Crypto trading is a complex but mathematical investing side that focuses more on long-term strategies. Trading also yields more considerable returns, but it can be riskier and needs to be done with a sense of responsibility. If you buy Ethereum online or any other cryptocurrency, you must sell it immediately to make a profit. Trading offers more opportunities for making money shortly, and while the crypto chosen to buy and sell might not be that important, learning how to read patterns and make correct assumptions about the market’s direction is essential.
In trading, candlestick patterns indicate the expected market trends, such as bullish or bearish. Assessing these changes ahead of others helps you, as a trader, make the right decision on what is to be done with your assets and close your position sooner to avoid losing your coins and their value.
Here’s a brief introduction to candlestick patterns and how to change your approach according to them.
What are candlestick patterns?
In crypto trading, a candlestick is rectangular and colored differently to illustrate bullish or bearish trends. Bright-looking candlesticks show how the closing price is higher than the opening one, while darker candlesticks mean the closing price is lower than the opening price.
Many shapes and types of candlesticks give a thorough insight into the market movement, such as the following:
- The size of the candle shows corrective or reversal points;
- The size of the wick indicates support and resistance zones;
The candlestick’s body represents the space between the opening and closing price and highs and lows during a certain period. Many types of candlesticks can be interpreted differently, but some of the basics include the following:
- The standard candle has a bigger body and small wicks and shows a continuation trend;
- The spinning top has a small body and long wicks, which indicates neutrality;
- The Long Legged Doji has upper and lower wicks closed to an equal length and show a potential turning point;
- The hanging man candlestick suggests a bearish reversal by appearing at the top of the market;
- The hammer signals a reversal point to bullish and forms on the market bottom similar to the previous one;
Bullish candlestick patterns
The best strategy is to use candles to enter or exit the market at the perfect time. Besides watching closely, the candlestick types, some groups show the movement of a crypto trend, such as the following:
- The Harami pattern shows an outlined red candle with a bigger price range than the green candle next to it, which predicts a positive trend regarding the asset’s price;
- The three white soldiers’ pattern has three green candles that show a reversal from a bearish trend;
- The rising three patterns have three bearish candles with small bodies that show how a consolidation period will follow;
- The piercing lines pattern may be a sign of reversal as the position of the green candle is located above the middle of the red candle, showing a closing price;
A continuation happens when the price of a crypto asset will keep the same price in the following period of consolidation or correction. On the other hand, a reversal shows that an asset’s price will move in the opposite direction of the price trend.
Other crypto chart patterns you should know
There’s more to chart patterns you should know about. For example, the triple and double tops and bottoms appear when prices increase in the same resistance patterns at the top and support at the bottom a few times consecutively. These are several setups and indicate how prices will go in opposite directions.
There are also ascending and descending triangles that indicate bullish and bearish patterns. Ascending patterns showcase a flat line that connects recent price highs with higher price lows. At the same time, descending trends happen when sellers get through several pushbacks, and the prices are lowered.
Finally, the heat and shoulders or inverse have three price peaks that indicate a break out in price when the last shoulder forms and returns to the connected flat line between them.
What determines changes in these crypto patterns?
The crypto sector is highly volatile, meaning multiple factors can affect its course daily. This is why trading patterns are showcased on a daily basis to provide a thorough map of indicators helpful for traders.
Usually, price patterns change solely because traders buy and sell at a certain level, which makes the regular prices oscillate, creating designs. When it comes to cryptocurrency, everything from supply, demand, competition, and media coverage affects the price of assets. For example,
Bitcoin became highly promoted at some point when more people started investing and encouraging others to do so. Ethereum, at the same time, has received plenty of media attention with the Merge update and blockchain solutions for companies.
Predicting the price of an asset over a short or long period of time makes it easier for traders to yield considerable returns if they’re not knowledgeable enough and haven’t researched enough. Crypto is subject to dramatic highs and lows, which can be detrimental to one’s portfolio if there’s no proper strategy.
Is investing better than trading?
In terms of safety, investing in cryptocurrencies might be a better choice, but only if done in the long run. Learning to invest may also be easier to understand, and practice since the minimum you can do is hold your coins for longer. On the other hand, trading has more risks and requires learning much more information. However, trading might work for you if you want fast results and to gain coins rapidly. Depending on how much you’re willing to risk your assets or not, choose wisely between trading and investing.
Bottom line
Reading a trading chart by knowing all the types of candlesticks and their trends is essential if you want to yield considerable returns fast and protect your crypto. Also, know that trading trends are affected by investor sentiments and buying or selling, so keep your coins in check.
