Imagine you are watching the price go up and down like a roller coaster. These candles tell you when it might be a good time to buy or sell, based on how the price has moved before.
Let's break it down with simple and clear examples so you can easily understand it.
What are Japanese candlesticks?
Japanese candlesticks are a graphical way of showing the price movement of a market, such as cryptocurrency. Think of them as a series of colored bars that show whether the price went up or down in a day (or whatever period you're looking at). Each candlestick has three important parts:
- The body: shows the range between the opening and closing price.
- The wicks or shadows: indicate how far the price rose or fell.
- The color: green or white if the price went up, and red or black if it went down.
Over time, these candles form patterns that investors use to decide when to buy or sell.
Six Uptrend Patterns (Time to Buy)
1. Hammer
Simple example: Imagine that the price of an apple in the market was falling for several days, but today someone bought so many apples at the end of the day that it caused the price to rise a little.
Why buy: The hammer indicates that the downtrend may be coming to an end. Buying pressure at the end of the day suggests that the price could rise, so it would be a good time to buy.
2. Inverted Hammer
Simple example: Today, the price of apples rose sharply at the beginning of the day, but fell a little at the end. However, the fall was not enough to cancel out the initial rise.
Why buy: Although there was selling pressure, the inverted hammer indicates that buyers could take control soon. Buying now may be an opportunity before the price rises further.
3. Bullish Engulfing
Simple example: Yesterday the price of apples fell, but today the market opened lower and then rose so much that it exceeded yesterday's drop.
Why buy: This pattern suggests that buyers have regained control, and the price is likely to continue rising.
4. Penetrating
Simple example: Yesterday the price fell sharply, but today it opened lower and then rose above yesterday's midpoint.
Why buy: Strong buying pressure indicates that the price could continue to rise, making it a good time to enter the market.
5. Morning Star
Simple example: For three consecutive days, the price of apples first fell, then remained stable, and finally rose sharply.
Why buy: This pattern suggests that the downtrend is over and the price could continue to rise, making it a good time to buy.
6. Three White Soldiers
Simple example: For three days in a row, the price of apples has risen steadily, with small drops during the day but always closing higher.
Why buy: This pattern shows that buying pressure is strong and constant. The price will probably continue to rise, so it is a good opportunity to buy.
Six Downward Patterns (Time to Sell)
1. Hanged Man
Simple example: The price of apples has been rising, but today, although it rose a little at the end, there was a lot of selling pressure during the day.
Why sell?: This pattern suggests that the uptrend is losing strength, so it is a good time to sell before the price goes down.
2. Shooting Star
Simple example: Today the price rose a lot, but at the end of the day it fell rapidly, although it closed a little higher than yesterday.
Why sell?: This pattern indicates that sellers are taking control and the price could start to fall soon. It is a good time to sell before it falls further.
3. Bearish Envelope
Simple example: Yesterday the price rose, but today it opened higher and then fell so much that it wiped out yesterday's gain.
Why sell: This pattern shows that the uptrend has ended and sellers are taking control, indicating an imminent price decline.
4. Evening Star
Simple example: After several days of increases, the price began to stabilize and today it fell significantly.
Why sell?: This pattern indicates that the uptrend has come to an end and the price is likely to continue to fall. It is a good time to exit the market.
5. Three Black Crows
Simple example: For three days in a row, the price of apples has been steadily falling, with small increases during the day but always closing lower.
Why sell: This pattern shows strong selling pressure and suggests that the downtrend will continue, making it a good time to sell before the price falls further.
6. Dark Cloud Cover
Simple example: Today the price opened higher than yesterday, but then fell below yesterday's midpoint.
Why sell?: This pattern suggests that the downtrend is starting and sellers are taking control. Selling now can prevent further losses.
Over time, you will be able to read the market like a pro!