Technical analysis training-candlestick analysis

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27 Dec 2023

Today we will discuss with you the concept of candlestick analysis.
📚Candlestick analysis is a type of TA that is based on the data of individual candles and their groups. This method allows you to determine what is happening in the market at the moment: whether sellers or buyers dominate, whether a trend reversal will occur or not, whether market participants still have the strength to move the price in a certain direction.
Additionally, relying on the information that you can get by analyzing candles, you can improve the quality of your trading and earn much more.


❗️However, you should not rely solely on this method, because what the majority knows is beneficial to the minority, especially in such a manipulative market as the cryptocurrency market.❗️
In this post we will look at the construction of a candle, their main options, combinations and the logic behind them.

Part 1. The structure of a candle
The candle itself consists of a body - a wide part and a shadow (wick) - a thin part.
The body displays the price change at the time of its opening and closing (that is, for a certain time frame), and the shadow of the candle displays the maximum and minimum prices of the asset that were traded over a given period of time.

In order to understand price fluctuations inside a candle, you need to switch to a smaller time frame.
Also, a candle may not have a shadow at all; we will consider further why this happens and what conclusion can be drawn from this.

Part 2. Logic of candles

What happens in the market when there are candles with a large body?

With candles with a large body, the trading volume of a given asset usually increases, which indicates the parties are interested in trading it.

Such candles often indicate the beginning or end of a trend, for example: when a long bullish candle appears after a series of bearish ones, most market participants will think about changing the trend to an upward one, which will be a signal for them to buy.

It also works in the opposite direction when the majority begins to think that it is time to sell the asset.

What happens when candles with short bodies are formed?

This means a loss of immediate interest in this asset.

Such formations over a certain extent indicate consolidation (flat), which will ultimately lead to the formation of candles with a large body.

Demonstration of the transition of short-body to long-body candles

It may seem that candles with long bodies are of greatest interest, but this is not the case.

By analyzing consolidation candles and taking appropriate actions, you and I can get maximum profit from the movement.

What about the shadow?

Shadows, as written in the first part, indicate the maximum and minimum price of an asset and can be of even more interest than the body itself.

If a candle appears with a long shadow in one direction, then this indicates a change in the dominance of sellers over buyers (and vice versa) during a given period of time.

We will talk in more detail about the main combinations of bodies and shadows of candles in the third part.

Part 3. Basic options for single candles

Of course, this publication cannot describe all situations on the market, so let’s look at the classic options:

Classic Doji

Signals the confrontation between buyers and sellers and uncertainty in the market.
Often the Classic Doji is followed by a short-term price reversal.

Dragonfly Doji

It is formed when the opening price, closing price and maximum value are the same or very close, and the minimum value is significantly lower.

 May indicate a reversal in the downtrend.

Tombstone doji

It means a change from a bullish trend to a bearish one, when sellers were stronger than buyers.

Often such a candle is followed by a sharp decline.

Hammer

Like Doji, it can indicate that the asset is oversold and an upcoming trend change.

Reverse hammer

A candle in the form of an inverted Hammer indicates a possible change from a bearish trend to a bullish one.

Falling star

Formed in a bull market, unlike the Hammer.

 Indicates a possible change from a rising trend to a downward one.

For a more accurate understanding of this section of trading in candlestick analysis, I recommend reading the book “Japanese Candlesticks” and “Beyond Japanese Candlesticks”.