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With the current Elon Musk related FUD, it can be difficult to see the forest from the trees. The story is confusing to say the least. With prominent CT and news figures disagreeing over the extent to which the bull market is intact.
Times like this, candlestick patterns paint a much clearer picture. That’s why our focus this week will be on creating a Candlestick Patterns Course.
Later in today’s article we also provide a detailed market overview: our technical and fundamental analysis of BTC.
Read, enjoy and share with your network. Let’s all build wealth together.
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Our 4 Part Candlestick Patterns Course will focus on mastering bearish, bullish and continuation patterns. Finishing off with a Market Meditations Cheat Sheet, that can accompany you throughout your trading and investing journey.
GOAL: Start using candlestick patterns in your crypto trading and investing
EFFORT: 5-10 mins to get started with each pattern
REWARD: Potentially unlimited upside if you can master a pattern
Part 1 (Today) -> Candlesticks 101
Part 2 (Tuesday) -> Bullish Reversal Patterns
Part 3 (Wednesday) -> Bearish Reversal Patterns
Part 4 (Thursday) -> Continuation Patterns
Friday -> Market Meditations Cheat Sheet
💎 We’ll share Part 2 on Bullish Reversal Patterns in tomorrow’s newsletter 💎
To receive Part 2, make sure you’re on our FREE email list 👇
🟪 Candlesticks 101
Let’s start with how to read candlestick charts as this forms the basis of technical analysis. Here are the components of a bullish or bearish candlestick you should be aware of:
1️⃣ Body: the distance between the close and open price
Colour A (Purple): Bearish candle where open price is higher than the close price
Colour B (White): Bullish candle where open price is lower than the close price
2️⃣ Time: Each candle represents a specific interval of time (1M, 15M, 1H, 1D, 1W)
Open and Close:
Open: Price at the start of a time interval
Close: Price at the end of a time interval
Wick / Shadow
These represent the highest and lowest price points reached during the time interval you are analysing
Here’s an example to clarify things:
Let’s say you’re analysing a candlestick on the 15 minute time frame. This means that there is exactly 15 minutes between the open price and the close price of the candle. Let’s say that at the start of this 15 minute candle, the price is $8. During this 15 minute interval, price goes from the $8 opening price as low as $5. It then moves up to a high of $13 before falling back down to $10, where it eventually closes. In this case:
Body ➡️ $2 | Time ➡️ 15 Minutes | Open ➡️ $8 | Close ➡️ $10 | Upper Wick ➡️ $13 | Lower Wick ➡️ $5
⏰ What’s the difference between different time frames?
Higher time frames (e.g. 1 month, 1 week, 1 day): these time frames incorporate more data. This reduces variance and deviation from the mean, thus making higher time frame data more significant.
Lower time frames (e.g. 1 hour, 15 minutes, 5 minutes): these time frames incorporate less data. They are more volatile and less significant to the bigger picture.
More recent data is more significant / accurate: data from 1 year ago, for example, is going to be a lot more valuable than data from 10 years ago because what happened in the market 1 year ago is going to be more representative of the current market than what happened in the market 10 years ago.
🟢 Visualization Technique
Now we understand the candles in isolation, we can begin to consider them in aggregate. That is, we can explore how candles come together to tell a story.
📈 Imagine there is a battle waging between buyers and sellers. There are two armies fighting this battle. The bodies of the white candles represent the bull army whereas the bodies of the purple candles represent the bear army. The chart represents the battlefield and who is currently winning the battle. Both armies are trying to get into each other’s territory. Check out our YouTube video where we elaborate on this analogy further.
In this analogy, large candle bodies represent the bull army taking control of the battle and invading bear territory. The wicks represent failed attempts to get into enemy territory, so when we see large wicks, that shows strength coming from the opposite side.
Many traders rely on memorising chart patterns such as ascending triangles and head and shoulders patterns or candlestick patterns like a bullish engulfing candle or pinbar candle.
📉 Thinking about the markets in terms of a battle between bulls and bears, however, helps understand the psychology behind why these patterns work in the first place. Understanding why candles form the way they form and patterns form the way they do is infinitely more important than memorisation.
A very simplistic approach is to consider whether a chart is ‘bullish’ or ‘bearish’. Instead, we always imagine there is a meter.
On one end of the meter we have a bullish bias which suggests that demand will exceed supply. On the other end of the meter we have a bearish bias, which suggests supply will exceed demand. We form a story on the basis of the extent to which the candles are bullish or bearish.
