading Crypto and Stocks

Candlestick charts are a way of viewing price movements in stocks, crypto, and other financial instruments. They are used to help make sense of daily, weekly, and monthly price trends. Candlesticks can be used on all timeframes and offer insights into buying and selling opportunities. They can also help predict future price movements.

This brief article will go over several of the most popular candlestick patterns that you can use to inform your stock and crypto trades.

What are candlestick patterns, and how are they used?

Candlestick patterns are a way to analyze the price trends of a stock or commodity. Traditionally, they have been used by traders to determine the direction of a stock’s movement and predict when to buy or sell.

Candlestick patterns are created when you take the closing price of a stock over a period of time and then plot that data on a chart. A series of candles will show up on your chart as you move through time, each candle showing where the closing price was at that point in time.

They’re called “candles” because they look like candles! You can tell how strong or weak a particular candle is based on how tall or short it appears on your chart. The longer the candle, the stronger it is. The shorter it is, the weaker it is.

Bearish engulfing

A bearish engulfing pattern is a bearish reversal pattern. It is formed when the price moves up, then down, and then closes below the low of the second bar. This indicates that sellers have pushed the price down to a new low, and it has failed to recover above this level.

The bearish engulfing signal indicates that there is likely more downside left in this market. A trader may sell short or expect lower prices to come in after seeing this signal form on their charts.

Bullish engulfing

A bullish engulfing pattern is a bullish reversal pattern that is formed by two candlesticks. The first candlestick is black, and the second one is white. The second candlestick completely engulfs the body of the first one.

This pattern confirms an optimistic outlook for traders, and it means that buyers have taken over from sellers. It also indicates that after hitting a new low in price, bulls drove up prices above their previous high to reverse losses incurred during a bearish trend period.

Double top

A double top is a reversal pattern formed by two consecutive peaks. It indicates that the upward trend will be reversed, and it is a bearish pattern. This pattern can be seen in many financial markets, including stocks and cryptocurrencies.

The first dip does not have to be extreme; it just needs to form below the previous peak for us to see this pattern. The second peak (which forms on an upward trend) should be lower than the first peak; if this isn’t achieved, then you don’t have a valid double top formation yet! A valid example would look like this:

Rising Window

A rising window or channel pattern is a bullish continuation pattern that forms after a downtrend. It indicates that the price of the asset will continue to rise.

The rising window/channel pattern has two windows and a flat top. The upper window should be higher than its surrounding price bars, while the lower window should be lower than its surrounding price bars.

The upper window is formed by two parallel lines that are spaced apart by a distance equal to the size of two or three standard deviations from the mean. The lower window is formed by two parallel lines that are spaced apart by a distance equal to one standard deviation from the mean, which must be less than half as long as the upper window.

Steepening and flattening channels

A steepening channel is a bullish pattern in which the price moves higher, forming higher highs and higher lows. The support level remains intact as the stock or cryptocurrency keeps rising.

A flattening channel is a bearish pattern in which the price moves lower, forming lower lows and lower highs. The resistance level remains intact as the stock or cryptocurrency keeps falling.

In both cases, traders can utilize these patterns to decide when to enter into trades with a relatively high probability of success by identifying trend reversals at specific levels of support and resistance during these time periods when they occur over multiple candles.

Conclusion

Candlestick patterns are used by traders to help predict and read market sentiment. They are used across all markets and can be applied to technical analysis as well as fundamental analysis. They do not always accurately predict what will happen, but they can provide a good starting point for traders doing their research into the crypto or stock market.

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SOURCES:

Candlestick Patterns — Overview, How They Work, Examples (corporatefinanceinstitute.com)

The 7 Most Common Candlestick Patterns — Cryptohopper

Candlestick Patterns: The 5 Most Powerful Charts (investopedia.com)

16 Candlestick Patterns Every Trader Should Know | IG EN

The most common Candlestick pattern in the market — Tokenomy

All 63 Candlestick Patterns Explained In Details & Performance Data (patternswizard.com)

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