Following part 1, in part 2 we will guide and practice some single candlestick patterns capable of signaling reversals. Through these candlesticks, you can predict the next trend and prepare yourself a perfect trading plan. Let’s go with Coincu.
The structure of the Hammer candlestick pattern is very simple, including only 1 candle shaped like a “hammer”. The candle body is quite small, the upper shadow is very small or absent and the lower shadow is very long – the size must be at least 2 or 3 times the body of the candle.
Hammer candlesticks usually appear at the end of a downtrend, showing that sellers seem to have taken full control of the market, pushing the price down. However, the appearance of the Hammer candle does not mean that the buyers have gained control, but simply that the market is gradually increasing again, predicting that the downtrend will gradually weaken and the possibility of a high price will soon come. increase again.
In a downtrend, there is a Hammer with strong buying volume. The small real body and upper shadow long showed that the bears pushed the price lower but the bulls were able to resist this selling pressure and push the price back up, causing the closing price to close with the opening price. Besides, before you enter an order, you need to combine more signals confirming new trends before you place an order.
Opening a long order with R:R 1:4
When the market is in an uptrend and bulls are in control however the bulls are no longer strong enough to sustain the previous upward momentum then a hanging man appears at the top of an uptrend or in an area of strong resistance. This pattern shows that bears have managed to make a comeback and they are trying to break the stronghold of the bulls and close at the lowest price point.
The first need to correctly recognize the Hanging man candle:
In an uptrend (revival), a Hanging man candle appeared, here showing that the buying power is no longer as strong and overwhelming as the previous ones. The bears jumped in and pulled the price low. Combined with volume, we can wait for the next candle to close and place a short order or you can immediately place a short order at the opening price of the next candle. Hanging man in red color adds more certainty to the short order.
Opening a short order with R:R 1:6
A inverted hammer is a single candlestick pattern with a small body and a long upside wick. In this pattern, the closing price remains above the opening price, pointing out a buying pressure at closing. The bullish inverted hammer appears after a prolonged downward pressure and indicates a buying possibility. The success rate of this pattern depends on the body and the wick’s length.
Long upper shadow shows that the bulls are trying to push the price up. Meanwhile, the sellers are still exerting selling pressure but this is a reversible signal. In this case the bulls still have enough strength to keep the closing price close to the opening price, which means that the price cannot continue to decline like the previous trend. This shows that when the sellers can no longer push the price down, it means that everyone who wants to sell has already sold out and the market no longer wants to sell. If no one wants to sell anymore who will be left? The answer is the bulls.
Opening a long order with R:R 1:3
Shooting Star is a bearish reversal pattern with the same structure as an Inverted Hammer, but it occurs when the price is rising. This shows that the bears are starting to prevail over the bulls in the uptrend and the price is likely to turn down again.
For a candlestick to be considered a shooting star, the formation must appear during a price advance. Also, the distance between the highest price of the day and the opening price must be more than twice as large as the shooting star’s body. There should be little to no shadow below the real body.
In this example, the price of NEAR is rising in an uptrend. The uptrend accelerates just prior to the formation of a shooting star. The shooting star shows the price opened and went higher (upper shadow) then closed near the open. The following day closed lower, helping to confirm a potential price move lower. The high of the shooting star was not exceeded and the price moved within a downtrend for the next month. If trading this pattern, the trader could sell any long positions they were in once the confirmation candle was in place.
Opening a short order with R:R 1:4
A pattern that is generated by just a single candle is termed as a single candlestick pattern. Typically, traders use the 1-day candlestick chart to identify a single candlestick pattern. In the following sections, I will introduce a few more typical single candles and candlestick patterns that can be used to identify trend reversals.
If you have any questions, comments, suggestions, or ideas about the project, please email ventures@coincu.com.
DISCLAIMER: The Information on this website is provided as general market commentary, and does not constitute investment advice. We encourage you to do your own research before investing.
Alan
Coincu Ventures
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