What are candlestick patterns in crypto?

Technical analysis is one of the most important tasks before stepping into any market to trade, whether it's a stock market, a derivatives market, or the crypto spot market. Candlestick patterns are one such tool for technical analysis and can be used to identify past patterns in trading. They are useful for traders since one can set up a trade after analyzing a candlestick pattern in detail.

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A candlestick represents the movement in the price of an asset, which can be a stock, derivative or any other asset. A rice merchant from Japan named Munehisa Homma is credited with introducing the system to traders. A candlestick pattern may contain several characteristics, which include:

Color: The color of the candlestick is very important since it indicates the direction of the market's movement. Green or white would denote a price increase, while red or black may denote a decrease.

Body: The body of a candlestick represents the open to close range.

Shadow/Wick: The candlestick's wick or shadow reveals the intraday high and low.

With time, the entire movement of a market can be represented through a pattern of candlesticks. Traders can identify support and resistance levels of an asset through such patterns, set stop losses or set a profit order through such patterns. Candlestick patterns issue bullish or bearish signals in the markets and make it easier for traders to comprehend them.

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Bullish candlestick patterns include some popular patterns like hammer, inverse hammer, bullish engulfing and many others, which indicate a state of upward sentiment in the market after a downtrend. Traders take advantage of such patterns and set long positions to benefit from such a situation. On the other hand, bearish candlestick patterns usually form after a bull run and help traders form short positions on the market.

There may also come a time in the markets when it is usually trading flat, and there is not much movement in any direction. The candlestick pattern forms a continuation in such a case and helps traders recognize neutrality in the market. Some continuation patterns in such situations are doji, spinning top, or the falling three methods formation.

It is also a known fact that history tends to repeat itself in trading markets, with movements getting repeated over time. Technical analysis also helps analysts recognize sudden movements in the market, which may sometimes be suspicious. Insider trading or dumping of stocks could trigger a sudden movement in an asset's price. Technical analysts identify such incidents and work to minimize their effects on their investments. 

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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.