TL;DR

Candlestick charts are a popular tool used in technical analysis to identify potential buying and selling opportunities.

Candlestick patterns such as the hammer, bullish harami, hanging man, shooting star, and doji can help traders identify potential trend reversals or confirm existing trends.

Traders should also consider other factors, such as volume, market conditions, and overall trend direction, when making trading decisions.

What Are Candlesticks?

Candlesticks are a type of charting technique used to describe the price movements of an asset. First developed in 18th-century Japan, they’ve been used to find patterns that may indicate where asset prices have headed for centuries. Today, cryptocurrency traders use candlesticks to analyze historical price data and predict future price movements.

Individual candlesticks form candlestick patterns that can indicate whether prices are likely to rise, fall, or remain unchanged. This provides insight into market sentiment and potential trading opportunities.

What Is a Candlestick Chart?

Imagine you are tracking the price of an asset like a stock or a cryptocurrency over a period of time, such as a week, a day, or an hour. A candlestick chart is a way to represent this price data visually.

The candlestick has a body and two lines, often referred to as wicks or shadows. The body of the candlestick represents the range between the opening and closing prices within that period, while the wicks or shadows represent the highest and lowest prices reached during that period.

A green body indicates that the price has increased during this period. On the other hand, a red body indicates a bearish candlestick, suggesting that the price decreased during that period.

How to Read Candlestick Patterns

Candlestick patterns are formed by arranging multiple candles in a specific sequence. There are numerous candlestick patterns, each with its interpretation. While some candlestick patterns provide insight into the balance between buyers and sellers, others may indicate a reversal, continuation, or indecision.

It's important to note that candlestick patterns aren’t intrinsically buy or sell signals. Instead, they are a way of looking at current market trends to potentially identify upcoming opportunities. As such, it’s always helpful to look at patterns in context. 

This can be the context of the broader market environment or technical pattern on the chart, including the Wyckoff Method, the Elliott Wave Theory, and the Dow Theory. It can also include technical analysis (TA) indicators, such as Trend Lines, the Relative Strength Index (RSI), Stochastic RSI, Ichimoku Clouds, or the Parabolic SAR.

Candlestick patterns can also be used in conjunction with support and resistance levels. Support levels are price levels where demand is expected to be strong, while resistance levels are price levels where supply is expected to be strong.

Bullish Candlestick Patterns

Hammer

A hammer is a candlestick with a long lower wick at the bottom of a downtrend, where the lower wick is at least twice the size of the body.

A hammer shows that despite high selling pressure, bulls pushed the price back up near the open. A hammer can either be red or green, but green hammers may indicate a stronger bullish reaction.

Inverted hammer

This pattern is just like a hammer but with a long wick above the body instead of below. Similar to a hammer, the upper wick should be at least twice the size of the body. 

An inverted hammer occurs at the bottom of a downtrend and may indicate a potential to the upside. The upper wick indicates that the price has stopped its continued downward movement, even though the sellers eventually managed to drive it down near the open. As such, the inverted hammer could indicate that buyers may soon take control of the market.

Three white soldiers

The three white soldiers pattern consists of three consecutive green candlesticks that all open within the body of the previous candle and close above the previous candle's high. 

These candlesticks shouldn't have long lower wicks, which indicates that continuous buying pressure is driving the price higher. The size of the candlesticks and the length of the wicks can be interpreted as chances of a continuation or a possible retracement.

Bullish harami

A bullish harami is a long red candlestick followed by a smaller green candlestick that's completely contained within the body of the previous candlestick.

The bullish harami can be formed over two or more days, and it's a pattern that indicates that the selling momentum is slowing down and may be coming to an end.

Bearish Candlestick Patterns

Hanging man

The hanging man is the bearish equivalent of a hammer. It typically forms at the end of an uptrend with a small body and a long lower wick. 

The lower wick indicates that there was a big sell-off, but the bulls managed to regain control and drive the price higher. With this in mind, the sell-off after a long uptrend can act as a warning that the bulls may soon lose momentum in the market.

Shooting star

The shooting star consists of a candlestick with a long top wick, little or no bottom wick, and a small body, ideally near the bottom. The shooting star is similar in shape to the inverted hammer but is formed at the end of an uptrend.

It indicates that the market reached a high, but then the sellers took control and drove the price back down. Some traders prefer to wait for the next few candlesticks to unfold to confirm the pattern.

Three black crows

The three black crows consist of three consecutive red candlesticks that open within the body of the previous candle and close below the low of the last candle.

The bearish equivalent of three white soldiers. Ideally, these candlesticks shouldn't have long higher wicks, indicating that selling pressure continues to push the price lower. The size of the candlesticks and the length of the wicks can be used to judge the chances of continuation.

