In the previous article, we familiarized ourselves with the concept of cryptocurrency Japanese candlesticks and sorted out what the size of the candle means and how to understand where the course is going. If the reader is not familiar with the first part of the cycle, we recommend reading the first part.
In today's article, we will move a little further and see how traders from the time Forex began working foresee the development of events (depreciation or appreciation), trend reversals, as well as consider several popular patterns of Forex and Japanese candlesticks.
Patterns and Candlesticks shapes charts
Shapes and patterns are frequently repeated price patterns on the market, which are indicated by constant combinations on the chart. Since the existence of price charts, certain “laws” of course behavior have been formed depending on previous trade deals.
In this case, the patterns cannot be considered true in the last resort. They give only a percentage of the probability of the future direction of the market.
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The reason for the formation of these figures is human psychology. Seeing this or that model on the chart, each of us psychologically adjusts to one or another scenario of events and behaves accordingly. For example, the achievement of the price bottom (the lowest cost of cryptocurrency) has several figures and patterns that indicate the achievement of the border.
Looking at such a “falling” schedule, a person psychologically tuned in, which is the least cost, begins to buy cryptocurrency in the hope that it will grow. Then a very interesting phenomenon occurs, when many people buy an asset at the same time, naturally, its rate rises along with the average daily trading volume.
Types of patterns on Forex
Cryptocurrency charts are identical to the classic Forex rate display models. Today, two color schemes are used to display Japan candlesticks: red and green (where red candlesticks mean price reduction, bears; green ones are increases, bulls), black and white (where blacks are bears, and white ones are bulls).
In addition, patterns are usually classified by their influence on the trend (market dominance):
1. Trend Continuation Patterns – graphical models that indicate a further continuation of market sentiment. Among the most popular figures continue: 3 touches, pennant, wedge, flag.
2. Trend Reversal Pattern – figures, the appearance of which indicates a change in trend. That is, from the price reduction (downward, bearish) to the appreciation (uptrend, bearish) and vice versa. The most popular models of reversal are: head and shoulders (straight and inverted), double top, double base, triple top and triple base, doji.
Next, we will look at an example of a pattern on the Japanese Candlestick chart (see the real-time chart in detail here).
"Flag" cryptocurrency figure
The Flag pattern indicates the continuation of the current trend and is an accurate indicator of the “aggravation” of the situation. The flag is bearish and bullish, that is, the figure can confirm the continuation of the increase or decrease of the course.
Pattern formation most often occurs during course consolidation after a rapid price movement in one direction or another. In other words, when the market is in a relaxed state and “resting”, while the winners in the race share the profits. The pattern got its name because of the similar appearance with a real flag. On the graphs, the figure is placed in the direction of the previous trend, which often makes itself felt by a slight correction of the course.
Interestingly, although the Flag pattern is a figure for the continuation of the trend, it can also indicate a strong and sharp price reversal. This happens extremely rarely, since in order to form a new direction, the flag must break through the graph in the opposite expected direction.
In the classic version, the Flag consists of:
- Flagpole – a line that symbolizes a sharp jump in prices. With a bullish trend, the flagpole jumps sharply upwards, and during a bearish trend – downwards.
- Body is a conditional rectangle that forms a pattern. The body is always placed with a slight inclination towards the opposite trend. That is, with a bear flag, tilt up and vice versa. The upper and lower lines of the body symbolize: for a bearish one, the upper one – Stop loss; lower – Sell; for bovine upper – Bay, lower – Stop loss.
- Completion, profit. This is the logical conclusion of the figure, which in the case of the bull flag is a new leap of the course upwards, and with a bearish one - downward.
We will talk about other patterns on cryptocurrency charts, as well as about many other things in the third article from the cycle.
Editor: Godfrid Brower