How to Read Crypto Candlestick Charts: Crypto Trading 101

The crypto space has grown exponentially, both in terms of revenue and mass adoption as an asset class. Not only did that open up options for diversifying one’s portfolio but also gave a boost to 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 with any and all information that is crypto. 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 research on crypto, one of the important things to understand is how the crypto market 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 Candlesticks Charts?

Candlestick charts are a combination of multiple candles that a trader analyses to anticipate the possible price movements of a certain crypto token in the market. Simply put, candlestick charts are a technical tool that helps traders in compiling a complete visual representation of how the price of a token or tokens has moved over a given period.

To sum it 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 in laying down a piece of detailed information about the price which includes the open, close, high, and low for a particular time frame. 

How to Read a Candlestick in Crypto 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 price of the asset decreased during that particular trading period. On the other hand,
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 not similar to the stock market’s closing price and opening price.

The red and green candle in the picture above shows a bullish and bearish candlestick, respectively, where the price is opened in one direction and closed in the opposite direction.  The wider body is the part of the candlestick, which 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 that the price has decreased during that particular period.

The wider section of the candle body represents the market pressure in crypto. An extended length of the same 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 trading template. The wick is the thicker part of a candlestick that is attached to the above and below the candle body. The wick above the candlestick’s real body indicates the highest price level during the timeframe, while the wick below represents the lowest level of that specific timeframe.

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

What do Crypto Candlesticks Charts tell us?

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

• A long wick on the bottom of a candle, for example, might mean that the traders are buying into an asset. That might be a good indicator as it has a probability of the asset’s price making arrangements for its way up.
• A long wick at the top of a candle, however, could suggest that traders are looking to take profits, indicating a large potential sell-off in the near future.
• 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 strongly bearish sentiment on a red candle.  

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

Crypto Candlesticks charts are an effective element in the crypto market. Almost all crypto traders in the world 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.

Additional Read: Weekly Crypto Technical Analysis for Bitcoin, Ethereum, Matic, & more.