Candlestick

Candlestick is a graphical method used for technical analysis. It emerged first in Japan in the 1600s. According to this analysis even though demand and supply have a huge impact on prices, traders’ emotional state also has. This principle developed by Homma is applicable to the cryptocurrency market.

What is Candlestick?

Candlesticks tell us whether a market’s price movement is positive or negative. Also, candlesticks allow us to learn about the trading volume that generated the movement. A time frame that is shown on a candlestick may vary greatly. However, the cryptocurrency market, contrary to stock markets, is open 24 hours a day. In this way, the opening and closing prices are the prices at the start and end of the selected time frame.

In general, 15-minute, 1-hour, four-hour, one-day, one-week, and one-month charts are often preferred on crypto exchange platforms. Whichever of these charts you prefer, the candlesticks used will represent a time period accordingly.

Here is an example:

Reading Candlestick Charts

Green candles indicate that prices are rising, meaning the opening is below the body and the closing is above it. Red candles indicate that prices are falling, so the opening is above the body and the close is below.

Each candle consists of a stem and wicks:

• The body of the candle tells you the interval in which the price moves between opening and closing points during the candle’s time frame.
• The lines extending from the upper and lower parts of the body are the wicks or shadows. These represent the highest and lowest prices the asset reached during the time the swap took place.
• The dot at the end of the respective wick is the final high or low price level reached.

Understanding Parts of a Candlestick

When reading a candlestick, it matters whether it represents an uptrend or a downtrend.

• On a green candlestick that represents an uptrend, the lower shadow area shows the lowest price is the starting price. That is, as time progressed, this price increased and the relevant asset reached the upper shadow. In this case, the final price is the peak of the upper shadow. That is, the asset value is increased during the specified time period and has reached the high price point from the low price point.
• On a red candlestick that represents a downtrend, the upper shadow area showing the highest price is the starting price. In other words, as time progressed, this price decreased and the related asset reached the lower shadow. In this case, the final price is the bottom of the lower shadow. During the specified time period, the asset value decreased and reached the low price point from the high price point.

Interpreting Candle Candlesticks – Different Types of Candles

• The long upper shadow can be an indicator of a bear trend. Investors may want to sell the asset and make a profit. The longer the upper shadow, the stronger the indicator.
• A long lower shadow could be a sign of a bull trend. It indicates that investors are willing to buy the asset, thereby pushing prices up. The longer the drop shadow, the more reliable the sign.
• The Doji candle has no body because the opening and closing prices are the same. These are often interpreted as market instability and are a possible indication of a price reversal.
• Umbrellas have distinctively long lower wicks. The red umbrella is also known as the hammer. When you see a hammer, it often means that the asset is heavily overbought and the price may go up soon. Green umbrellas are called hanged men. It is often a sign that sellers are ready to sell the asset and cash out, and the upside cycle is about to reverse.