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Candlestick analysis is an incredibly powerful technique for analyzing and predicting the price direction of any asset that can be traded with the use of a candlestick chart. While initially more difficult to understand, these charts provide much more information than a normal line chart. Candlesticks on a crypto chart allow us to see in one quick glance whether a cryptocurrency is in an uptrend or a downtrend. Furthermore, as part of your technical analysis, you should also read these charts and patterns including bullish and bearish marubozu patterns.
In this blog post, we will explain to you how to read candlesticks on a crypto chart. So let’s get stared!
What are Candlesticks?
Candlesticks are a type of financial chart that you can use to analyze a security’s price action and make trading decisions. To put it another way, a candlestick chart is a technical instrument that provides traders with a thorough visual picture of how the price has changed over a specific time frame. It allows you to see a stock’s open, high, low, and closing prices for a particular period of time.
How to read Candlesticks on a Crypto Chart?
Candlesticks are a great way to view the price of a cryptocurrency. It gives you a visual representation of the price movements over a period of time. There are two colors, as seen below: red and green.
- Red candles indicate that the fund’s price has fallen throughout the trading period because its closing price was lesser than its initial price.
- A green candle indicates that the fund’s price rose during the trading session when the closing price was greater than the initial price.
Let’s analyze the remaining elements of the given image beyond color:
- Body: The body describes the range from open to close. It represents the disparity between the closing and beginning prices, in other terms.
- Wicks: These are sometimes known as shadows or tails. They display the asset’s peak and lowest prices during the candlestick period. The opening and closing prices represent the lowest and highest values in the absence of a wick.
- Maximum Price: The peak of the upper wick represents the maximum price that was transacted during the time period.
- Lowest Price: The lower wick’s bottom represents the transaction’s lowest price.
- Opening price: The first trade of a new candlestick time frame took place at this price. The candle changes color from green to red depending on whether the price is increasing or decreasing.
- Closing price: The closing price represents the final transaction made during the candle formation process. The candle will be green if this price is greater than the initial price and red thereafter.
Most common candlestick designs
A candlestick is a type of chart that combines price information with other data drawn from several time periods. Candlesticks create patterns that, when finished, show the price action. Here are some of the most popular candlestick patterns:
Hammer
The hammer represents a bullish reversal pattern, meaning that it is formed after an extended fall in prices and indicates that the price has bottomed out. The hammer also shows that there is buying interest at lower levels. The real body of the candle should have a long upper wick and a short lower wick. It must also be above its opening price.
Inverted Hammer
It consists of a short real body with long upper and lowers wicks. This candle must open higher than the previous high, but close lower than the previous low for it to qualify as an inverted hammer candlestick pattern.
The Piercing Line
The Piercing Line Pattern is a bullish reversal pattern that can be found at the end of downtrends. This pattern consists of a long black candlestick followed by a long white candlestick. The body of the black candle must be at least twice as large as that of the white candle.
Bullish Engulfing pattern
The Bullish Engulfing pattern is characterized by two candles. The first candle represents a bullish trend and the second candle engulfs the previous one, meaning it forms a larger body which signals an increase in volume.
Doji
Doji is characterized by a long upper shadow and a long lower shadow, with no real body or wick. They can also have long upper shadows but have a small real body or wick.
Conclusion
Comparable to simple line charts, candlestick charts provide more information. Every candlestick displays the highest, lowest, starting, and closing prices (OHLC) for the chosen period. A bearish candle has a red candlestick, whereas a bullish (rising) candle has a green candlestick.
So hopefully you have the clear knowledge regarding candlestick now. Moreover, you can explore Margex for more resources regarding trading. Because, Margex is a new player on the trading platform market. The platform promises to provide traders with a reliable and secure trading environment. You can boost your profits with Margex’s wide range of powerful tools.
