[Candlestick Patterns] - Steemit Crypto Academy Season 4 - Homework Post for Task 10
a) In your own words, explain the candlestick patterns and their significance in carrying out effective specialized analysis.
b) In your own words, explain the psychology behind the conformation of the following candlestick patterns.
• Bullish gulfing Candlestick pattern
• Doji Candlestick pattern
• The Hammer candlestick pattern
• The morning and evening Star candlestick pattern.
• The Harami Candlestick pattern.
Candlestick patterns in cryptocurrency trading refers to a tool that is useful for analyzing the maps produced by the price action movement of an underpinning crypto asset, which may be necessary to help traders determine potentially profitable formations.
Based on when to enter trading positions. price action. Typically, it uses key price data and assesses past trends that have been formed by the price of the asset in question.
When the candlestick patterns that are formed from the price action of the underpinnings we mean when combined with some other form of an asset and specialized analysis, it can be used to determine a possible reversal of an ongoing trend, a potential permanence or a possible path. Can be really valuable to do. Price action taken in the request.
Indeed, the kind of candlestick patterns that were first created in the 18th century were known as Japanese candlesticks and they originated in Japan.
Japanese candles have actually been widely used in the Western world for the analysis of fiscal requests and have been in operation for over a century.
They are based on history or prior price action as a way of determining the possible movement of price in the future. It is visible on the map and gives information about the high, low, open and close prices for any crypto asset you may decide to trade.
There are over 40 recognizable candlestick chart patterns in the market. In any case, these chart patterns will be more reliable when they are used to determine the possible movement of price in the short term.
In a candlestick pattern that is set for the daily time frame, each candle will reach the highest point for that day with a shadow or wick at the top of the body or at the top of the body.
The shadow or wick below the body represents the lowest point the price reached on the same day. Equally, this would be the case with weekly, monthly or even hourly candlestick patterns as the wick represents either the highest or lowest point for the week, month or hour respectively.
Bullish Engulfing Candlestick Pattern:-
A Bullish Engulfing candlestick pattern is a candlestick that can be white, transparent or green with an ending point that is immediately higher than the starting point of the immediately preceding candle after opening lower than the closing point of the immediately preceding candle.
Typically, it can be recognized in the event that a small red or black candlestick that represents a bearish trend is immediately followed by a larger green or white candlestick on the next candlestick that is forming a bullish trend with a body. Identifies the tendency to engulf or surround the body as a whole. The immediate preceding bearish candle.
The Bullish Engulfing candlestick pattern is the exact opposite of the Bearish Engulfing candlestick pattern.
This system of Bullish Engulfing candlestick patterns acts as a two-candle reversal pattern. This occurs when the second candle surrounds or completely encircles the actual body, not the wick or shadow of the first or immediately preceding.
Of course, this is always seen in a downtrend and comes in the form of a combination of a smaller red candle followed by a larger green candle.
Characteristics Of A Bullish Engulfing Candlestick Pattern:-
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It is characterized by the formation of a green candle that is too strong that it surrounds or completely surrounds the body of the red candle in front of it.
It occurs at the bottom or end of a downtrending market.
This can be taken as a stronger signal if the red candle is a doji or if the successful green candle closes above the high of the bullish candle.
Profit of the Bullish Engulfing Candlestick Pattern.
The bullish engulfing candlestick pattern:-
it Is easy to identify when it occurs in a downtrending market When it is confirmed by a bullish reversal it could provide a very profitable signal.
Pattern:- Bullish engulfing candlestick pattern
Characteristics:- Green candle which encircles the previous much smaller red candle
Location Occurs:- Bottom of a downtrending market
Signal Given:- Bullish market reversal
Doji Candlestick Pattern:-
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A Doji is the name given to a candlestick pattern that is marked by a session of trading where it can be observed that the candlestick for an asset occurs with opening and closing points that are approximately equal. A Doji pattern may look like a plus sign, an inverted cross, or a cross.
Most of the times when these patterns occur with similar open and close prices for an asset in any given period, it is often interpreted by most technical analysts as a pattern which signals possible reversal of the ongoing trend.
The Japanese doji word means mistake or blunder. This underlines the rarity of getting a period where the open and close prices of an asset are exactly or virtually the same. Doji patterns on their own are neutral.
They can come across three major types as the dragonfly, the long-legged doji, or the gravestone doji. This will depend on where the open or close points fall.
