1. K-line history and basic introduction
K-line, also known as Yin-Yang candlestick or candle line, is a kind of graph that reflects price trends. Its characteristic is that it condenses and organizes the price trend of the target within a period of time, and uses different colors and shapes to reveal price information and market sentiment for investors to analyze. It is very easy to read and understand, practical and effective. It is widely used in technical analysis of stocks, futures, precious metals, digital currencies and other markets, which is called K-line analysis.
It is said that K-line was invented by Homma Munehisa, a rice merchant in the Edo period of Japan, to record the daily rice market and analyze the futures market. In Japanese, (けいせん) is pronounced as keisen, so it is translated into Chinese as K-line.
K-line can be divided into daily K-line, weekly K-line, monthly K-line, annual K-line, and the trading time within a day can be divided into several equal parts, such as 5-minute K-line, 15-minute K-line, 30-minute K-line, 60-minute K-line, etc. K-line charts are particularly popular in daily trading for two reasons: they provide extensive trading information and are easy to interpret.
2. Interpretation of the basic K-line pattern
1. Big White Candle
Shape characteristics: The real part of the big Yang candle (i.e. the part between the closing price and the opening price) is usually longer, showing the strong buying power. The upper and lower shadows of the big Yang candle are usually shorter or absent, indicating that during the transaction, the price fluctuation is small and the buyer is dominant.
Interpretation: The strength of the big Yang line is proportional to the length of its body, that is, the longer the Yang line body, the stronger the strength, and vice versa. The big Yang line often appears in the early or middle stage of the upward trend, which is a strong signal of the rise.
2. Big Black Candle
Morphological characteristics: Also known as a long black candlestick, it refers to a K-line with a very long black candlestick body, no shadows above or below, or very short shadows. It is characterized by opening at almost the highest price and closing at the lowest price of the day.
Interpretation: Sellers have an advantage. Holders sell without price limits, causing a certain panic. The market is one-sided, and prices continue to fall until the close, indicating a strong downward trend. The strength of the Yin line is proportional to the length of its body, that is, the longer the Yin line body, the stronger the strength, and vice versa. Of course, in some market conditions, the appearance of a large Yin line may lead to an increase in the market in the future.
3. Doji
Morphological characteristics: the opening price is equal to the closing price, there is no entity or the entity is very short.
Interpretation: It indicates that the market is in an uncertain state and price reversal may occur.
4. Dragonfly Doji / T-Line
Pattern characteristics: The opening price, closing price, and highest price are the same or very close, the body is a "one", and only the shadow is left on the K-line, occasionally accompanied by a slight upper shadow. This pattern has the same meaning regardless of whether it is a Yin line or a Yang line.
Interpretation: In the actual trend, the T-line often appears near the high point of the rise or rebound, often becoming a short-term high point, which is a signal of an upcoming adjustment. The T-line at a high position reflects a tentative behavior of short-selling forces, testing the strength of the bullish forces below. Generally speaking, the longer the lower shadow, the greater the adjustment space. Due to its large-scale bottoming and rebounding trend, it often attracts retail investors to buy, becoming a form of inducement for major funds.
5. Gravestone Doji / Inverted T
Morphological characteristics: There is a long upper shadow line, the opening price and closing price are at the same level, and the body is the shape of the Chinese character "一".
Interpretation: It is a reliable turning signal.
6. Spinning top
Morphological characteristics: The body of the spindle candlestick pattern is shorter and located between the upper and lower shadows of equal length, with longer shadows.
Interpretation: This pattern indicates market indecision, that is, bulls push prices higher, while bears pull prices lower again. Spinning hammers are often interpreted as a period of consolidation or rest after a clear upward or downward trend.
The spinning top itself is a relatively benign signal, but it can also be understood as an indication that today’s market pressures are getting out of control.
7. Hanging man
Morphological characteristics: Appearing on the way up, a kind of top signal. The small entity (yin or yang) is at the top of the K-line, and the length of the lower shadow should be much longer than the length of the entity. It is generally believed that the lower shadow should be more than twice the length of the entity.
Interpretation: The hanging man is a bearish pattern. Although its shape is the same as the hammer line, it is formed at the end of an uptrend.
The pattern shows that there was significant selling pressure on the day, but buyers were able to push prices back up somewhat. Large-scale selling is often seen as a sign that bulls are losing control of the market.
8. Hammer
Pattern characteristics: It appears on the way down, also known as the hammer line, and is a more reliable bottom pattern. Its characteristics are that the Yang line (or Yin line) has a very small body, and the small body is at the top of the K line. Generally, there is no upper shadow (even if there is, the upper shadow is very short). The length of the lower shadow should be much longer than the length of the body. It is generally believed that the lower shadow should be more than twice the length of the body.
Interpretation: Usually means there is heavy buying of the asset, so the price may rise soon.
The hammer line appears in the middle of a decline, which is a bottom signal and a bullish outlook. The longer the lower shadow of the hammer line, the stronger the resistance of the bulls. The strength of the bulls is almost the same as that of the bears, and even turns from weak to strong until it eventually exceeds the bears.
Comparison: Similarities between the Hammer and the Hanging Man
The body is at the upper end of the entire price range; the length of the lower shadow is at least 2-3 times the height of the body; there is no upper shadow, and even if there is an upper shadow, its length is extremely short;
Comparison: The difference between the Hammer and the Hanging Man
The hammer line and the hanging line are the same kind of graphics, but they are called differently because of the positions they appear in. The hammer line usually appears when the price has fallen for a period of time, and there must be a certain drop, that is, the bottom of the stage cycle, which is called the hammer line; the hanging line appears when the price has risen for a period of time, and there is a certain increase in a relatively high position, which is called the hanging line.
9. Inverted Hammer
Morphological characteristics: The inverted hammer bullish line gradually climbs upward since the opening, with a large increase on the day. The strength of the bulls is very strong, but after the surge, it is quickly suppressed by the bears and falls sharply. The final closing price is higher than the opening price, and a long upper shadow line is formed.
The inverted hammer candlestick shows a sharp rise after the opening, but the short-side force is also very strong, causing it to fall back quickly after rising. At the closing, the price fell below the opening price, forming a long upper shadow.
Interpretation: After a long-term downward trend, the inverted hammer has the market significance of stopping the decline and rebounding. It appears at a low point after a long-term price decline and has the same bullish market function as the hammer. When analyzing the inverted hammer, one point is very important: when the inverted hammer appears, wait for the subsequent bullish signal to verify it together.
3. Interpretation of common K-line combination patterns
1. Morning Star: It appears on the way down and consists of 3 K lines, the first is a Yin line, the second is a cross line or a small Yin line (small Yang line), and the third is a Yang line. An ideal Morning Star should have a small cross star in the middle, with gaps between the two K lines before and after, and the Yang line and the Yin line should be of similar height.
Technical meaning: bottoming signal, bullish outlook.
2. The dawn of hope: It appears in a downward trend, first a large or medium Yin line, followed by a large or medium Yang line. The Yang line's body penetrates more than half of the Yin line's body.
Technical meaning: The more the positive line entity penetrates into the negative line entity, the stronger the reversal signal.
3. Rising Sun: Appears in a downward trend, first a large or medium Yin line, then a large or medium Yang line opens high, and the closing price of the Yang line is higher than the opening price of the previous Yin line.
Technical meaning: The bottom signal is stronger than the first light of dawn. The higher the body of the positive line, the stronger the reversal signal.
4. Evening Star (opposite to Morning Star): It is composed of 3 K lines. During the rising process, a long Yang line appears. It opens high with a gap, and the body of the K line gradually shrinks to form the main part of the star. Then a long Yin line appears.
Technical meaning: Peaking signal, bearish outlook.
5. Dark Cloud Cover: During the rising process, a long Yang line appears. It opens higher and moves lower, closing at the lowest point, forming a long Yin line. The closing price of the second K line is below 1/2 of the first K line.
Technical meaning: The more the positive line entity penetrates into the negative line entity, the stronger the reversal signal.
6. Engulfing pattern: The engulfing pattern is composed of two K-lines of unequal sizes and opposite yin and yang. The latter completely encloses the entity of the former (excluding the upper and lower shadows).
Technical meaning: The engulfing pattern is a common and relatively effective reversal pattern.
7. Flat top: A flat top is composed of two or more K-lines, which appears in an upward trend, and the highest price is at the same price.
Technical meaning: It is a kind of peaking, and the market outlook is bearish. Flat tops or flat bottoms are not common in daily operations, but once they appear, they are more accurate. Flat bottoms are the opposite.
8. Three rising methods: A large Yang line appears during the rising process. Then three short Yin lines (or two, four or more) appear, with a slight decline, but moving within the range of the first Yang line. Then a large Yang line appears, and the closing price exceeds the highest point of the first Yang line. The overall trend is similar to the English letter "N".
Technical meaning: Continue to be bullish.
9. Three Crows: Consists of three consecutive black candlesticks. The closing price is the lowest point of the current candlestick. The opening price of each candlestick is within the body of the previous candlestick. The closing price of each candlestick is falling.
Technical meaning: Peaking signal, bearish outlook.
The above only lists a few of the more common patterns. No pattern can be viewed in isolation. Only by accumulating multiple patterns step by step, combining them, and referring to volume and indicators can the conclusions drawn be relatively meaningful.
4. Technical Pattern Analysis
1. Support and resistance levels
As you can see in the chart above, the lowest price levels become support levels, while the highest price levels represent resistance levels. Support levels show the levels that traders are willing to buy, while resistance levels are the levels that traders want to sell. In the chart above, you can also see a breakout above the resistance level, which then becomes the new support level. Once these levels are broken, supply and demand, as well as the psychology behind the price action, are believed to have shifted. New support and resistance levels are then established, and vice versa.
2. Double top (M top) and double bottom
Double tops and double bottoms are reversal patterns that signal that an ongoing trend may be about to reverse.
After two consecutive waves of highs and lows, two peaks are formed on the graph, consisting of two relatively close high points, and its shape is similar to the English letter "M". The horizontal line between the low points of these two highs is called the "neckline".
The double top pattern appears during an uptrend. There are two heads, and the high points formed by the two heads are not necessarily the same. After the second head is formed, it will fall back and break through the low point formed in the previous period. Generally, after breaking through the previous low, the price often has a pullback. When it is confirmed that the pullback cannot return to the top of the previous low, the double top structure is confirmed. The logic of the double bottom is the opposite.
3. Triple Top and Triple Bottom
Triple tops and bottoms are similar to double tops and bottoms, except the market hits support or resistance three times before reversing instead of twice. A triple top pattern means the market hits resistance three times before reversing, while a triple bottom pattern does the opposite.
4. Head and Shoulders
This is another pattern that signals a trend reversal. Very similar to the Triple Top, but the Head and Shoulders pattern has a peak shoulder, followed by a higher peak head, followed by a lower peak (the other shoulder). The two shoulders should take approximately the same amount of time to run, and the neckline is formed between the two troughs on either side of the head. You can calculate the target based on the distance between the head and the neckline: the distance from the breakout point is the target decline.
It is worth noting that the head and shoulders pattern is fully formed after the neckline is broken. At this time, the target is formed.
The head and shoulders bottom pattern works on the same principle, but in the opposite direction.
5. Triangle
When the market price starts to converge towards a certain point, it presents a triangle pattern. The formation process of the triangle can predict the next price trend. There are three main types of triangle patterns: ascending triangle, descending triangle, and symmetrical triangle.
Ascending triangle: Simply put, the high points are almost the same, while the low points are getting higher and higher. This pattern often appears at the beginning of an uptrend or during an uptrend. This pattern usually indicates that prices will rise, but remember that too strong resistance may cause prices to rebound. Generally speaking, when trading with triangle patterns, it is wise to wait for the pattern to form and then trade at the breakout point.
Descending Triangle: The principle is the opposite of the ascending triangle pattern. The highs are connected but lower and lower, the market hits the support level, but the peaks are falling, indicating that the price will go lower.
Symmetrical Triangle: A symmetrical triangle is formed when prices converge with lower peaks and higher troughs. This is called "consolidation" meaning that the overall trend of the market will generally continue in the same direction after the formation.
If there is no clear trend before the triangle forms, the market can break out either upward or downward.
6. Wedge
Not to be confused with a triangle, this pattern occurs when a market price begins to narrow into a tight range between two sloping trendlines. A rising wedge is formed between two upward sloping support and resistance lines. In this case, the support line is steeper than the resistance line. This pattern generally signals lower prices.
A falling wedge is formed between two downward sloping trendlines. In this case, the resistance line is steeper than the support line, which usually indicates that prices will move higher.
V. Reference Indicators
1. Moving Average (MA)
As the name implies, the simple moving average simply plots the average price of the market over a specific period of time. The above chart shows the 10-day moving average (10MA), the 20-day moving average (20MA), and the 50-day moving average (50MA). The 20-day moving average is smoother than the 10-day moving average and lags further behind the price. Among the three moving averages, the 50-day moving average is the flattest, while the 10-day moving average is the steepest.