Bearish harami

The bearish harami is a long green candlestick followed by a small red candlestick with a body that is completely contained within the body of the previous candlestick.

The bearish harami can unfold over two or more days, appears at the end of an uptrend, and can indicate that buying pressure is waning.

Dark cloud cover

The dark cloud cover pattern consists of a red candlestick that opens above the close of the previous green candlestick but then closes below the midpoint of that candlestick.

High volume can often accompany this pattern, indicating that momentum may shift from bullish to bearish. Traders may wait for a third red bar to confirm the pattern.

Three Continuation Candlestick Patterns

Rising three methods

The rising three methods candlestick pattern occurs in an uptrend where three consecutive red candlesticks with small bodies are followed by the continuation of the uptrend. Ideally, the red candles should not break the area of the previous candlestick. 

The continuation is confirmed by a green candle with a large body, indicating that the bulls are back in control of the direction of the trend.

Falling three methods

The inverse of the three rising methods, the three falling methods instead indicate the continuation of a downtrend.

Doji

A doji forms when the open and close are the same (or very close). The price may move above and below the open but will eventually close at or near the open. As such, a doji can indicate a point of indecision between buying and selling forces. However, the interpretation of a doji is highly contextual.

Depending on where the open and close line falls, a doji can be described as the following:

Gravestone Doji

This is a bearish reversal candlestick with a long upper wick and the open and close near the low. 

Long-legged Doji

Indecisive candlestick with top and bottom wicks and the open and close near the midpoint.

Dragonfly Doji

Either a bullish or bearish candlestick, depending on the context, with a long lower wick and the open/close near the high.

According to the original definition of the doji, the open and close should be the same. What if the open and close aren't the same but are very close to each other? That's called a spinning top. However, since cryptocurrency markets can be very volatile, an exact doji is rare. As such, the spinning top is often used interchangeably with the term doji.

Candlestick Patterns Based on Price Gaps

A price gap occurs when a financial asset opens above or below its previous closing price, creating a gap between the two candlesticks.

While many candlestick patterns include price gaps, patterns based on this type of gap aren’t prevalent in the crypto market as trading takes place around the clock. Price gaps can still occur in illiquid markets, but aren’t useful as actionable patterns because they mainly indicate low liquidity and high bid-ask spreads.

How to Use Candlestick Patterns in Crypto Trading

Traders should keep the following tips in mind to use candlestick patterns effectively while trading cryptocurrencies:

1. Understand the basics

Crypto traders should have a solid understanding of the basics of candlestick patterns before using them to make trading decisions. This includes understanding how to read candlestick charts and the various patterns that can form.

2. Combine various indicators

While candlestick patterns can provide valuable insights, they should be used with other technical indicators to form more well-rounded projections. Some examples of indicators that can be used in combination with candlestick patterns include moving averages, RSI, and MACD.

3. Use multiple timeframes

Crypto traders should analyze candlestick patterns across multiple timeframes to gain a broader understanding of market sentiment. For example, if a trader is analyzing a daily chart, they should also look at the hourly and 15-minute charts to see how the patterns play out in different timeframes.

4. Practice risk management

Using candlestick patterns carries risks like any trading strategy. Traders should always practice risk management techniques, such as setting stop-loss orders, to protect their capital. It's also important to avoid overtrading and only enter trades with a favorable risk-reward ratio.

Closing Thoughts

Every trader can benefit from being familiar with candlesticks and what their patterns indicate, even if they don't incorporate them into their trading strategy.

While they can be useful in analyzing the markets, it's important to remember that they aren’t infallible. They’re helpful indicators that convey the buying and selling forces that ultimately drive the markets.

Further Reading

12 Terms Every Crypto Trader Should Know

Market Makers and Market Takers Explained

Liquidity Explained

Moving Averages Explained

What Is the RSI Indicator?


Disclaimer and Risk Warning: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

Key Takeaways

Blockchain is a digital ledger that securely records transaction data across a distributed network of computers.

Blockchain ensures data integrity through its immutable nature via cryptography and consensus mechanisms, meaning once information is recorded, it cannot be altered retroactively.

Blockchain forms the backbone of cryptocurrency networks like Bitcoin and Ethereum, and is instrumental in fostering transparency, security, and trust in various sectors beyond finance.

Introduction

Blockchain technology has transformed industries, especially finance, by introducing a decentralized, transparent, and secure way of managing data and transactions. While it began as the foundation for cryptocurrencies like Bitcoin, its applications have grown to include supply chain management, healthcare, voting systems, and much more.

