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Candlestick

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Did you know it is possible to predict the market by reading the candlestick chart? Here's how you can translate these patterns into profits!

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Did you know candlestick charts appeared over three centuries ago?

The candlestick chart was invented in the 1700s by a Japanese rice trader — Munehisa Homma. He uses the candlestick elements (Open High and Close Low) to represent the price in the trading period.

Today, almost all financial markets rely on candlestick charts as a price representation.

Read on as we decipher the ins and outs of candlestick charts.

A candlestick chart is a combination of multiple candles a trader uses to anticipate the price movement in any market. In other words, a candlestick chart is a technical tool that gives traders a complete visual representation of how the price has moved over a given period.

Candlestick is a crucial price action tool that shows detailed information about the price, including the open, close, high, and low for a particular time frame. Still, it’s confused with when it’s compared side-by-side with a bar chart.

Here’s an example of the bar chart and candlestick chart:

The bar chart and the candlestick chart may look similar, but there’s indeed a difference. In a candlestick chart, the relationship between open and close is represented by the color of the body. In contrast, the bars have a single vertical line and two horizontal lines on either side of the vertical line.

 forms on a price chart, crypto traders can anticipate 

 or reversals. Therefore, a single candlestick and a group of candlesticks are essential to define a 

Firstly, let’s have a look at a visual look of a candlestick:

 where the price is opened one direction and closed to the opposite direction. 

The main body is the broader part of the candlestick that shows the opening and closing price. In a bullish candle, the opening price should be below the closing price. That indicates the price has risen over that period. 

On the other hand, the opening price should be above the closing price in a bearish candle. That shows the price has decreased during that period.

The size of the body represents the market pressure. An extended length indicates a strong movement, while a short length represents a minor price movement.

Now, let’s learn how to read the red and green candlesticks in any crypto pair.

 color or a buying pressure candle represents a 

. 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 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. Similar to the wick below, the candlestick body represents the lowest level of that specific timeframe.

Opening High and Closing Low Price (OHCL) Explained

The OHCL is a candlestick chart type that shows the open, high, close, and low prices for a particular time. 

The open price is the price level when the previous candle closes, and the current candle appears. Later on, the price will move up or down and will create a high or low. Lastly, when the candle closes at a price, it will point to a closing price. The future price of a candlestick stock depends on how these levels (OHCL) appeared. 

Let’s say the Bitcoin price moved above the $50,000 level on a particular day and made a high above the $50,000 crucial level. However, the price moved lower and closed the daily candle below the $50,000 level by forming Doji or Pinbar.

It means buyers tried to take the price above the $50,000 level but failed; thus, sellers took control over the price. It is a clear indication that the price failed to get stable above the $50,000 level, and it might be a good idea to sell now.

Each candlestick form patterns that traders can use to recognize major 

A great way to start is first to identify the candlestick patterns. Here’s what you need to know.

When Does a Candlestick Pattern Start to Show?

The candlestick pattern is a combination of some candlesticks representing a story about buyers and sellers for a particular time. However, the price movement in the financial market depends on supply and demand and traders’ emotions. As soon as the price reaches a resistance or support level, 

Therefore, when the price moves to a significant price zone, the candlestick pattern will become very important. 

For example, the high psychological level of $60,000 has become a strong resistance level that attracted many buyers and sellers.

See the chart below to learn how to read candlestick chart:

Here Bitcoin made an indecision candle near the significant round number $60,000, indicating a starting point of the pullback.

The price fell with an impulsive bearish pressure towards the downside.

So, what will you do if you find an appropriate candlestick pattern at a critical support or resistance level?

You should closely track the buyers’ and sellers’ activity and enter a trade once the direction is set. The best solution is to wait for an appropriate candlestick pattern at support or resistance levels and enter the trade after a rejection.

Understanding Candlestick Chart Patterns and Trends

The trends usually are represented by the ups and downs of an asset’s price on the candlestick chart. The high and low points of several small trends are grouped to form a more significant trend. 

It appears when a chart has new low points higher than the previous low while the new high points are higher than previous high points. During an upward trend, traders are confident to trade, and the market is generally bullish. 

As opposed to upward trends, a downward trend refers to a chart with new high points lower than previous high points and new low points also lower than previous low points. 

The prices in this trend do not go in one direction consistently. It switches between high and low, with the high and low points being relatively close to one another.

Candlesticks charts are like a book where a trader can easily read the price from left to right.

While it’s not technical to read it but there is a learning curve to analyzing the chart.

Here is how to read the candlestick chart:

There are no specific rules for this, but it is preferred to start reading candlesticks from the far left until you see the first candlestick. 

For example, if you are trading in a 15 minutes timeframe, you can see the last month’s data, but not before that.

You should focus on the speed of the trend and candlesticks formation at the end of the trend.

Let’s have a look at a practical example for a better understanding:

Here we can see the daily chart of Bitcoin, where the price started to move higher with a 

. Later on, the trend becomes corrective and moves lower. After that, the price forms another bullish engulfing, and the price moved higher and formed a new high.

Still, the best way to interpret the data of a candlestick chart is by using technical tools like a (

To read the candlestick chart accurately, you should: 

 located at key support and resistance level

Timeframes are an essential tool for traders. Although candlesticks patterns in all timeframes come from the price movement, there is technically no difference in higher or lower timeframes.

However, higher time frames always provide a more accurate price direction than the lower timeframe. Therefore, if you intra-trade any cryptocurrencies, you should see the price direction daily or H4 candles. When the lower timeframe and higher time frames match the direction, you can find profitable trades.

We have learned that a Hammer is a reversal candlestick but does it mean to sell immediately as soon as you see a Hammer candlestick in the chart?

Candlestick patterns at a random place on your price chart do not provide highly accurate signals. However, a candlestick pattern within the trend and at a perfect location can provide high probability trades.

Therefore, you should always look out for the 

 in the chart. Moreover, it would help if you considered the market context and the overall environment to increase success odds.

We can see a Bullish Engulfing pattern at the $10,000 level of BTCUSD in the above image. However, after the Bullish Engulfing Bar, a Bullish Shooting Star appeared, and it failed. 

It’s because it is at a random place instead of a support or resistance zone. To add on, you should also consider:

The price chart sample above shows that ETHUSD the four different nature of the trend is marked. If you can match the context with the candlestick formation, you can easily define the possible price movement in any asset.

How to Place a Stop-loss and Take Profit on a Pattern?

 tool for crypto trading to limit your losses on an open position that makes an unfavorable move. The key advantage of using a stop-loss order is to help you cut out losses without having to monitor your asset daily. And without a stop-loss, you are practically risking your investments.

The ideal place for setting a stop-loss is below or above the candles low/high with some buffer.

For example, we can see a Hanging Man formed at a critical support level, indicating a potential bullish movement in the price. The 

 with some buffer, and the take profit would be near the resistance level.

There’s no denying that candlestick patterns plays a significant role in technical trading. A candlestick pattern is especially useful for traders to determine the possible price movement and market trends based on the past patterns. 

Of course, there is also a variety of candlestick patterns that signal bullish and bearish movements. But, what are the best candlesticks? 

How To Read Candlestick Charts In Crypto Trading Like a Pro

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