The crypto markets have exploded with new investors over the past few months. As a result, you can see thousands of coins & tokens listed on exchanges. However, there are many other tools to help traders make informed decisions. Reading crypto candlestick charts are the foundational building block for reading market sentiment and making decisions around buying & selling.
What Are Candlestick Charts in Crypto Trading?
Candlestick charts are a way to visualise cryptocurrency price fluctuations over a given time. They display the open, high, low, and close price for a coin – as well as additional data such as trading volume and market capitalisation.
Here is everything you need to know about reading crypto candlesticks like pros.
Volume
Reading crypto candlestick charts without considering volume is like reading a map with no coordinates. If you are reading candles and not considering volume, all of your decisions could be incorrect.
Colour
The following are ways to use the colour patterns of candles to guide your trading strategy. Remember that reading volume is crucial when reading candlesticks.
Red candles indicate an uptrend, while green colour indicates a downtrend expected at the crypto prices.
Real Bodies
The centre of a candle is called its real body and can be either black or white. If it’s black, it means that the opening and closing prices were both lower than where they started. This refers to a bearish market with falling prices.
If your candlestick is white, then this would mean that the opening and closing prices were both higher than where they started. It means that the market is bullish with rising prices.
Shadows
The wicks of candles indicate the highest & lowest points. The shadow indicates where the price began (the bottom of the candle) and closed (the top of the candle).
If a candle wick is long & touches or nearly touches the top or bottom of the candlestick, then it means that the price is reaching levels it hadn’t before.
Engulfing Feature
The engulfing feature shows one large candle ends, and another begins with its shadow. You may see multiple candles touching or nearly touching one another, with their shadows eclipsing the other. When reading candlesticks, it is advisable to bet on the side that has more shadow.
Doji
A Doji is when there are no or very few shadows within a candle. If you drew lines from top to bottom of each candle, they would all meet at one point (or be parallel).
A Doji shows indecision between buyers & sellers. As traders become more confident in their decisions, it typically leads to some price action.
Price Action
Price action may be brutal to see on specific candlestick charts that do not display this feature, but it’s just as if not more important than reading candles.
This is what all candlestick charting platforms include now: a combination of candle colour, shadows, and wicks alongside the ability to view price action. You can read the chart by reading candles & reading price action at the same time.
Crypto trading is both exciting & challenging to master. That’s why reading candlestick charts is essential: it can give you a massive edge over other traders.