What Is Blockchain?

A blockchain is a special kind of database. It’s a decentralized digital ledger that’s maintained by a distributed network of computers. Blockchain data is organized into blocks, which are chronologically arranged and secured by cryptography.

This structure ensures that the data is transparent, secure, and immutable. It’s virtually impossible to change data stored in a block after the block is confirmed and added to the chain. The decentralized structure also removes the need for a central authority. Blockchain transactions can happen between users without the need for intermediaries.

There are different types of blockchains with varying degrees of decentralization. Still, the term blockchain usually refers to a decentralized digital ledger used to record cryptocurrency transactions.

Brief history of blockchain

The earliest model of a blockchain was created in the early 1990s when computer scientist Stuart Haber and physicist W. Scott Stornetta employed cryptographic techniques in a chain of blocks as a way to secure digital documents from data tampering.

Haber and Stornetta inspired the work of many other computer scientists and cryptography enthusiasts, eventually leading to the creation of Bitcoin as the first cryptocurrency powered by blockchain technology. Since then, blockchain adoption has grown significantly, and cryptocurrencies are now a global phenomenon.

While blockchain technology is often used to record cryptocurrency transactions, it’s suitable for recording many other types of digital data and can be applied to a wide range of use cases.

Key features and benefits of blockchain

Decentralization: Information is stored across a network of computers (nodes) rather than a single central server. Big decentralized networks like Bitcoin are highly resistant to attacks.

Transparency: Most blockchains are public, meaning all participants have access to the same database. Transactions are visible to all participants.

Immutability: Once data is added to the blockchain, it cannot be altered without network consensus.

Data security: Cryptography and consensus mechanisms ensure robust protection against data tampering.

Efficiency: Blockchain can enable faster and cheaper transactions by removing the need for intermediaries. Transactions are processed in near real-time.

What Is Decentralization in Blockchain?

Decentralization in blockchain refers to the idea that the control and decision-making power of a network is distributed among its users rather than controlled by a single entity, such as a bank, government, or corporation.

In a decentralized blockchain network, there’s no central authority or intermediary that controls the flow of data or transactions. Instead, transactions are verified and recorded by a distributed network of computers that work together to maintain the integrity of the network.

How Does Blockchain Work?

At its core, a blockchain is a digital ledger that securely records transactions between two parties in a tamper-proof manner. These transaction data are recorded by a globally distributed network of computers (nodes).

When Alice sends Bob some bitcoin, the transaction is broadcast to the network. Each node authenticates the transaction by verifying digital signatures and other transaction data. Once the transaction is verified, it's added to a block along with other transactions. We can think of each block as a page of the digital ledger.

Blocks are chained together using cryptographic methods, forming the blockchain. The process of verifying transactions and adding them to the blockchain is done through a consensus mechanism, a set of rules that govern how nodes on the network come to an agreement about the state of the blockchain and the validity of transactions.

Blockchain in a Nutshell

1. Transaction recording

When a transaction is initiated (e.g., transferring cryptocurrency), it is broadcast to a network of nodes. Each node validates the transaction using predefined rules.

2. Block formation

Validated transactions are grouped into a block. Each block contains:

Data (e.g., transaction details)

A timestamp

A cryptographic hash: A unique identifier created by running the block’s data through a hashing algorithm.

Previous block's hash: This is what links blocks together, forming the chain.

3. Consensus mechanism

To add a block to the chain, participants in the network must agree on its validity. This is achieved using a consensus algorithm, such as Proof of Work (PoW) and Proof of Stake (PoS). We will discuss both in more detail soon, but here is a brief summary:

Proof of Work (PoW): Used by Bitcoin, PoW requires block validators to use computational power to solve complex problems.

Proof of Stake (PoS): Used by newer blockchains like Ethereum, where block validators are chosen based on their stake in the network.

4. Chain linking

Once validated, the block is added to the blockchain. Each subsequent block references the previous one, ensuring a tamper-proof structure. In other words, for a new block to be validated, it must use the previous block identifier.

5. Transparency

Another feature of blockchain is its transparency. Anyone can generally check a blockchain’s data, including all the transaction data and block data, on public websites known as blockchain explorers.  

For example, you can see every transaction that’s ever recorded on the Bitcoin network, including the sender and receiver’s wallet address, the amount of the transfer, and much more. You can also trace all Bitcoin blocks all the way back to the first block, known as the genesis block.

Blockchain Cryptography

Cryptography is key for the blockchain to maintain a secure, transparent, and tamper-resistant record of transactions. For example, hashing is a crucial cryptographic method used in blockchains. It’s a cryptographic process that converts an input of any size into a fixed-size string of characters.

