Are you looking for any Beginner’s Guide to Crypto Candlestick Charts? Then this is for you!
Curious about what cryptocurrencies to buy and when? For this, research is essential. And when you research crypto capital, you may get to know about a particular type of price graph called a “candlestick chart.”
So, please take your little time to know and learn how this works? Let’s see! This article aims to provide you with a Beginners guide to crypto candlestick charts.
Beginner’s Guide To Crypto Candlestick Charts
About Candlestick Charts
They are very similar to the line and bar on the candlestick charts, indicating time on the horizontal axis and the data price on the vertical axis. But, unlike similar graphs, candlestick charts have some more information to them. In one view, you can understand the highest and the lowest price that a capital hit during a given time, plus the opening and closing prices.
Candlesticks charts are originated in the 18th century from a Japanese rice trader. And it is still the most popular way of representing the price of the financial market. We can say that a candlestick chart shows the historical prices of a cryptocurrency or any assets. It is very fruitful for Crypto Trading, as candlestick patterns represent bullish and bearish reversals.
When the open price of an asset is lower than the close, the candle is bullish, and it appears green in clour, and in the inverse state, the candle is called bearish and appears red in clour.
A candlestick chart will give a good summary of the price moment when the chart was prepared. The charting tools will also allow you to change the chart period from one minute to one week or month. This will enable the investors to view market sentiments easily(with the help of colors), and they will know how prices fluctuate over a selected time duration.
The colors are just one option that the trader can choose. However, most charting platforms are either green/red or white/black on default.
How To Read A Candlestick?
If you see a candlestick chart, there are two colors – red and green. When a candle is red, the closing price is lower than the opening price. Thus, the cost of the asset decreases during the exchange period.
Opposite to that, when a candle turns green, it indicates the closing price was higher than the opening price as the assets price increases.
Beyond color, the other visuals indicate-
- Body: the body represents the open-to-close range. It shows the variation between the closing and the opening price.
- Wicks: they are also called tails or shadows. It reveals the highest and the lowest price of capital within the candlestick time duration. If there is no wick, the opening or closing prices are the highest or lowest.
- Highest price: the upper wick shows the highest price exchanged during the period.
- Lowest price: The lower wick indicates the most insufficient price exchanges during that time.
- Opening Price: The value of the forts exchange happened during the new candlestick duration. So, if the price goes up, the candle becomes green, and conversely, it turns red on the price decrease.
- Closing price: it is the last price mentioned during the trade at the time of candle formation. If this price is higher than the opening price, the candle will turn green, otherwise red.
How Do Investors Use Candlesticks?
As mentioned above, candlesticks show the asset’s movement during a definite period; it visually indicates the bullish and the bearish sentiments. And when the candlesticks are viewed in groups, the traders call them a candlestick pattern or a chart.
Candlestick charting is exceptionally functional in cryptocurrency trading. Because by understanding how candlestick patterns represent bullish and bearish movements, you can go ahead of the trend by acting on these indicators before the remaining traders get on board.
Now, because candlesticks utilize raw price data and updates as soon as the duration is completed, the patterns are “leading” indicators, not ” lagging.” And this is what makes candlestick chart recognition a must-have in your trading journey.
Candlestick Trading Pattern You Must Know
There are several ways to read and use the candlestick chart, and pattern recognition is one method to predict the asset’s price trend and overall moment. These patterns can be made of one, two, or more candlesticks.
So we have mentioned some of the main bearish and bullish patterns for you below, have a look-
- The Hammer- is one of the most accessible patterns to recognize. This pattern is similar to a hammer made of a candlestick with a long lower tail at the bottom. The whole body is small with little or no upper wick. And it can be either red or green. It will indicate a slight reversal trend and a potential price increase. The hammer pattern shows high selling value, and at the same time, tells about the buying pressure that has taken control of the price action.
- The Inverted Hammer- the only difference between the Hammer and the inverted Hammer is the long wick on the upper side instead of the lower side. It can either be green or red. An inverted hammer represents the potential beginning of an uptrend, with the downtrend showing that the buyer might gain control.
- The Bullish Engulfing- this pattern includes two candlesticks at the bottom of the downtrend. The first one is red, indicating bearish nature, while the second one is green in color that engulfs the other. There will be a gap between the opening and closing price. However, this gap is rarely seen in the crypto market. This pattern shows the increasing buying pressure and the uptrend.
- The Morning Star- is a pattern made up of three types of candles in a downtrend. The starting one is a long bearish candle, the second is the star that shows long wicks, and the third is the bullish candle that ends above the midpoint of the first one. The morning star indicates the current trend in the losing stream; a third candle signaling an uptrend often shows.
- The Shooting Stars comprises one candlestick with a small body and a long tail. The pattern appears at the top of the uptrend. The lower wick is small, and the upper wick is long. The shooting star signals a strong price rejection after many push-ups. This pattern is often associated with a signal of bearish reversal.