So we have the very basics of a candlestick chart now what.......? 🤔
We learned in the previous section about the very basics of a candlestick chart such as what candles can tell us and its history. Well, with this information what can be done? With this next section we will be covering the very basics of identifying trends and how to read candle stick charts. So let's begin.
Take a look at this chart of the crypto, Polygon Matic token ( $MATIC ) on a DAILY timeframe:
What do you see? If you guessed an upward trend, you'd be right. $MATIC from August 2021 to December 2021 experience a strong upward trend in price, in fact more than doubling its price from the $1.20s to above $2.80. Another way to identify the upward trend or confirm is when the asset is experiencing "higher highs and higher lows".
Let's take a look at the exact same chart of the crypto, Polygon Matic token ( $MATIC ) on a DAILY timeframe but identifying higher highs and higher lows uptrend.
As the uptrend is occurring, prices from the previous period that were seen as highs are even higher than they were before. Not only do the highs finish higher, but the lows from a past period of time increase in value and end up being higher than before. Identifying this also can help confirm support and resistance levels (we will cover next section) as well as predict the asset's next movement where on the pullback (when the asset is down) you can invest expecting a repeat pattern up as before.
Now lets look at a downward trend. This time with Ethereum ( $ETH ) on the 1 HOUR timeframe:
As you can see here, from January 20, 2022 $ETH went from high $3300s to the mid $2500s in the matter of 2 days in a very fast downward trend. Similar to the previously stated "higher highs and higher lows" we also can see a similar pattern here named "lower highs and lower lows".
Let's take a look at the same chart with this depicted:
During a downtrend, prices that were higher in value decreased the following period, showing the lower high concept. In comparison to higher prices finishing lower, lower prices change negatively and become even lower in the next period of time on the market. This information is useful when understanding the natural sentiment of the market and if we are in a bullish or bearish trend. This can also signify key levels of support and resistance as well as potential buying signals.
These are the two basic patterns that I learned to master when I first started analyzing and watching charts. They are the most common and very easy to understand and spot. In our next section we will use what we learned here and tie into spotting, identifying and understanding RESISTANCE and SUPPORT levels. Let's keep the building going!
Hotep & Build. ✌🏽