The hash functions used in blockchains are generally collision-resistant, meaning that the odds of finding two pieces of data that produce the same output are astronomically small. Another feature is called the avalanche effect, referring to the phenomenon that any slight change in the input data would produce a drastically different output. 

Let's illustrate this with SHA256, a function used in Bitcoin. As you can see, changing the capitalization of the letters caused the output to be dramatically different. Hash functions are also one-way functions because it’s computationally infeasible to arrive at the input data by reverse engineering the hash output.

Input data

SHA256 output

Binance Academy

886c5fd21b403a139d24f2ea1554ff5c0df42d5f873a56d04dc480808c155af3

Binance academy

4733a0602ade574551bf6d977d94e091d571dc2fcfd8e39767d38301d2c459a7

binance academy

a780cd8a625deb767e999c6bec34bc86e883acc3cf8b7971138f5b25682ab181

Each block within a blockchain securely contains the hash of the preceding block, establishing a robust chain of blocks. Anyone wanting to alter one block would need to modify all the succeeding blocks, a task that is not only technically challenging but also prohibitively costly.

Another cryptographic method widely used in blockchain is public-key cryptography. Also called asymmetric cryptography, it helps establish secure and verifiable transactions between users.

This is how it works. Each participant has a unique pair of keys: a private key, which they keep secret, and a public key, which is openly shared. When a user initiates a transaction, they sign it using their private key, creating a digital signature.

Other users in the network can then verify the transaction's authenticity by applying the sender's public key to the digital signature. This approach ensures secure transactions because only the legitimate owner of the private key can authorize a transaction, and everyone can verify the signatures using the public key.

What Is a Consensus Mechanism?

A consensus algorithm is a mechanism that allows users or machines to coordinate in a distributed setting. It needs to ensure that all agents in the system can agree on a single source of truth, even if some agents fail. 

Consensus mechanisms ensure that all nodes in the network have the same copy of the ledger, which contains a record of all transactions.

When tens of thousands of nodes keep a copy of the blockchain's data, some challenges can quickly arise, including data consistency and malicious nodes. To ensure the integrity of the blockchain, there are various consensus mechanisms that govern how network nodes reach an agreement. Let's take a closer look at the major consensus mechanisms.

Types of Consensus Mechanisms

What is Proof of Work?

Proof of Work (PoW) is a consensus mechanism used in many blockchain networks to verify transactions and maintain the integrity of the blockchain. It's the original consensus mechanism used by Bitcoin.

In PoW, miners compete to solve a complex mathematical problem in order to add the next block to the blockchain. In a process known as mining, the first miner to solve the problem is rewarded with cryptocurrency.

Miners must use powerful computers to solve mathematical problems, mine new coins, and secure the network. This is why the mining process requires significant amounts of resources (computational power and energy). 

What is Proof of Stake?

Proof of Stake (PoS) is a consensus mechanism designed to address some of the drawbacks of Proof of Work (PoW). In a PoS system, instead of miners competing to solve complex mathematical problems to validate transactions and add new blocks to the blockchain, validators are chosen based on the amount of cryptocurrency they "stake" in the network.

The stake represents the amount of crypto held by validators as collateral. Usually, PoS validators are randomly selected to create new blocks and validate transactions based on the size of their stake. They are rewarded with transaction fees for creating new blocks and as an incentive to act in the best interest of the network. If they act maliciously, they risk losing their staked crypto.

Other popular consensus mechanisms

Proof of Work and Proof of Stake are the most common consensus algorithms, but there are many other types. Some are hybrids that combine elements from both systems, while others are different methods altogether.

For example, delegated Proof of Stake (DPoS) is similar to PoS, but instead of all validators being eligible to create new blocks, token holders elect a smaller set of delegates to do so on their behalf.

On the other hand, in Proof of Authority (PoA), validators are identified by their reputation or identity rather than the amount of cryptocurrency they hold. Validators are selected based on their trustworthiness and can be removed from the network if they act maliciously.

What Are the Different Types of Blockchain Networks?

Public blockchain

A public blockchain is a decentralized network that is open to anyone who wants to participate. These networks are typically open-source, transparent, and permissionless, meaning that anyone can access and use them. Bitcoin and Ethereum are examples of public blockchains.

Private blockchain

A private blockchain, as the name suggests, is a blockchain network that is not open to the public. Private blockchains are typically run by a single entity, such as a company, and are used for internal purposes and use cases.

Private blockchains are permissioned environments with established rules that dictate who can see and write to the chain. They are not decentralized systems because there is a clear hierarchy of control. However, they can be distributed in that many nodes maintain a copy of the chain on their machines.

