Candlestick charting is a popular way of showing the price movement of an asset over time. It provides traders with more information than just the simple line graph and can help them spot trends and patterns much quicker.
Cryptocurrencies have been around for several years now, but their popularity has exploded in recent months. This increase in attention has led to increased volatility and confusing pricing structures. One way we can make sense of these prices and identify potential opportunities is by using candlesticks.
Can You Use Candlesticks in Other Markets?
Yes! Candlesticks work perfectly in any market, including stocks, commodities, bonds, or even currencies like the US dollar and euro. If you’re interested in learning how to trade cryptocurrencies, then you’ll be able to apply what you’ve learned about candlesticks to your trades.
Below are the top nine Candlesticks you should consider using in Crypto Trading;
1. Dragonfly Doji Candlestick
The Dragonfly Doji Candlestick Pattern is a great way to trade the range-bound markets. Range bound refers to when the prices get stuck within a tight trading range for an extended period. During these periods, the market tends to become stagnant and volatile. The Dragonfly Doji Candlespotting pattern is a continuation-based candlestick pattern that forms after a broken downtrend. One common misconception about the Dragonfly Doji CandleSticking Pattern is that it only occurs after completing a significant uptrend. That is not true.
The dragonfly doji candlestick can form any time after a significant decline. To understand this candlestick pattern better, let me walk you through a live example: In this example, we’ll be looking at the daily timeframe. After the downtrend was broken, the market began to rise. Notice that the Daily Stochastics crossed below the Daily RSI line.
Note that the Daily Stochastic has turned back above the Daily Stochastics line. This means that the overall trend is still rising. However, there is some indecision in the market, as evidenced by the wavy lines. If the market continues to increase, a new bullish candlestick will likely appear (the Doji candle). The bearish candlestick would likely occur if the market fell (the Doji closed).
2. Bollinger Bands (BB)
Bollinger bands have been around for a while now, and they are still trendy among traders. The concept is simple. Its two lines cross each other at their center, forming an upside-down ‘V’ shape. The upper line represents the high of the day so far, and the lower line represents the low of the day so far. Looking closely at the chart below, you can see that we’re currently trading above the upper and lower bands.
This means there’s room for the price to go up or down. We’ve already seen some upward movement, but it hasn’t yet gone as high as where the upper band crosses over with the lower band. So what does this mean? Well, if the price moves higher than where the BB crosses over, then the stock will likely continue moving higher. On the other hand, the stock could drop further if the price falls below where the BB crosses over.
3. Ichimoku Cloud Chart
An Ichimoku cloud chart is an easy-to-use Japanese candlestick charting system that shows support and resistance levels and insight into momentum and volatility. Think of an Ichimoku cloud consisting of four charts for those who have never heard of it before. Each one represents a different time frame, ranging from 1 day to a year. Traders use them together to gain deeper insights into the current market conditions.
4. Fibonacci Retracement Levels
Fibonacci retracement levels occur when a security reaches its high point and then begins to drop off until it comes to a certain level before rebounding. Sometimes, the rebound occurs on a specific percentage of the move down. Other times, it can take place back to zero. Several Fibonacci retracement patterns include symmetrical, broadening, narrowing, etc.
5. Donut Charts
A donut chart is a candlestick chart that usually appears near the stock exchange opening. Donut charts consist of the body, the ring, and the cap. The body is the actual candlestick itself, typically between 30 and 60 minutes long.
The ring is represented by the area outside the candlestick but inside the body. Finally, the cap is demonstrated by the price action that happens after the close of the candlestick.
6. MACD Line
MACD stands for Moving Average Convergence/Divergence, and it’s a popular trend meter used by many traders. The formula is relatively simple. You add up two exponential averages. Then, compare that number with another exponential average.
So, if you’re using 12-hour averages, your MACD value would look something like this: As you can see here, the blue line is the fast exponential MA, and the red line is the slow exponential MA. When the difference between the two averages crosses zero, you’ve identified a possible trend change.
7. Moving Averages
Moving averages are another tool used by many traders that help you determine the direction of the trend. Many people use the five days EMA and 20 days EMA as my moving average tools in the example below. You can use any number of days that work best for your strategy. Note that the moving averages are crossing over, which indicates that the current trend is strengthening.
8. Stochastic Oscillator
This indicator helps identify when the bulls or bears are gaining momentum. When the Stochastic Indicator is near its peak, it signals intense buying pressure. Conversely, when the Stochastic Indicators reach its bottom, it signals low selling pressure. The one downside to stochastic is that it tends to oscillate from time to time.
9. The Relative Strength Index
RSI is an analysis indicator designed to measure momentum on scales ranging from 0 to 100. RSI looks at how much security has moved relative to a previous move. Thus, a guarantee that has made a significant move up may be considered more valuable because it had less resistance to overcome than security that has just made a slight move up. As such, the closer RSI gets towards 50, the more muscular the strength of the deposit.