The different types of the doji pattern are shown below:-
The Hammer Candlestick Pattern:-
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A hammer candlestick pattern is a type of price chart that occurs when an asset is seen trading at a price that is significantly lower than the price at which it opened, but then within the same period under review.
The upward rallies are now closed. The point that is close to the price where it opened. Invariably, this price action forms a hammer shape in the chart pattern.
The lower shadow of the pattern is always at least two times the size of the real body of the pattern or candlestick.
Of course, the candlestick has a body which signifies the difference in price between the opening and closing prices.
The shadow itself indicates the highest and lowest points where the price was received in the period under review. It is observed that the Hammer candlestick pattern will usually be followed by a fall in the price.
The Morning And Evening Star Candlestick Pattern:-
The Morning Star
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A morning star is a candlestick pattern that is represented visually on a chart and is made up of three candlesticks, which are commonly interpreted by technical analysts to depict bullish sentiment in the market.
It is normally formed at the end of a downtrending market and shows that an upward climb of the price action is beginning.
Therefore, it is a reversal pattern indicating potential reversal of the current trend. Once it is formed, traders will be on the watch out to confirm the reversal pattern by the use of additional indicators.
Typically, it consists of a long red candle, a smaller red candle with a longer body with a shorter body and a third green candle that is longer.
Usually, the middle candle in this system signifies indecision in the market and the bears are understood to be giving way to the bulls. A confirmation of a reversal is usually accompanied by a third candle which may mark the start of an uptrend.
The evening star is the opposite pattern to this particular candlestick pattern and itself captures the reversal of an uptrending market into a potential downtrend.
The Evening Star:-
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The evening star is a candlestick pattern that has been used by technical analysts to help determine whether a potential reversal of an ongoing market trend is about to occur..
It is formed as a bearish candlestick pattern that is made up of three candles which include a large green candle, a red candlestick of small body and another large red candle.
Normally, It can be recognized when an uptrend has reached its top. This means that an uptrending market is at or already at its peak.
The Morning Star is the opposite pattern to the Evening Star and is interpreted as a bullish indicator in itself.
Therefore, the evening star may, at least, be useful in predicting a potential price reversal in the near term. Many traders see this as a very reliable bearish indicator and it happens very rarely.
The Harami Candlestick Pattern:-
The Harami candlestick pattern has become a very commonly used chart pattern in trading that is quite important in identifying potential market expansions or reversals of ongoing trends.
This is a Japanese candlestick pattern made up of two candles. These two candles indicate a possible reversal of the current trend or the continuation of an already existing trend.
Harami is a Japanese word that stands for "pregnant" and represents the whole psychology behind the Harami candlestick pattern.
The Harami candlestick pattern can be important in identifying both bullish or bearish signals as shown in the image below:
Bullish Harami:-
Bullish Harami can be identified by the following conditions or situations:-
1.A Downtrend Has Been Identified.
2.A major bearish or red candle as a major candle.
3.A trailing small green or bullish candle whose price moves upward after the leading bearish candle and which is actually contained in the opening and closing prices of the larger leading bearish candle.
Bearish Harami:-
Bearish Harami can be defined or established by the following conditions:-
1.An Uptrend That Has Been Spotted.
2.A large green or bullish candle as the dominant candle.
3.A trailing small red or bearish candle whose price is followed by a downward bullish candle and which is actually contained in the opening and closing prices of the identified major bullish candle.
As shown in the images above the first candle which is the pregnant candle is represented by a bigger candle which is continuing the current trend.
The trailing candle is represented by a smaller candle that goes out in the manner of a pregnant woman. We should note that the second candle should technically be a gap between or within the larger first candle.
The Harami candlestick pattern indicates signals that may be either bullish or bearish. It will depend on the valid candle.
The Bullish Harami above is actually a reversal of an already ongoing downtrending market. However, it is not all bastards who will signal a reversal in the market.
The above Bearish Harami is also a reversal pattern. Once the bearish harami has been formed the verification or confirmation or the third candle actually indicates a movement in the bearish direction. Therefore, one should focus on confirming or confirming candlesticks when trying to trade with this pattern.
CONCLUSION:-
In cryptocurrency trading, candlestick patterns have become a very important system that is formed by price action as it continues its movement and is very important for traders especially when trying to identify potential price movements on the short term. Might be possible. Certain candlestick patterns can be helpful in identifying a possible continuation of an ongoing trend, a consolidation in the market, or a potential reversal of the trend.
There are over 40 recognizable candlestick patterns in the trading world today. In fact, one should try to study and understand their useful applications when trying to trade with such candlestick patterns.
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