Consortium blockchain

A consortium blockchain is a hybrid of public and private blockchains. In a consortium blockchain, multiple organizations come together to create a shared blockchain network that is jointly managed and governed. These networks can be either open or closed, depending on the needs of the consortium members.

Instead of an open system where anyone can validate blocks or a closed system where only a single entity designates block producers, a consortium chain sees a handful of equally powerful parties acting as validators. 

The rules of the system are flexible: visibility of the chain can be limited to validators, visible to authorized individuals, or visible to all. If the validators can reach a consensus, changes can be easily implemented. As for how the blockchain works, if a certain threshold of these parties behave honestly, the system won't run into problems.

What Is Blockchain Used For?

While blockchain technology is still in its infancy, it already has use cases in many different industries. Some of the most common current applications of blockchain technology include:

1. Cryptocurrencies

Blockchain technology was developed to support the creation of cryptocurrencies, which use blockchain as a secure and decentralized ledger for recording transactions.

While traditional cross-border transactions involve intermediaries and high fees, blockchain enables faster, cheaper, and more transparent international transfers. Apart from its store of value property, many use Bitcoin and other cryptocurrencies for global remittance.

2. Smart contracts

Smart contracts are self-executing contracts that can be programmed to execute automatically when certain conditions are met. Blockchain technology enables the creation and execution of smart contracts in a secure and decentralized manner.

One of the most popular applications of smart contracts is for decentralized applications (DApps) and organizations (DAOs), which are a big part of decentralized finance (DeFi) platforms. DeFi platforms leverage blockchain to provide financial services like lending, borrowing, and trading without traditional institutions. This democratizes access to financial tools.

3. Tokenization

Real-world assets (RWA) such as real estate, stocks, or art can be tokenized (converted into digital tokens on a blockchain). This can improve liquidity and broaden access to investment opportunities.

4. Digital identity

Blockchain can be used to create secure and tamper-proof digital identities that can be used to verify personal information and other sensitive data. This could become increasingly important as more of our personal information and assets move online.

5. Voting

By providing a decentralized, tamper-proof ledger of all votes cast, blockchain technology can be used to create a secure and transparent voting system that eliminates the possibility of voter fraud and ensures the integrity of the voting process.

6. Supply chain management

Blockchain technology can be used to create a ledger of all transactions within a supply chain. Each transaction (or group of transactions) can be recorded as a block on the blockchain, creating an immutable and transparent record of the entire supply chain process.

Closing Thoughts

Blockchain technology offers a secure and transparent way to record transactions and store data. It’s a technology that is revolutionizing industries by bringing a new level of trust and security to the digital world.

Whether enabling peer-to-peer transactions, creating new forms of digital assets, or facilitating decentralized applications, blockchain technology opens up a world of possibilities. As the technology continues to evolve and gain wider adoption, we can expect more innovative and transformative use cases to emerge in the coming years.

Further Reading

What Is Cryptocurrency and How Does It Work?

What Is a Stablecoin?

What Is Cryptocurrency Mining and How Does It Work?

Disclaimer: This content is presented to you on an “as is” basis for general information and educational purposes only, without representation or warranty of any kind. It should not be construed as financial, legal or other professional advice, nor is it intended to recommend the purchase of any specific product or service. You should seek your own advice from appropriate professional advisors. Where the article is contributed by a third party contributor, please note that those views expressed belong to the third party contributor, and do not necessarily reflect those of Binance Academy. Please read our full disclaimer here for further details. Digital asset prices can be volatile. The value of your investment may go down or up and you may not get back the amount invested. You are solely responsible for your investment decisions and Binance Academy is not liable for any losses you may incur. This material should not be construed as financial, legal or other professional advice. For more information, see our Terms of Use and Risk Warning.

Original | Odaily Planet Daily

Author | Asher

Editor | Qin Xiaofeng

Heroes of Mavia is a Web3 MMO strategy Play to Earn game developed by Skrice Studios. Players can rent or cooperate with landowners to acquire and build bases in the game, and use their own bases and armies to fight other players for more rewards. The game interface and gameplay are similar to "Boom Beach".

At present, the financing situation of this chain game is as follows:

On January 21, 2022, Heroes of Mavia announced the completion of a US$5.5 million seed round of financing, led by Binance Labs, Genblock Capital, Delphi Digital, Mechanism Capital, Alameda Research, Animoca Brands, Yield Guild Games, Yield Guild Games South Asia , Exnetwork Capital, Double Peak Group, Merit Circle, HashKey Capital, etc. participated in the investment.