Investing in the crypto market requires a good deal of analytical knowledge, especially since this niche is even more volatile than the traditional market. Still, there are similarities between the analysis of the two markets, charts and patterns evaluation being one of them. The cryptocurrency trader can base his strategy on the candlestick style chart, for example.
Understand below how fundamental analysis works in candles trade and learn how to apply it when investing in crypto.
After all, what is a candlestick trade?
Also known as a candlestick, so-called “candlestick charts” are used to measure price changes for a specific asset. They can be used both in the traditional market and in the crypto market.
The famous bars help the investor to analyze repeating patterns of volatile assets, which can help to define a loss and gain strategy throughout the negotiation.
This tool is indispensable for analyzing the market as a whole, as it offers a good view of the behavior of prices at opening, closing and during a specific market period.
How did candlestick analysis come about?
The candlestick chart appeared in the 18th century in Japan, when commodities – such as rice, for example – were considered the country’s main assets. The Japanese merchant Munehisa Honma operated rice coupons in the Dojima market when digital technology to generate the graphics in an automated way did not yet exist.
This type of futures contract generated a pattern of bullish and bearish behavior, helping to establish the price of the asset during the different times of the year. The popularization of the graph occurred in the 1980s, when a Wall Street investor started to use the technique with stocks traded on the exchange.
How does candlestick trading work?
Candlestick trade charts are excellent evaluation tools for measuring the opening and closing of the market. As the crypto market takes place 24 hours a day, this metric becomes even more efficient, as the data is generated in real time.
The candlestick trade uses green bars to show the high of an asset and red bars to point to the low. Thus, it is possible to measure the variation between prices and define the best moment to buy or sell an asset.
Many day trade operators (short operations that start and end on the same day) use fast charts in a period between 1 and 5 minutes to check volatility and make purchases at the right time, and the crypto market would not be different.
The main candlestick patterns in the market
The candlestick chart serves for a variety of situations and, therefore, can be interpreted in different ways. Some of the most well-known patterns are as follows:
Engulfing high and low
The so-called engulfing is formed when there is an analysis of two candles, whether they are low or high. Thus, it occurs when the last candle on the chart surpasses the previous one, balancing the high and low to form a positive pattern.
The same can happen in the opposite direction, when an engulf is formed of repeating negative patterns as the columns advance.
Another known behavior in charts is the hammer shape, a common figure in the market. In this case, the body is drawn with a shadow higher than the beginning, suggesting that one of the forces moved the asset price, without being able to maintain the pattern.
In this scenario, the price hits distant highs and lows, but ends up near the opening price. For traders , this is an ideal time to take a position in the market.
The Doji is a chart pattern that represents market indecision, usually represented by constant highs and lows and short or long tails. This behavior may indicate that there are doubts about a certain asset, serving as a warning sign for investors.
When the Doji appears after a general high or low it can represent a dominant force in the late stage of performance. Thus, it indicates that a certain crypto is no longer a good choice for the investor.
As you can see, candles trade is an important tool for evaluating market metrics. It is essential in making decisions on the best cryptocurrencies, as well as the best trading strategy as a whole.
With this type of chart, the investor can assess whether an asset is falling or rising, and define a strategy based on the variations. By identifying a trend, it is possible to establish behavior patterns indicating a strengthening or even a possible weakening of some cryptocurrency in vogue in the market.
Finally, it is worth remembering that the analysis based on candles trade is not the only one in the market. When operating with cryptocurrencies, it is important for you to evaluate other analysis methods and follow expert recommendations to make an intelligent and fact-based decision.