Candlesticks are no longer just for 18th century England. Here are all the patterns that anyone who trades bitcoin has to know by heart.
Candlestick patterns are used by traders for decades. These patterns have been found to help predict where the market may go next. There is an untold number of useful patterns in everyday trading. The volatility of a bitcoin marketplace makes only a spare few of them actually useful.
Even novice crypto traders are aware that bitcoin values work in stark contrast to the values of other tradable assets. Which is part of the reason bitcoin can be such a lucrative trade staple. But buyer beware- because of this wild fluctuation in price, predicting market shifts is that much more difficult. Leaving most bitcoin trader focused on bearish patterns and when to buy.
Candlestick Pattern: What is a Candlestick?
Ever seen those blocky trader charts with the red and green rectangles on them? Those my friend, are candlesticks. There are three main components to a candlestick
The body of a candlestick is the rectangular bit. This represents an open-close range of any given value. The larger the rectangle, the larger the gap between what a commodity opened at and closed, within a single day of trading.
The wick is the little line that comes off either the top or bottom side (or both) of the body of a candle. The wick indicates the intra-day high and low. What that means is that should the value trade outside of the opening or closing value within the day, the wick will reach that point. For example, if bitcoin closed at $1000, but spent some time around $1500 during the day, the wick would extend above the body of the candle, reaching $1500.
Colors of candles show the direction that the market moved. Candles are either red and green, or black and white. Green or white candles indicate upward market movement, where red or black candles indicate a decrease in price.
Any one candle within a candlestick graph isn’t incredibly useful on its own. But when compared with those candles that immediately surround it, patterns emerge. Sometimes these patterns are widely reoccurring and can help signal coming market trends.
Candlestick Pattern: Bear vs. Bull
You’ll hear a lot about bear markets and build markets, which is an important concept when dealing with candlestick patterns. The goal of any trader who wants to make a profit is to “buy low, sell high”. Sounds simple enough, but how do you know when low is actually low, and high is the highest you can hope for?
Candlestick patterns can help traders predict impending bear and bull markets, or help predict the lowest lows and the highest highs. Bear markets are those that are on a downward trend or ones that are in a decline. This is because a bear swipes down to attack.
Bull markets indicate an upward trend in markets or ongoing price increases. This is because a bull swipes up when he’s on the attack. Bearish patterns can be super helpful for traders as they can give an idea of when the market is starting on a downward roll (sell high- before it drops out). They can also give traders a good idea of when the market has hit the pits (buy low- before the price bumps up again).
Bullish candlestick patterns are sometimes considered less reliable than their bearish counterparts- particularly in bitcoin and crypto trades.
Candlestick Pattern: Which Patterns Are Best for Bearish Bitcoin?
Which is why the five candlestick patterns that every bitcoin trader needs to know are in fact- bearish! While there are other patterns that are good to be aware of (both bearish and bullish) these are our favorites when cruising crypto trends. Most all of these patterns have a mirror image bullish trend, indicating the inverse of both patterns and market trends.
When a green candle and red candle are side by side (in that order), with their upward wicks hitting the same value, this is called a tweezer top. This is generally considered a good indicator that the market is preparing to go from bull to bear, with buyers running out of steam. Signaling the end of a good bull market.
Three Black Crows
When you get three long red candlesticks, each plunging lower than the stick preceding it, this is indicative of a strong bearish downturn. Each successive candle will open slightly higher than the last closed, but they will all close much lower than the open. Giving them a stair-step appearance. If this happens three times in a row, traders can surmise that the market will continue its downward trend.
The Bearish Harami is generally considered a good indicator that the market is unlikely to recover from a bearish trade day. The Bearish Harami is a Three Inside Down pattern.
The Bearish Harami is a two candlestick pattern that is heralded by one, long, green candle. The second candle is a short, fat, red candle that is completely within the range of the green candle that comes before it. Looking like the green candlestick could easily be pregnant with the red one. Which is where the name comes from as “Harami” means pregnant in Japanese.
Bearish Advance Block
Possibly the most useful pattern to crypto traders, the Bearish Advance Block pattern signals a weakness within a bull market trend. This pattern is recognizable by three green candlesticks. Each with a longer and longer upward wick, but a shorter and shorter body. Often times, the closing price of each candlestick will be slightly higher than that of the candlestick before it, but the shrinking bodies show decreasing momentum and increasing indecision.
Usually gauged in a pattern of five candlesticks, the bearish breakaway is a good lesson in how fickle bull markets can be. Showing that a current uptrend is quickly losing steam.
The first candlestick will be long and green, immediately followed by a short green candlestick that seems to soar above the first. The third and fourth candlesticks are short as well but will have longer wicks on both sides. By the time the fifth candlestick rolls around, it is long and red, clearing any of the gains seen in the previous three. And pushing values back down to near the closing price of the first.