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An introduction to Japanese Candlesticks by TraderSmokey

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First off, let’s start by explaining what a candlestick is:

A candlestick is a form of visually representing price and time on a chart.

It consists of 4 pieces.

The high, the low, the open and the close. These components build a candlestick that can consist of a body, and two shadows (upper and lower)

Open / Close / Body
High / Low
Upper shadow / Lower shadow

Now that we’ve got that out the way, let’s start talking about different candlestick formations, mainly single candle formations and two candle formations, and I picked out a few that can form in a 24/7/365 market like Crypto.

  1. The Hammer

Characteristics: Long lower Shadow, little to no upper shadow, small body

It forms in a downtrend / correction and can signal seller exhaustion.

Sellers were able to push price down, far from the open of the candle, but bulls stepped in and pushed price back, close to the opening price.

Bulls are stepping in and want to force a trend reversal, which can confirm with consecutive bullish candles following the hammer. If it forms after a small correction it can simply mean that bulls are ready for bullish continuation.

Hammer

2) The Dragonfly Doji

Characteristics: Long lower shadow, little to no upper shadow, even smaller body than a hammer

It forms in a downtrend and has the same meaning as the hammer.

Sellers are exhausted and bulls are stepping up. Bears managed to push price far from the open but bulls step up and push price back close to the open of the candle. This can signal a trend reversal.

Dragonfly Doji in a downtrend

A Dragonfly Doji can also form in a correction and can signal continuation of the main trend (bullish).

Dragonfly Doji in a correction

3) The inverted hammer

Characteristics: Long upper shadow, little to no lower shadow, small body

It forms in a downtrend and shows that bulls are testing the strength of the bears, but bears push back. Bulls are looking for a reversal and this can confirm on the following candle closes.

Inverted hammer

4) Spinning Top

Characteristics: Long symmetrical shadows to both ends, small body

Spinning Top forming after a correction. Reversal confirms on the following candle closes.

Spinning Top after a correction

Spinning Top forming after an uptrend. Reversal confirms on the following candle closes.

Spinning Top after an uptrend

Spinning Top forming in a consolidation after an uptrend. Continuation confirms on the following candle closes.

Spinning Top in a consolidation

5) The Hanging Man

Characteristics: Long lower shadow, little to no upper shadow, small body

It forms in an uptrend and signals that bears are testing the bulls. Bears managed to push price far from the open but bulls pushed price back. Bears are looking for a reversal and this can confirm on the following candle closes.

Hanging Man

6) The Shooting Star

Characteristics: Long upper shadow, little to no lower shadow, little to no body

It forms in an uptrend and shows buyer exhaustion. Bulls tried to push prices higher but bears finally stepped in and pushed the price back to the open. Bears are looking for a reversal and this can confirm on the following candle closes.

Shooting Star

7) The Gravestone Doji

Characteristics: Long upper shadow, little to no lower shadow, little to no body

It forms in an uptrend and has the same meaning as a Shooting Star.

Bulls tried to push prices higher but bears stepped in and pushed all the way back to the open. Buyers are exhausted and bears are ready to step in for a trend reversal. This confirms on following candle closes.

Gravestone Doji

8) The Tweezer Top

Characteristics: Bullish candle closing close to its high, followed by a bearish candle with little to no upper shadow that negates most or more of the previous days gains.

Tweezer Tops form in an uptrend and signal a trend reversal. They show complete shift in sentiment from bullish to fully bearish from one day to another.

Tweezer Top

9) The Tweezer Bottom

Characteristics: Bearish candle that closes close to its low, followed by a bullish candle with little to no lower shadow that negates most or more of the losses of the previous candle

Tweezer Bottoms form in a downtrend and signal a trend reversal. They show a complete shift in sentiment from bearish to fully bullish from one day to another.

Tweezer Bottom

10) Doji

Characteristics: Symmetrical Shadows, little to no body

A Doji signals complete indecision in the market. Bulls made their effort to push price up, bears made their effort to push price down, but at the end of the candle it closes basically right where it opened.

The following candle closes will confirm where price is likely to head in the future.

Summary: Candlestick patterns can be a very effective tool in a traders repertoire, but a candlestick on its own doesn’t say much. The most important things are context and confirmation. Without context you won’t be able to read what the candlestick may want to tell you, and without confirmation you’ll likely jump into trades prematurely.

This concludes my Introduction to Candlestick patterns.

If you enjoyed it, feel free to share and follow me on social media, or leave me a tip.TraderSmokeyThe latest Tweets from TraderSmokey (@SmokeyXBT). Crypto | Retail Trader | Ichimoku | DM for serious business inquires…twitter.com

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Disclaimer: None of the aforementioned patterns will make you a profitable trader if you don’t have sufficient discipline in managing risk and being patient, picking only the best signals. This is not financial advice and this introductory piece is based on my own experience and simply reflects my views on the matter.

*Originally posted on Medium.

Alex Smith
Alex is the Founder of The Daily Chain and has been in the space for just over two years. Fascinated by the community and everything that blockchain has to offer, Alex dedicated himself to creating content and contributing back to the industry.

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