What is a Candlestick?
A candlestick is a tool used to show the highest price, lowest price, opening price and closing price of a cryptocurrency for a specified period (e.g. 1 minute, 5 minute, 15 minute, 30 minute, 1 hour, 5 hours, 1 day, 1 week, etc.). The colored part of the candlestick is known as the “body” and tells traders whether the closing price was higher or lower than the opening price. Black and red candlesticks indicate that the cryptocurrency’s price closed lower than it opened. White and green candlesticks indicate that the cyptocurrency closed at a higher price than it opened.
Below is a diagram that details the anatomy of a candlestick:
A candlestick pattern is a specific movement in prices shown on a candlestick chart that can be used to predict the direction a market is headed.
Below are some single candle stick patterns and what they mean:
Marubozu: This is a very easy candle to spot. Whether the candle is green or red, there is no “shadow to the candle and the body is long and typically dwarfs the previous candle in length. This means that the market was strongly bearish or strongly bullish depending on whether the candle was red or green.
Standard: The standard bullish or bearish candle is one that you will come across most often. There are shadows on both ends of the candle and neither the body nor the shadows are extraordinarily long. Not much can be interpreted from a single standard candle, however, numerous standard candles in succession can form patterns that do give us an idea of where the market is headed.
Hammer: A hammer is a candlestick that occurs when a cryptocurrency’s price falls significantly lower than what it opened at, but rallies later during the period to close above or near the opening price. A hammer may suggest that a trend is reversing and that the price has either found its top or bottom.
As you can see, a hammer candlestick looks just like a candlestick, with the body being the head and the lower shadow being the handle. For a candle stick to be considered a true hammer, the lower shadow has to be at least twice as long as the body.
A spinning top is formed when the open and close prices are close together despite there being a wide range of prices throughout the period. This candle can be taken as an indecision between buyers and sellers and occasionally may be followed by a reversal. If a spinning top forms after a lengthy bearish or bullish trend, it suggests that the trend is losing momentum and a reversal may be soon at play.
Inverted Hammer/Shooting Star
The inverted hammer/shooting star is another candlestick that may signal a trend reversal. As you can see, the inverted hammer/shooting star is an upside down hammer candlestick.
A doji star is created when the open price and close price of a cryptocurrency are the same.The doji star represents indecision on the buying and selling sides. There is an even amount of buying and selling pressure, so the price ends up going nowhere.
The doji star can be taken as a sign of reversal, however it is also commonly a sign of consolidation. The doji star appears to be a sign of consolidation, or stable prices before a trend continues, more commonly with cryptocurrencies than stocks. Additionally, the doji star is more likely to be a reversal sign on the minute and hour chart, while being a sign of consolidation on the larger time period charts such as days and weeks.
Long Legged Doji
The long legged doji is a doji star with exceptionally long upper shadows and lower shadows. It suggests a larger class between buying and selling forces and, like the typical doji star, can be a sign of trend reversal or consolidation.
The long upper shadow and non-existent lower shadow of the gravestone doji suggests that the period’s buying buying pressure was reversed by sellers and that the supply and demand at the price point is reaching equilibrium. This pattern is commonly used to suggest a trend reversal may be in the works.