Master Crypto Candlestick Charts: Read Market Moves Like a Pro

The crypto space has grown exponentially in revenue and mass adoption as an asset class. That opened up options for diversifying one’s portfolio and boosted the fundamentals that constitute the investing or trading options for brokers and investors alike. 

As a pioneer in the crypto space, CoinDCX’s approach has always been to educate the crypto community on crypto information. Doing Your Own Research (DYOR) is a very important step before one decides on blocking a certain amount of funds in a token. To conduct crypto research, one of the essential things to understand is how the crypto market is performing, given its volatile nature. How do you do it? It’s simple, you study the crypto candlestick charts. Let’s take a look at what they are. 

What are Candlestick Charts?

Candlestick charts are a technical tool that helps traders compile a complete visual representation of how the price of a token or tokens has moved over a given period. To sum up, candlestick charts are used by traders to represent the price evolution of an asset.

While candlesticks may be harder to comprehend initially, they offer far more information than a simple line chart. Candlesticks act as a crucial price action tool that helps lay down detailed price information, including the open, close, high, and low for a particular time frame.

How to Read a Crypto Candlestick in Trading?

Within a crypto candlestick chart, there are two colors: red and green.

1. A red candle shows that the closing price was lower than the opening price. That is, the asset’s price decreased during that particular trading period. 
2. A green candle shows that the closing price was higher than the opening price as the asset’s price increases. 

Note: The crypto market is a 24/7 market, and the closing or opening prices mentioned are limited to a particular time frame and are not similar to the stock market’s closing and opening prices.

The red and green candles in the picture above show bearish and bullish candlesticks, respectively, where the price opens in one direction and closes in the opposite direction. The wider body is the part of the candlestick that is also the main part that shows the opening and closing price.

• In a bullish candle, the opening price is below the closing price, which indicates the price has risen over that period.
• In a bearish candle, the opening price should be above the closing price, representing a decrease in price during that particular period.

The wider section of the candle body represents the market pressure in crypto. An extended length indicates a strong movement, while a short length represents a minor price movement incurred within the token community.

Typically, the green color represents a bullish candlestick, and the red color represents a bearish candlestick. However, you can change the color at any time according to your choice and the trading template. The wick is the thicker part of a candlestick attached to the candle body’s top and bottom. The wick above the candlestick’s real body indicates the highest price level during the timeframe, while the wick below represents the lowest level during that specific timeframe.

Not sure how to do a technical analysis? Read How to do Crypto Technical Analysis in our Crypto Trading 101 Blog Series.

What do Crypto Candlestick Charts tell us?

Candlesticks not only reveal price movement over time but also help seasoned traders analyze patterns to gauge market sentiment and make predictions about where the market might be headed next. 

• For example, a long wick on the bottom of a candle might mean the traders are buying into an asset. That might be a good indicator as it has a probability of the asset’s price making its way up.
• However, a long wick at the top of a candle could suggest that traders want to take profits, indicating a potential sell-off shortly.
• If the body occupies almost all of the candle, with no visible or small wicks on either side, that might indicate a strong bullish sentiment on a green candle or a strongly bearish sentiment on a red candle.  

Key Crypto Candlestick Patterns

Here are the major bullish and bearish candlestick patterns to know about:

Bullish Patterns

• Engulfing Pattern: This is a two-candle reversal pattern after a downtrend. It consists of a small bearish candle and a larger bullish candle, which completely engulfs the previous candle’s body. This pattern signifies a decisive shift in selling pressure to buying pressure and thus has the ability to head upwards. It suggests buyers overpowering sellers and, in most instances, serves as an indication to reverse to the upside.
• Bullish Harami Pattern: This pattern is recognized by a large bearish candle housing a small bullish candle. It signals lowering selling pressure and increasing buyer control. As the third strong bullish candle appears, confirmation is revived, and a trend reversal can be expected.
• Bullish Harami Cross: This bullish harami variety has a doji as the second candle, which represents indecision in the market. After a downtrend, the doji represents subsiding bearish pressure. It is not a reversal signal in itself but suggests a possible change to bullish on its own, or better still, following it is a strong green candle.
• Rising Three Methods: This continuation pattern observed in an uptrend starts with a good bullish candle. Three or more smaller bearish candles follow within the first candle’s range, finally concluding with another good bullish candle. The pattern signifies transient profit-taking without the presence of any significant selling pressure. It affirms bullish domination and the possibility of trend extension.
• Morning Star: This reversal pattern involving three candles is noticed at the end of a downtrend. The pattern starts with a long bearish candle. There is a small candle in the middle, and at the end, there is a strong bullish candle. The morning star indicates a pronounced change in sentiment from bear to bull and usually signals the start of a rising trend.

Bearish Patterns

• Bearish Engulfing Pattern: A two-candle pattern that appears at the end of a rising trend. It starts with a small bull candle, followed by one large bearish candle that totally engulfs the first candle’s body. It reflects a change from buying to selling pressure and signals a potential bearish reversal, especially if accompanied by more red candles or heavy volume.
• Evening Star: This is a classic reversal pattern involving three candles. It starts with a bullish candle, which is followed by a small candle and another strong bearish candle. The pattern indicates the bulls losing and the bears gaining control, ultimately predicting a downtrend.
• Harami: The bearish harami begins with a high bullish candle, followed by a low bearish candle within the body of the initial candle. It signals that the uptrend is losing momentum. When confirmed by a powerful bearish candle, it can confirm a reversal in the trend and is one significant pattern to watch around the market’s tops.
• Harami Cross: This bearish harami variation contains a doji for the second candle, indicating extreme market indecision. It follows an uptrend and predicts that the bullish momentum is losing strength. A strong bearish candle following the pattern strengthens the case for reversal of the trend.
• Falling Three Methods: This bearish continuation pattern starts with a long bearish candle followed by three or more small bullish candles forming near the range of the first candle. A strong bearish candle marks the end. It signals a short respite from selling pressure but confirms that the downtrends will hold.

Understanding the candlesticks of a particular asset is one element of a trading strategy called technical analysis. Technical analysis is a process by which investors attempt to study past price movements to identify possible future trends and opportunities. 

Conclusion

Crypto Candlesticks charts are a practical element in the crypto market. Almost all crypto traders worldwide focus on candlestick patterns for their strategy and DYOR. You can consider the crypto candlestick charts trading system as an individual crypto trading strategy, or you can use these tools in your strategy to increase your trading probability.

Frequently Asked Questions