Six Candlestick Crypto Trading Patterns for Beginners

The cryptocurrency market has emerged as one of the most attractive avenues particularly among the young men and women who are bullish about chasing the dream to make infinite wealth just by the click of a button. Nonetheless, every savvy individual will tell you that these streets could rank top among the most complicated environments you’ll ever meet on planet Earth.

The millions of hopefuls who spend hours exchanging crypto assets in markets have been considered as the forces behind their complicated nature. Apart from the deep faith that they’ll make a fortune, most of the traders are visionary, goal-oriented, and have tough objectives. This explains why every participant will be on the lookout to acquire the technological tool that’ll allow them to make near-accurate predictions with minimal struggles.

Candlestick data patterns have gained popularity as the most effective technical data tools in the cryptocurrency market. In essence, candlesticks operate by packing data from a range of time frames into single price bars. This attribute makes candlesticks more effective instruments of trade than the conventional low-close, open-high bars and the overly simplified lines used to join the dots in closing prices.

In reality, candlesticks have a strong history in the financial market’s speculation systems for their inherent abilities to create patterns that forecast price directions upon completion. Steve Nison introduced the candlestick trading patterns in the West following his authorship of the popular non-fiction piece of literature. It was a fantastic study that would inspire and help many individuals.

To date, the candlestick cryptocurrency trading trend has been choreographed in dozens of formations with names like doji, three black crows, evening star, cloud cover and hammer.

Here is the list of the six most effective candlestick trading trends you must know and use if you want to succeed in the market as a beginning crypto enthusiast.

The Bullish Engulfing Pattern

Engulfing candlestick crypto-asset patterns tend to depict a reversal of the prevailing trend (also known as a swing in the market). Basically, an engulfing pattern will involve a set of two candles with the concluding candle “engulfing” its successor’s body.

This is one of the highly adopted patterns in the cryptocurrency market as it culminates in an obvious win by the buyer segments as the buying pressure tends to push the prevailing prices to a higher level compared to the previous high.

A bullish engulfing pattern is a candlestick that appears when a small black candlestick (depicting a bearish trend) proceeds in the next day with a large white candlestick with its body completely overlapping the body of the previous day’s candlestick.

In this case, the white candlestick must close higher than the previous day’s opening. However, the white candlestick in this case needs to have opened lower than the close of the previous day.

What Does the Bullish Engulfing Pattern Communicate to You?

There’s a lot of hidden information behind the engulfing candlestick pattern as a mode of trade in crypto markets. In essence, the information communicated by this pattern goes beyond the simple white candlesticks used to represent upward mobility in unit price and the black candlesticks that represent a downward trend in unit prices.

Conversely, a bullish engulfing trend emerges in conditions where the unit closes at a lower price on the second day than it closed on the previous day.

Bearish Engulfing Pattern

The bearish engulfing pattern usually occurs at the top of an uptrend and will manifest in the form of two candlesticks. It is important to note that engulfing candles will mostly depict a swing in the market (reversal of the current market trend).

In particular, a bearish engulfing candlestick pattern will involve a set of two candles with the current candle engulfing the entire body of the ensuing counterpart. Visualize the second candle as the bearish candle that has engulfed the first bullish candlestick.

A cryptocurrency enthusiast may use the bearish engulfing candlestick pattern to initiate a sale in instances where an increase in volume is accompanied by a large downward shift in price. This scenario is most likely to appear at the close of Day 2. However, the bearish engulfing pattern could be of minimal essence in choppy market scenarios.

The information Bearish Engulfing Pattern Gives

The appearance of the bearish engulfing pattern acts as a clear indicator that it is the end of an upward price move. In essence, a larger down candle in the bearish engulfing model is used to reveal more strength compared to instances where the down candle is only a little bit larger than the cup candle.

The Hammer Candlestick pattern

The hammer pattern arises in instances where the crypto unit price trades at a meaningfully lower margin compared to the open price then bounces with the entry of bulls. However, the unit prices eventually close a little above or below the initial opening price.

This pattern leads to the formation of a candlestick whose lower shadow is at least two times the size of the actual body. In this case, the candlestick’s body depicts the difference between the opening and closing prices of the unit. On the other hand, the shadow is used to represent the high and low prices.

What the Hammer Pattern Tells

A hammer candlestick will appear after a cryptocurrency has experienced a decline. Its occurrence could act as a clear indicator that the market is on the verge of determining a bottom.

Similarly, there’s a tendency that the appearance of the hammer candlestick could reveal the possibilities of a potential capitulation fueled by the sellers with the desire to form a bottom. The price increments that follow the capitulation could inform the crypto enthusiasts that the unit in question is just about to experience a reversal in its price direction.

The Hanging Man Candlestick Pattern

The hanging man candlestick pattern can be considered as the bearish fashion of the hammer. Even though it comes in a shape similar to that of the hammer, it will form at the end of an uptrend. The name is derived from its resemblance of a hanging man.

Every beginning crypto-asset enthusiast needs to know that the hanging man could be a clear indicator that the price of the cryptocurrency will experience a potential reversal from the uptrend. However, the hanging man pattern could depict a reversal in the price chart if it appears at a critical resistance mark.

What the Hanging Man Communicates

The hanging man gives hope for a large sell-off particularly after the open. Even though this candlestick may send the price plunging, there’re tendencies that buyers will tailor the prices back closer to the opening price.

Every beginner needs to interpret the appearance of the hanging man as an indication that the bulls have lost control and that the asset in question is on the verge of entering a downtrend.

Shooting Star

The shooting star candlestick pattern adopts the same shape as that of the inverted hammer. However, the shooting star is most likely to appear in an uptrend scenario. Structurally, the shooting star will have a small body while the upper wick is a little bit longer.

In essence, the shooting star candlestick tends to appear when a cryptocurrency opens, takes a significant advancement, then closes at a region closer to the opening point.

A candlestick will only be considered as a shooting star when it meets these conditions:

  • Its formation must occur in a price advance
  • The distance between the opening price and the highest price attained must be over two times larger than the body of the shooting star
  • Little to no shadow in the region below the real body

What Does the Shooting Star Communicate?

Here’s what a shooting star will tell you:

  • The possibilities of a price top and price reversal
  • The shooting star may be visible at the time of overall rising prices
  • Buyers have lost control at the close of the speculation day and the sellers are taking over

The Evening Star

The evening star takes a three-candlestick formation with the resemblance to the bullish morning star. Unit market analysts are most likely to adopt the evening star to establish when a trend is just about to reverse. The evening star takes the shape of a short candle sandwiched between a larger red candlestick and a long green candle. 

Even though the evening star is a rare candlestick, it finds wider applications in the technical unit analysis as one of the most reliable indicators. However, the evening star will take the form of a bullish indicator.

What the Evening Star Communicates

The appearance of the evening star candlestick will always act as a clear indicator that the crypto unit is experiencing a reversal of an uptrend. However, the effect is particularly pronounced when the third candlestick outdoes the gains obtained from the first candle.

The Final Points

Mastering the candlestick cryptocurrency trading patterns places you at an advantage. However, you need not to take trades just by observing these patterns. The impact of the patterns depicted by the candlesticks is high when the trends occur at strong resistance or support margins.