🔹 Concluding Remarks
And thus concludes Part 1 of our Candlestick Patterns Course. Revise the article and ensure you understand the basics. We will build on this foundation throughout the week starting with tomorrow’s lesson. Part 2 tomorrow will show you how to use Bullish Reversal Patterns.
💥 If you’re serious about building wealth through crypto and want to receive Part 2, be sure to join 23,000+ others in the Market Meditations community 👇
Will the Bull Market Continue?
Bitcoin has been bleeding ever since Elon Musk took to Twitter to express negative viewpoints on the cryptocurrency. Investors reacted to these viewpoints and the consequent sell-off caused many people to lose money. The question at the forefront of everyone’s minds: Is the Bull Market Over?
The story is never quite so binary as a ‘Yes’ or ‘No’ answer. Let’s use technical and fundamental analysis to consider possible scenarios.
On Friday, we suggested that $45.2k is the key structural level to hold. Should we lose this, the next areas of support are around the low $30k region. However, we haven’t quite lost it yet.
In the short term, the market structure would be aided by a close above the $48.2k level.
If we retrace and close above the 0.618 level in particular (around $53k) the downward move will lose a lot of its momentum.
🔹 TIP: Remember, every move retraces and the further it retraces, the weaker that move is.
The next level to reclaim would be the key psychological level at $60k. Until that point, we will at best get neutral above the 0.618 level.
And what about the fundamentals?
@ki_young_ju is a great person to follow for On-Chain Analytics. Recently he shared the following tweet.
Ki Young Ju 주기영 @ki_young_juIf you're a long-term $BTC investor, don't worry. Your portfolio is the same as institutional investors in the States. If you're a derivative trader, be careful in the short term. (Relatively speaking) whales are depositing $BTC to exchanges. Chart👉 https://t.co/85uqqy8KLQ https://t.co/RKjUAiganR
Note the mean amount of BTC transferred to all exchanges’ wallets has increased significantly. In terms of how best to interpret this chart, let’s use a direct quote from our podcast with Ki: “BTC reserves show the supply on exchanges and indicate the selling pressure.” It therefore follows that an increase in BTC supply on exchanges indicates an increase in selling pressure. Note that each spike in exchange inflows on the chart coincides with a fall in BTC price.
An interesting breakdown of the data in the weekly Glassnode report shows that Binance captures the lion's share of this net inflow. Binance is the preferred venue for retail speculators and investors, suggesting that the recent inflows are likely to be driven by new market entrants (panic sellers) and due to capital rotation into other crypto assets. Conversely, Coinabase has seen almost entirely net outflows of BTC. Coinbase is the preferred venue for US institutional accumulation, suggesting that larger buyers remain in active accumulation.
♦️ GETTING STARTED: For more on On-Chain Analytics and platforms to get started with using this powerful tool, check out our On-Chain Analytics Guide.
And what about sentiment?
To wrap up this section, let’s put all the numbers and data to one side. Bitcoin and the crypto markets were never about Elon Musk. One man does not control this market. In fact, Musk is a very new participant in the space.
Let’s not forget the factors on the road that led us to this point: the fundamental weaknesses of the U.S. dollar, it’s diminishing status as a global reserve currency, the strength of the crypto community and the severe shortcomings of traditional finance. These things are bigger than one person and in the long term, it will take more than a few tweets to impact their bullish force.
Let’s stand united. Taking this as an opportunity to increase our learning and understanding of the crypto markets.
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On Mondays, our ‘Scan The Week’ section is designed to show our community what events and headlines we will be keeping an eye on.
Tuesday, 18 May
Polygon Berlin Fork Upgrade
The Mumbai testnet will be upgrading to the latest Geth with the Berlin Fork. The Berlin fork block will kick on block number 13996000.
MM Podcast Release #71 How to Protect Bull Market Gains with Koroush AK 🎧
In this episode, we talk about earning yields in crypto, protecting your bull market gains whilst earning profits through the use of stablecoins and how to build an edge in DeFi.
Wednesday, 19 May
The final program is a 2-day, multi-track event packed with talks and workshops for both technical and non-technical audiences. Over 40 innovators in the Polkadot ecosystem will explore the biggest topics in blockchain, from parachains to DeFi, NFTs, IoT, identity, privacy, energy and more.
Thursday, 20 May
Crypto.com Canis Major Roadmap
Phase 1 of the Chain Intergalactic Roadmap launches. The Platform will enable the minting, trading, and transfer of tokens. You can use our link to download the crypto.com app.
Some of the links we’ve included are affiliate, they give you rewards and discounts and earn us a commission. Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision.