The historical price movement of an asset over time is checked on a candlestick chart. Depending on the timeframe the trader has selected, each candlestick represents a specific timeframe. Each candlestick on a D1 chart, for instance, represents one day.

Researchers concur that the first person to think about candlestick was a Japanese rice dealer. With the publication of Steve Nison’s book Japanese Candlestick Charting Techniques, the abstraction of candlesticks was subsequently made available to Westerners.

Every trading platform and charting tool for essentially every financial trading vehicle now uses candlesticks as a standard. The simplicity of the components and amount of information make candlestick charts popular among traders. It is a powerful tool for analyzing price action history and projections because to its capacity to link together several candlesticks to reveal an underlying pattern.

Here are a few key elements that help you understand the price analysis’s function while using candlesticks.

Candle Body

The open and closing prices of an asset are represented by the body. The position of the open and close points relies on whether a certain period’s candlestick and therefore the price are bullish or bearish. The close will always be higher than the open in a bullish market and vice versa.

Candle Wick or Shadow

There are often two shadows or wicks on each candlestick, however, this is not always the case. The shadows depict a price’s peak and low points over a specific time period. As a result, the top shadow represents the peak and the lower shadow represents the price’s lowest point of contact. Occasionally, one of the shadows may be discernible. It takes place when the open or close and the high or low line up.

Candle Color

The body’s hue indicates how prices are moving. Typically, a green or white body denotes a rise in price whereas a red or black body denotes a decrease in price. On most platforms, you’ll probably encounter bodies that are green and red. So, if the body is green, the close price will be indicated by its upper limit.

How to read candlestick charts?

A candlestick is made up of three parts: the body, lower shadow, and higher shadow. The body is either red or green in hue. A discrete period of time is represented by each candlestick. The transactions which were executed during that particular period are represented in the candlestick data. A 5-minute candle, for instance, indicates 5 minutes of transaction data. Every candlestick has four pieces of information: open, high, low, and close. The very first trade for a certain time is the open, and the very final deal for that period is the close. The body of the candle is said to be the open and shut. The high is the transaction with the greatest price, and the low is the deal with the lowest price within that time.

How is candlestick trading carried out?

The candlestick chart is by far the most thorough way to show an asset’s price. This kind of chart was adapted by cryptocurrency traders from the stock and FX markets. Because of its above-discussed structure, the candlestick chart offers a wealth of information about the history price in contrast to the line chart, which just displays the close price.

Candlesticks develop sequentially one after the other, and even without technical indicators, they may aid in identifying the general trend as well as the lines of support and resistance. Besides this, they can shape certain patterns that act as buy or sell signals. The use of the candlestick chart is particularly pertinent to cryptocurrencies, which need in-depth technical analysis due to their extreme volatility.

Cryptocurrency traders may better predict likely future moves using candlestick patterns. In other words, they serve as trading signals that guide traders in determining when to enter or depart the market. For instance, swing traders use candlestick charts as swing trading indicators to identify trading patterns that will either reverse or continue. They aid traders in real-time trend identification, momentum comprehension, and market sentiment awareness.

Bottom line

Every cryptocurrency trader, including day traders, should be familiar with candlestick patterns since they exhibit the same effectiveness in both the forex and stock markets.

Even though they can offer valuable individual trading signals, we advise using a combination of these patterns and technical analysis indicators to support or refute them.