Are you planning to invest in cryptocurrencies? Learn to read candlestick charts that show your past performance
Cryptocurrency performance charts can help you make an informed investment decision.
- Candlestick chart requires training to decipher
- Each candle drawn on this chart has three parts
- The body can be red or green.
What is the candlestick chart?
The candlestick chart, also called a Japanese candlestick chart, can help us quickly determine possible price movements based on past patterns. Each candle represents the four important data: open and close in the body of the candle; high and low on the sail. To interpret the market situation in a day more quickly, if the closing price is higher than the opening price, the body is solid or is filled in red (positive); if the closing price is lower than the opening price, the body is empty or filled in green (negative).
One of the key processes of any trading activity is reading charts that show the price movement of commodities, stocks, or other assets over a specific period of time. They are a comprehensive tool for traders to decide their next move: whether to invest in an asset or stay away from it, whether the asset has been stable or volatile in the past. These charts even give an idea of whether the asset is likely to rebound, collapse, or remain where it is in the near future. There are several forms of graphics. One of them is a “candlestick” chart. It is widely used in cryptocurrency trading and all investors should know how to read it.
The candlestick chart requires training to decipher. There are candlestick patterns drawn on this chart form. Knowing the complex terms behind these patterns is the first step in making an informed decision when trading the speculative cryptocurrency market.
Each candle drawn in this painting has three parts: Body; Upper shadow; and lower shadow. The body can be red or green and a line (called a wick) at each end indicates the shadows. The time period a candlestick chart represents can vary widely for each chart.
Each Candle Contains Four Data Points:
- 1) Open – The value of an asset when the trade is opened.
- 2) High – The highest traded price of the asset.
- 3) Low – The lowest traded price of the asset.
- 4) Close – The value of the asset when the trade is closed.
Green candles: it means that the price of an asset has risen, so the opening price is at the bottom and the closing price is at the top. Red candles mean that the price of an asset has fallen during the specified period, so the candle is inverted: the open is up and the close is down.
Body of a candle: indicates the opening and closing prices during the specific trading period. It helps traders to see the price range of the asset during that period. For example, if a candlestick chart for a month shows more consecutive red candles, it means that the price has been falling.
Also, candles with short bodies signify little price movement. On the other hand, long-bodied candles mean strong buying or selling and a lot of price movement.
Shadows (wicks) – These are vertical lines that show the lows and highs of the traded price. If the wick above a red candle is short, this means that the trade was opened near the high of the day. Similarly, if the wick on a green candle is short, it means that the stock closed near the high of the day.
Major Trading Patterns
Over a period of time, everyone develops a specific way of reading these graphs. But most people like to understand how to quickly recognize patterns. This is because patterns show the price direction, trends, and general momentum of an asset. In simple terms, the patterns provide a fair understanding of whether the market is bullish or bearish.
Hammer – A hammer (a short body with a long lower wick located in a downtrend on a chart) and an inverted hammer generally represent a bull market. There are a few others like Morning Star and Bullish Engulfing that also suggest a bull market.
Shooting Star and Hanging Man – A Shooting Star (a short body with a long upper wick) and a Hanging Man (similar to the Hammer pattern but located in an uptrend on a chart) signify a bear market. Some other patterns that denote a bear market are Evening Star and Bearish Engulfing.
- Planning to invest in cryptocurrencies? Learn to read candlestick charts that show your past performance
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