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Candlestick Chart: a way to help you know when to buy and sell Bitcoin

Candlestick Chart: a way to help you know when to buy and sell Bitcoin

There are different kinds of chart could be used for technical analysis and they all have relative benefits in crypto trading. In this article, we will show you two main forms of charts: Line chart and Candlestick chart. These two charts are widely seen on Mexo’s crypto products. If you know how to read this chart, you will be an expert on identifying the market movement even when you decide to buy a cryptocurrency such as Bitcoin and Ethereum.

Line Chart

This is the simplest form of chat. It is essentially combined with a number of data points by a line. In Mexo’s front page chart section, you can see the line chart displayed there. It will help you quickly and easily identify the price movement or pattern of a certain coin. The weakness of line chart is that it only displays the closing price of an asset over time. Due to its simplicity, you may miss some of the crucial price movements that occur between the open and close of each data point.

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Candlestick Chart

Everything you need to know about Candlestick chart type will be showing in this article. Candlestick chart is widely used in Mexo’s product since it contains the most complete information and it is the most popular type of chart for traders as they are able to convey a large amount of data quickly, in a visually pleasing and easily-digestible format. It was shown mostly in red and green. The body of the candle signifies the open to close range, the wick is the high/low range, and the color displays whether the price has gone up or down.

  • A green body signifies a period in which the price has increased.
  • A red body signifies a period in which the price has decreased.
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The shape of each candlestick can give you clues as to the balance between buying and selling pressure in the market. Long green body shows that there is a lot of buying pressure, on the other hand, long red body means there is considerable selling pressure. Candlestick chart contains very rich information about the power of buying and selling.

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Candlesticks in the chart with short bodies and long wicks indicate that there was considerable pressure in one direction, but for some reason the price was pushed back before the end of that period.

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Uptrend Candlestick Type:

  • Bullish
  • Hammer
  • Inverted Hammer
  • Bullish engulfing
  • Tweezer bottoms
  • Morning star
  • Three white soldiers

Bullish

Large body, very little or no wick. This candle shows that the buyers have pushed the price up significantly from open to close.

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Hammer

The Hammer is a bullish reversal pattern, which signals that a stock is nearing bottom in a downtrend. The body of the candle is short with a longer lower shadow which is a sign of sellers driving prices lower during the trading session, only to be followed by strong buying pressure to end the session on a higher close. Before we jump in on the bullish reversal action, however, we must confirm the upward trend by watching it closely for the next few days. The reversal must also be validated through the rise in the trading volume.

When seen during a downtrend, this candle can signify the market is about to go up.

For a particularly strong signal, the lower wick of the hammer must be at least twice as long as the body and there should be little or no upper wick. The colour of the body is not especially important, but green hammers tend to be more bullish than red ones.

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Inverted hammer

The Inverted Hammer also forms in a downtrend and represents a likely trend reversal or support. It’s identical to the Hammer except for the longer upper shadow, which indicates buying pressure after the opening price, followed by considerable selling pressure, which however wasn’t enough to bring the price down below its opening value. Again, bullish confirmation is required, and it can come in the form of a long hollow candlestick or a gap up, accompanied by a heavy trading volume.

A similarly bullish candle which when seen in a downtrend can signal that the market is about to move higher. The only difference to a standard hammer is the upper wick is long while the lower wick is very short (or non-existent).

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Tweezer bottoms

A reversal pattern occurring during a downtrend. A tweezer occurs when two candles find support at the same level and begin to reverse. The first candle is red, while the second candle is green.

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Morning star

As the name indicates, the Morning Star is a sign of hope and a new beginning in a gloomy downtrend. The pattern consists of three candles: one short-bodied candle (called a doji or a spinning top) between a preceding long black candle and a succeeding long white one. The color of the real body of the short candle can be either white or black, and there is no overlap between its body and that of the black candle before. It shows that the selling pressure that was there the day before is now subsiding. The third white candle overlaps with the body of the black candle and shows a renewed buyer pressure and a start of a bullish reversal, especially if confirmed by the higher volume.

A three-candle pattern indicating a reversal in a downtrend. The first candle is red, the second a spinning top or a doji, and the third is green. Traditionally the 'star' should gap lower on entry and then gap higher on exit into the third candle. However, 24-hour markets typically have few gaps so traders tend to ignore this requirement.

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Three white soldiers

This pattern is usually observed after a period of downtrend or in price consolidation. It consists of three long white candles that close progressively higher on each subsequent trading day. Each candle opens higher than the previous open and closes near the high of the day, showing a steady advance of buying pressure. Investors should exercise caution when white candles appear to be too long as that may attract short sellers and push the price of the stock further down.

A very strong bullish signal occurring after a downtrend reversal. Consists of three green (or white) candles with large bodies and small wicks.

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Downtrend Candlestick Type:

  • Bearish
  • Hanging man
  • Shooting star
  • Bearish Engulfing
  • Tweezer tops
  • Evening star
  • Three black crows

Bearish

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Hanging man

The same shape as a hammer, also signifying a reversal, but this time formed during an uptrend. Again the colour isn't particularly important, but a red candle tends to be more bearish.

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Shooting star

Another reversal candle occurring during an uptrend. Same shape as the inverted hammer.

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Just like chart patterns, multiple candlesticks can also form recognizable patterns that often signify the market will move in one way or another.

Bullish engulfing

A red candle immediately followed by a larger green candle, suggesting a strong move upwards. The second candle's body is so large it engulfs the former candle.

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Bearish engulfing

This time a smaller green candle is engulfed by a larger red one - signifying a strong move lower.

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Tweezer tops

The opposite of tweezer bottoms, indicating the reversal of an uptrend. Here, two candles hit resistance at the same level, the first being green and the second red.

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Evening star

The bearish version of the morning star, beginning with a green candle and ending with red. This indicates the reversal of an uptrend.

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Three black crows

The bearish version of three white soldiers, seen after an uptrend reverses. Three consecutive red (or black) candles with large bodies and small wicks appear.

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Indecision Candlestick Type:

  • Spinning top
  • Doji

Spinning top

These have small bodies and wicks that are roughly the same length above and below. They tend to indicate indecision in the market, and are often seen during periods of consolidation following an uptrend or downtrend, or at market tops and bottoms.

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Doji

Also frequently signifying indecision, these have almost no body at-all - meaning the opening and closing prices for that candle are identical (or at least very close to each other). The wicks can be any length in either direction.

A doji is typically seen during consolidation and market tops or bottoms. It can also indicate that a trend is about to reverse, as the convictions of buyers or sellers driving the market weaken.

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Key Takeaways in Candlestick and Line Chart

  • The body of the candle signifies the open to close range, the wick is the high/low range, and the color displays whether the price has gone up or down.
  • Uptrend Candlestick Type: Bullish, Hammer, Inverted Hammer, Bullish engulfing, Tweezer bottoms, Morning star, Three white soldiers
  • Downtrend Candlestick Type: Bearish, Hanging man, Shooting star, Bearish Engulfing, Tweezer tops, Evening star, Three black crows
  • Indecision Candlestick Type: Spinning top, Doji
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