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Welcome to Part 3 of our Candlestick Patterns Course.
GOAL: Start identifying Bearish Reversal Patterns
EFFORT: 5-10 mins to get started with each pattern
REWARD: Potentially unlimited upside if you can master a pattern
Part 3 today will focus on Bearish Reversal Patterns.
💥 To receive Part 4 (Continuation Patterns) tomorrow, make sure you’re on our free email list👇
The Chart is a Battlefield
Let’s recall our battle analogy from Part 1:
Candlestick charts show two armies warging war.
The bodies of the white candles represent the bull army and the bodies of the purple candles represent the bear army.
The chart represents the battlefield.
Both armies are trying to get into each other’s territory.
Wicks show failed attempts to get into army territory.
Remember, if you’d like to Koroush guide you through this analogy on video, click this link.
Today, we are going to look at examples of Bearish Reversal Patterns. Or, in other words, situations where the bear army is getting ahead of the battle. Check out Part 2 for our examples of Bullish Reversal Patterns.
⛔️ Before we proceed, a word of caution. Candlestick patterns in isolation are not a buy or sell signal. Consider them a way to look at market structure and an indication of potential upcoming opportunities. And so, it is essential to look at patterns in context and combine them with other tools such as Moving Averages, Fibonacci Retracement or Volume and Open Interest.
5 Bearish Reversal Patterns
🔍 HOW TO IDENTIFY A HANGING MAN: A candle with a small body, long lower wick at least twice the length of the body, and little to no upper wick. Technically, this type of candle occurs during an uptrend as during a downtrend a similar looking candle is known as a hammer, which indicates something entirely different.
⚔️ WHAT IT MEANS IN BATTLE: A hanging man indicates that whilst the bull army has been strong and advancing significantly into bear territory, they may be starting to lose strength as the bear army was able to push bulls back the distance of the lower wick. Whilst the bull army was able to bring the price back before the candle close, the sell-off is an indication that bear soldiers are gaining strength and may indeed strike again.
🔍 HOW TO IDENTIFY A SHOOTING STAR: A candle with a long upper wick, little to no lower wick, and a small body. Technically, this type of candle occurs at the end of an uptrend and is confirmed when the high of the candle that follows the shooting star candle stays below that of the shooting star and closes below the close of the shooting star. The distance between the highest price and lowest price must be at least double that of the candle body.
⚔️ WHAT IT MEANS IN BATTLE: We want to emphasise here that your focus should not be on trying to determine whether a candle is or is not a shooting star, but rather on the psychology of why it may work as a reversal. A shooting star candle means that the bull army advanced into enemy territory until, during one candle, bears violently fought back and pushed the bull army back. The bear army then got aggressive by pushing back into bull territory and regaining full control of the battlefield.
🔍 HOW TO IDENTIFY THREE BLACK CROWS: A pattern wherein three candles in a row all open within the body of the prior candle but close lower than the prior candle. Generally, the longer the body of the candle, the more bearish it is considered to be and there are little to no wicks.
⚔️ WHAT IT MEANS IN BATTLE: The three black crows pattern suggests that the bear army is in full control of the battle and continue to push aggressively into bull territory. The longer the body of the candle, the stronger the bear army is said to be. The fact that there are no wicks reinforce the strength of the bears as the bull army failed to put up even a slight fight.
🔍 HOW TO IDENTIFY A BEARISH HARAMI: This is a two candle pattern that occurs near the potential end of an uptrend wherein a long body bullish candle is followed immediately by a small body bearish candle. The open and close of the second candle is entirely confined to the range of its previous candle.
⚔️ WHAT IT MEANS IN BATTLE: This type of candle pattern indicates that although the price was previously in an uptrend and bulls were in control, on the first bearish candle the bulls were unable to continue pushing into bear territory and there was a standstill and suggests that there is uncertainty in the market. The size of the second candle determines how strong or weak the bear army is. The smaller the second candle, the higher the chance of a bearish reversal.
🔍 HOW TO IDENTIFY A DARK CLOUD COVER: This pattern occurs during an uptrend and consists of a bearish candle that opens above and closes below the midpoint of the previous bullish candle. The larger the candles, the more meaningful the pattern is.
⚔️ WHAT IT MEANS IN BATTLE: This type of pattern suggests that bulls tried to continue pushing up into bear territory at the open of the candle, but the bear army fought back and pushed bulls back. The larger the candles, the stronger the bear army is and the higher the chance of a bearish reversal.
And thus concludes Part 3 on Candlestick Patterns Guide. This article should have provided a high level overview of Bearish Reversal Patterns and how to get started with interpreting them. Actions you can take until Part 4 tomorrow:
Begin to look at charts and patterns using the battle analogy we have guided you through today.
Don’t worry about drawing these charts out or saving the images, we’ll share a PDF Cheat Sheet with all patterns discussed in the course on Friday.
💥 If you’re serious about building wealth through crypto and want to receive Part 4, be sure to join 24,000+ others in the Market Meditations community 👇
The Textbook Play
As we are all aware, Bitcoin has come down and perfectly hit support at around the low $30k region which is exactly what we said would happen in Monday’s article.
We have lost our key structural level at the $45.2k level. As such, we are presented with a macro shift in market structure. Add on some Moving Averages and we can see a convergence and crossover.
What’s likely to happen next? A bounce to retest around the $45k level. Range-bound around the $30k to $45k levels for a little while at least.
The textbook play: buy and sell around these lower and upper bonds.
Admittedly, it’s nice to see the entire market pump. However, volatility combined with basic technical analysis provides lucrative opportunities.
Trend hasn’t taken as big a shift as Bitcoin has. In fact, we’ve found a bounce off a support and long term moving average.
Conservative upside target: $3k. Giving us a 50% range to play with.
Should we lose the $2k level, there is a lot of support below that level.
Shorts are also a viable play again for the first time in a long time. Particularly around the $3k level.
Safest play right now: buy on the support, sell on the bounce.
For $SOL and $BNB technical analysis, check out our YouTube video.
Just because the market isn’t pumping, doesn’t mean there aren’t opportunities. At the moment, we’re looking for talented crypto writers / researchers / technical analysts. If this sounds like you, please follow these instructions 👇
By COB next Friday (28th May), please could you write up a short crypto segment on the recent BTC dip and send it to 👉 email@example.com 👈 Imagine you are writing it to be included in the Market Meditations newsletter. There will be two components to this:
1) Researching and writing an engaging and useful crypto story
2) Understanding and matching the style / communication / brand of the Market Meditations newsletter.
Please use the ‘Will the Bull Market Continue?’ section of this letter as an example. What makes this example good?
The topic is relevant and interesting
The writing is clear and concise
It is actionable (references other resources that readers can use to continue their growth and development should they so wish to [Glassnode, Cryptoquant etc.])
⏰ We look forward to reading your writing by COB next Friday (28th May)!
Please note while we are primarily looking for writers, all talent is welcomed and there are multiple other roles at Team AK for those wishing to go beyond. i.e community manager, content creator, meme lord etc.
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