2. Exponential Moving Average (EMA)
An exponential moving average (EMA) is a type of moving average that focuses more on recent data points. It is also known as an exponentially weighted moving average. The EMA works in much the same way as the simple moving average, but focuses on more recent periods. This means that the EMA reacts more quickly to price action and is usually closer to the underlying price than a moving average.
For example, the 5-day EMA line is an ultra-short-term judgment period, the 10-day EMA line is a short-term judgment period, the 20-day EMA line is a medium-term judgment period, and the 200EMA line is a recognized bull-bear dividing line.
3. Moving Average Crossover
For example, the 10-day moving average is usually above the 20-day moving average in an uptrend, but below it in a downtrend. Therefore, the moving average crossovers can be good places to enter and/or exit trades. Generally speaking, when the shorter-term moving average crosses over the longer-term moving average, it is a good time to go long, and when the longer-term moving average crosses over the shorter-term moving average, it is a good time to reverse your position.
4. Moving averages are used as support and resistance
For example, there was a point in mid-September when the price broke through the 10-day EMA sharply to the upside. This turned out to be a false breakout, and the downward trend continued until the end of the month and even into October.
This is why many traders add multiple moving averages to their charts. If we also include the 50-day EMA, we can see that the 50-day MA was not breached during the brief rally in September, even though the 10-day MA was breached.
Adding the 50-day exponential moving average also sent a strong crossover signal just before the market turned uptrend after the consolidation period in November and early December.
5. MACD (upgraded version of MA)
The MACD indicator includes three parts: DIF, DEA and MACD histogram. The calculation formula is as follows:
MACD line (DIF, fast line) = 12-day moving average (EMA) — 26-day moving average (EMA)
Signal line (DEA, slow line) = 9-day moving average (EMA) of MACD line
Histogram (MACD histogram) = (MACD line - signal line) × 2
(Note: In order to display the bar chart more intuitively, some software will double its value)
MACD Crossover Strategy — Golden Cross
The golden cross (golden cross) refers to the MACD line crossing the signal line upward (the fast line crosses the slow line upward). At this time, the histogram turns from negative to positive, and the color changes from red to green (different tool color settings may be different), indicating that the market has turned from weak to strong, and there may be a wave of rise next, which is a potential buy signal.
MACD Crossover Strategy — Death Cross
Death cross (death fork) refers to the signal line crossing the MACD line upward (slow line crossing the fast line upward). At this time, the histogram turns from positive to negative, and the color changes from green to red, indicating that the market has turned from strong to weak, and there may be a wave of decline next, which is a potential sell signal.
The above picture shows the price trend of Bitcoin combined with the MACD indicator (data from 2024)
The simplest and quickest way to identify the golden cross and death cross is not to look at the fast and slow line trends, but to look at the size and color changes of the bar chart. When the bar chart gradually shrinks and changes from red to green, it is a golden cross; conversely, when the bar chart gradually shrinks and changes from green to red, it is a death cross.
MACD Divergence Strategy — Bottom Divergence
Bottom divergence means that the price falls below the previous low, but the MACD line (fast line) is higher than the previous low, that is, it shows an upward momentum. This indicates that the price may turn from falling to rising, which is a potential buy signal.
MACD Divergence Strategy — Top Divergence
A top divergence means that the price has risen above the previous high, but the MACD line (fast line) is lower than the previous high, showing a downward trend. This indicates that the price may turn from rising to falling, which is a potential sell signal.
6. BOLL
Middle line = 20-day moving average (SMA)
Upper line = 20-day SMA + (20-day standard deviation x 2)
Lower line = 20-day SMA - (20-day standard deviation x 2)
Typically, the standard Bollinger Bands are set to two standard deviations (x2) away from the middle line with a 20-day period. This is done to ensure that at least 85% of the price data will fluctuate between these two bands, but the setting size can also be adjusted according to different needs and trading strategies.
The BOLL indicator belongs to the price channel indicator, so the indicator is displayed superimposed with the main K-line chart. The BOLL indicator contains three tracks in total. Generally, the BOLL upper track is the pressure level of the price channel, and the BOLL lower track is the support level of the price channel. The price fluctuates within the range of the upper and lower limits. The middle track may sometimes be a support line and sometimes a resistance line. The upper and lower tracks represent standard deviations, which means that they reflect price fluctuations. When the tracks shrink and are close together, it means that the market will usher in a downturn and the market is about to enter a consolidation phase.
If the price is above the moving average and above the upper Bollinger Bands, it is probably safe to assume that the market is overextended (overbought) at this time. On the other hand, if the price touches the upper band multiple times, it may indicate a significant level of stress. Conversely, if the price of certain assets drops significantly and exceeds or touches the lower band multiple times, the market may be oversold or have reached a strong support level.
When the Bollinger Bands gradually open, the upper track of the Bollinger Bands indicator will move upward, and the lower track will move downward, presenting an open trumpet shape. This indicates that the price fluctuation is increasing, which will trigger a larger market trend. At this time, traders should pay attention to the direction of the middle track. If the middle track tilts upward, it means that the price will enter an upward trend, which is a buy signal; if the middle track slides downward, it means that the price will enter a downward trend, which is a sell signal.
In short, the Bollinger Bands indicator can show overbought and oversold. When the price breaks through the upper band upward, it enters the overbought zone. When the price breaks through the lower band downward, it enters the oversold zone. When using the Bollinger Bands, pay attention to whether the price is in the normal range or the abnormal range. In the abnormal range, you cannot simply follow the rule of "sell when it touches the upper band and buy when it touches the lower band".
VI. Comprehensive Indicators
1. Fibonacci Retracement
The Fibonacci sequence is a set of numbers, such as 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc., where each subsequent number is equal to the sum of the previous two numbers. This sequence has many interesting mathematical properties, such as its relationship to the golden ratio (Phi). The golden ratio is approximately 1.618, and when the value of each term in the sequence divided by the previous term approaches this ratio, a sequence is formed that approximates the golden ratio. This led to the establishment of the important Fibonacci ratios, which are 23.6%, 38.2%, 50%, and 61.8%.
In technical analysis, Fibonacci retracements are drawn by taking two extreme points on a candlestick chart (usually the peak and the most recent previous low) and the system draws several horizontal lines, as shown in the figure above. This can help traders identify potential support levels for retracements. The Fibonacci retracement tool should be used in conjunction with other technical indicators such as moving averages or Bollinger Bands.
2、Ahr999
This indicator was created by Weibo user Ahr999 to assist Bitcoin fixed investment users in making investment decisions based on timing strategies. This indicator implies the rate of return of short-term Bitcoin fixed investment and the deviation of Bitcoin price from expected valuation.
When Ahr999 index < 0.45, you can buy the dip;
When Ahr999 is between 0.45–1.2, it is suitable for fixed investment;
When Ahr999 >1.2, the currency price is already relatively high and is not suitable for operation.
From a long-term perspective, the price of Bitcoin shows a certain positive correlation with the block height. At the same time, with the advantages of the fixed investment method, users can control the short-term fixed investment costs so that most of them are below the price of Bitcoin.
3. Rainbow Chart
The Rainbow Chart is a long-term valuation tool for Bitcoin. It uses a logarithmic growth curve to predict the potential future price direction of Bitcoin.
It overlays a rainbow colored band on top of a logarithmic growth curve channel, attempting to highlight the market sentiment of each rainbow colored phase as price passes through it. Therefore highlighting potential buy and sell opportunities.
4. 2 Year Moving Average
The 2-Year MA Multiplier indicator is designed to be used as a long-term investment tool, and it highlights periods when buying and selling Bitcoin can yield huge returns. To do this, it uses the 2-Year Moving Average (730-day equivalent, green line), and the 5-fold product of that moving average (red line).
Historically:
When the price falls below the 2-year moving average (green line), it is a dip buying signal and buying Bitcoin will generate excess returns.
When the price exceeds the 2-year moving average x5 (red line), it is a sell signal to escape the top, and selling Bitcoin will generate greater profits.
The above indicators should be used in combination in actual applications, and comprehensive analysis should be conducted in conjunction with current affairs and market dynamics to maximize their guiding role.
We will share the content of this section here. This is the third part of the "Basic Encryption Knowledge Notes" series. We will continue to share more content in the knowledge architecture diagram. The full version of "Basic Encryption Knowledge Notes" will be organized into a PDF and provided for download and reading after the serialization is completed.
Note: Some of the above content comes from the Internet. If there are any marking errors or any other questions or suggestions, please leave a message to let us know. All information in this article is only for learning records and popular science communication, and should not be regarded as investment advice.
