How to read candlestick charts

How to read candlestick charts

Candlestick charts are one of the most common ways to analyze the crypto market price patterns. These tools have been used for decades to analyze price patterns and determine where the market is moving.

The Crypto space is growing daily in market capitalization, opening the door for many new growth opportunities. People seek new ways to diversify their investment portfolios to profit from this highly volatile market. However, to diversify your investment and make more significant profits, one should better understand the cryptocurrency and trading market.

Therefore Before making any investment decision, researching is the first step.  Investing in a highly volatile crypto market often requires lots of time and market knowledge. If you are a trader, You might hear about candlestick charts which tell about the price movement. candlestick charts are one of the common ways to recognize the market’s price movement.

Similar to bar grids and horizontal graphics, candlesticks show the time on the vertical axis and the price on the horizontal axis. In addition, candlesticks present more information compared to traditional charts and grids. At one glance, you can get more information about cryptocurrencies. For example, it will tell you cryptocurrencies’ opening and closing times.  

So let’s first understand what candlestick charts are.

Key points:-

  • Candlestick charts are used to recognize specific price patterns on the market.
  • Like bar patterns, Candlestick charts show a day’s regular prices, open,  high, low, and close prices.
  • Candlesticks are a combination of candles in various colors that represent specific market movements and pricing structures. 

What are the candlestick charts:-

Candlesticks are a combination of candles in various colors that represent specific market movements and pricing structures. In simple terms, These are technical tools that help traders scrutinize the trading market. It also represents a sudden rise and downfall in crypto prices. However, candlestick charts can be challenging to understand, but they offer more information than traditional bar charts. Traders use these price charts to identify patterns.

Candlestick charts are used to recognize specific price movements and give traders all the clues and reversals related to the market.  


Understanding the candlesticks chart:-

A candlestick represents the value of a crypto asset in a specific timeframe. They usually apply four components to depict the prices of the assets open, close, high, and low through the charts.

Candlestick gives an instant glimpse of the trading market, whether the market is in a positive or negative direction. The time frame on each of the candlesticks varies on different terms. With this level of analysis, you can diversify your investment at the right time.

Open candles represent when trading time begins, and trades are placed safely, while the close represents a specific period when the trades are over. High and low show price fluctuations during the trading session.

There are four physical features of candles, which represent different marketing movements.

1. Body

The Body is the first component and one of the candle’s main sections, representing open and closed sections during the observation period.

2. Close

Close is represented at the top of the candlestick in green and at the lowest part of the Body in red.

3. Open

Open trades are represented in the up of green and bottom of the red candlestick.

4. High and low

These two components are represented in the thin lines above and below the Body.

Cryptocurrency traders can benefit from market volatility using these charts. The chart represents more than market prices which an experienced trader looks for to make the most benefits.

The red and green candle shows the different market movements in the candlesticks chart, such as bullish and bearish market trends. E.g., the market opened in a positive direction but closed in a negative direction.

5. Bullish candle

This represents that opening prices are below the closing price, which simply means the price has increased over time.

6. Bearish candle

In this chart, the opening price should be higher than the closing prices, which indicates the price has decreased during a specific time.


How to analyze the candlestick charts?

Candlestick is an excellent way to analyze market price movements. It is very simple to determine the different things from a candle. Like, Different parts of candles represent different things that can be used to understand the market sentiments. For example, the Body of a candle represents an asset’s opening and closing price, which is important if you are a candlestick trader. Similarly, the color of the Body also indicates whether the price is rising or falling.

For example, red is a warning sign for an asset price falling, and investors should be more worried about understanding where the price is heading. Hence, a candlestick chart shows a perfect balance between a stock’s open, high, low, and closing prices.

For better understanding, the candlestick charts can be divided into two sections:-

Bullish patterns:-

1. Hammer pattern:-  

This is one of the common bullish patterns with a short body and lower wick, usually located at the bottom of a downward trend. It represents the hike in prices depositing selling pressure. If the Body is green, it represents a strong bull run in the market.  

2.  Bullish Engulfing pattern:-

In this pattern, two candlesticks represent the bullish pattern where one candle is engulfed by another green candle representing a positive moment.


Bearish patterns:-

1. Hanging man pattern:-

This candle represents a bearish turn with a short body and a lower long wick located at the top of the upward trend. It indicates the selling price of the market was higher than the buying price, and bears are getting control of the market.

2. Bearish Engulfing pattern:-

This chart pattern is represented by the two candles where one first candle is a short green candle and is engulfed by a large red candle. It indicates a  downfall in the market and a bearish turn in the market. If the red is lower, it represents a bigger downfall in the market.


Final thoughts:-

Chart patterns are important for traders that help understand a market’s upward and downward sentiments. Understanding the candlesticks is useful for crypto traders which help to make more profits from the market. 

There should be technical knowledge that quickly enables you to understand this market. These are the practical elements that help investors to understand the crypto market in a better way. Almost all traders can use Candlesticks charts to make their trading strategy to increase their trading probability.



What is a candlestick chart?

A candlestick is a type of chart representing an asset’s price movement, such as stock or crypto. Each candle stock represents open, close, high, and low prices for a specific time period.

What are some common candlestick patterns?

Some of the common candlestick patterns include a hammer and shooting stars. Other common patterns are engulfing morning star and evening star patterns.

How can candlestick charts be used in trading?

Candlestick patterns can be used to recognize the market’s upward and downward trends, which can help traders make informed decisions. In addition, traders can combine charts with some other tools to make effective decisions and trading strategies.

Are candlestick charts applicable to all markets?

Yes, candlestick charts, such as stock, crypto, currencies, and commodities, can be used for any market. However, specific patterns differ from market to market.