1. First of all, you need to understand what is a candlestick chart?
Candlestick charts are a way to display the historical price movement of an asset over time. Each candle represents a specific period of time, depending on the timeframe chosen by the trader. For example, if you set up a 1D chart, each candle represents one day.
Researchers agree that Japanese rice traders were the first to come up with the concept of candlestick charts, and the abstract idea of candlestick charts later became more widely used in the Western world with the publication of Steve Nissen's book (Japanese Candlestick Charting Techniques) in 1991.
Second, there are several important components that make price analysis intuitive and understandable about the purpose of candlestick charts.
🕯Candle Body
The candlestick body represents the opening and closing prices of an asset. The position of the opening or closing price depends on whether the candlestick (and therefore the price) is bullish or bearish over a given time period. In a bullish market, the closing price will be higher than the opening price, and the opposite is true in a bearish market.
🕯 Candle wick/shadow
Each candlestick usually has two so-called shadows, or wicks, but this is usually not a rule. The shadows represent the highest and lowest points in the price over a given period of time. Thus, the upper shadow represents the peak and the lower shadow represents the lowest point reached by the price. Sometimes only one shadow may be visible, which happens when the other shadow coincides with the opening or closing price and is on the same horizontal line as the body.
🕯Candle color
The color of the body shows the direction of the price movement. Typically, a green (or white) body indicates rising prices, while a red (or black) body indicates falling prices. On most platforms, you may see both green and red bodies. So, if the body is green, its upper bound will indicate the closing price.
3. Introduction to candlestick chart:
1. Hammer
The hammer candlestick pattern consists of a short real body and a long lower shadow. It is called a hammer pattern because the shape of the candlestick resembles an upright hammer. You will usually find hammers at the bottom of a downtrend. This pattern indicates that the bulls resisted the selling pressure in a given period and pushed the price higher. While there can be a hammer pattern with either a green or red candle, the former points to a stronger uptrend than the red hammer.
2. Inverted Hammer
The Inverted Hammer is similar to the standard Hammer pattern, but it has a longer upper shadow and a very short lower shadow. This pattern indicates that there was buying pressure, followed by bears trying to push the price lower but failing. As a result, buyers returned with stronger pressure, pushing the price higher.
3. Bullish Engulfing
Unlike the previous two patterns, the bullish engulfing pattern consists of two candles. The first candle should be a short red candle engulfed by a green candle with a larger body. When the second candle opens lower than the previous red candle, buying pressure increases, causing a reversal of the downtrend.
4. Perforation line
Another double candlestick pattern is the piercing line, which may appear at the bottom support level of a downtrend, or during a pullback in anticipation of a bullish move. This pattern consists of a long red candle and a long green candle. The key to this pattern is that there is a significant gap between the closing price of the red candle and the opening price of the green candle. The closing price should also cover at least half the body length of the previous day's red candle. A green candle's closing price is well above the opening price, which indicates buying pressure.
5. Morning Star
The Morning Star pattern is more complex as it consists of three candles: a long red candle, followed by a short candle and a long green candle. The Morning Star pattern indicates that the first phase of selling pressure is fading and a bull market is forming.
6. Three White Soldiers
Another type of three candlesticks is the Three White Soldiers. It consists of three long green candlesticks, usually with short shadows. The main condition is that the opening and closing prices of the three consecutive green candlesticks must be higher than the previous period. This pattern is considered a strong bullish signal that occurs after a downtrend.
7. Hanging Man
The Hanging Man is formed by a green or red candle with a short body and a long lower shadow. It usually appears at the end of an uptrend and indicates that a sharp sell-off is imminent, but bulls may temporarily push prices higher before losing control.
8. Shooting Star
The Shooting Star is the opposite of the Inverted Hammer. It consists of a red candle with a short body and a long upper shadow. Generally, the market will gap up on the candle open and will surge to a local high before closing below the open. Sometimes the body is almost non-existent.
9. Bearish Engulfing
The bearish engulfing pattern is the reversed version of the bullish engulfing pattern, whereby the first candle has a small green body and is completely covered by the next long red candle. This pattern appears at the top of an uptrend, suggesting a reversal. The lower the second candle continues to go, the greater the momentum of the bearish move.
10. Evening Star
The Evening Star represents a specific three-candle pattern. It consists of a short-bar candle followed by a long green candle and a large red candle that closes below the midpoint of the first green candle. This pattern usually occurs at the top of an uptrend and signals a potential reversal.
11. Three Black Crows
The Three Black Crows pattern consists of three long straight red lines with short or almost non-existent shadows. Each new candle opens at relatively the same price as the previous candle, but each closes significantly lower. This is seen as a strong bearish signal.
12. Dark clouds cover the sky
The dark cloud cover pattern is similar to the piercing line, but opposite to it. It signals a bearish reversal and consists of two candles – a red candle that opens above the previous green candle and closes below its midpoint. This pattern suggests that bears have taken control of the market and are pushing prices lower. If the candle’s shadows are short, then traders can expect a strong downtrend.
13. Doji
The body of the Doji candlestick is very small and the shadow is very long. Although it is generally considered a trend continuation pattern, traders should be careful because it can also signal a reversal. To avoid confusion, open a position a few candles after the Doji appears, when the situation becomes clear.
14. Spinning Top
Like the Doji, the Spinning Top is a candle with a short body. However, the two shadows are equal in length, with the body in the middle. This pattern also indicates indecision and may suggest a period of rest or consolidation after a sharp rise or fall in price.
4. Using Models for Risk Management on Binance
Even if candlestick patterns are reliable, successful trading requires a rigorous risk management strategy. Here’s how to use Binance’s tools to protect your capital and maximize growth:
Set a stop loss: Binance offers customizable stop-loss orders that help you automatically close your trades at predetermined levels, minimizing potential losses.
Manage position size: Avoid risking too much on a single trade; allocate only a small portion of your total capital to each trade.
Use other indicators for confirmation: Combine candlestick patterns with other technical indicators like RSI, moving averages, or MACD to confirm trade setups.
Avoid Overtrading: Resist the temptation to trade every pattern you see. Focus on high-quality setups to avoid unnecessary risk and maximize your gains.
5. Strategy to Turn $50 into $1,000 in 7 Days on Binance
Now, let’s put everything together into an example strategy designed to help you achieve your goal of $1,000 on Binance.
(1). Identify the trend: Use trend indicators such as "Three White Soldiers" or "Three Black Crows" to confirm the market direction before placing a trade.
(2) Look for reversal patterns: Patterns such as the Morning Star or Shooting Star are ideal entry points that allow you to trade at the beginning of a new trend.
(3) Set a stop-loss order: Protect your trade by setting a stop-loss below or above the pattern formation to manage risk.
(4) Set realistic profit goals: Plan your profit exits carefully. Exiting at the right time can help you retain your gains, allowing you to reinvest and grow your portfolio.
(5) Reinvest profits to compound growth: Compounding is one of the fastest ways to grow a small account. Reinvest some of your profits in future trades while keeping some of them safe.
In conclusion
To achieve a 20x increase in just one week requires patience, skill, and rigorous risk management. With Binance's user-friendly interface, powerful charting tools, and reliable candlestick patterns, beginners can improve their trading potential. However, remember that all trading involves risk. Practice these strategies on a demo account first, then continue to perfect your skills. By mastering these patterns and combining them with a sound strategy, you can gain an edge in the fast-paced world of trading on Binance. $BTC $XRP $ETH
